General Dynamics Corporation and Subsidiaries - Page 31

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          completed contract method.  Therefore, petitioners contend that             
          requiring them to account for the prior year period costs in the            
          year of contract completion to compute CTI is inconsistent with             
          the principles of annual accounting.                                        
               Under the principles of annual accounting, a transaction               
          must be accounted for under the taxpayer's method of accounting             
          on the basis of the facts in the year the transaction occurs.               
          Security Flour Mills Co. v. Commissioner, 321 U.S. 281 (1944);              
          Burnet v. Sanford & Brooks Co., 282 U.S. 359 (1931); Landreth v.            
          Commissioner, 859 F.2d 643 (9th Cir. 1988), affg. in part, revg.            
          in part, and remanding T.C. Memo. 1985-413.  Section 461(a)                 
          requires that a deduction be taken in the taxable year that is              
          proper under the taxpayer's method of accounting.                           
               The completed contract method requires income and deductions           
          from long-term contracts to be reported in the year in which the            
          contracts are completed.  Sec. 1.451-3(d)(1), Income Tax Regs.              
          However, section 1.451-3(d)(5)(iii), Income Tax Regs., provides a           
          variation or exception to the requirement that deductions be                
          deferred.  A current deduction is allowed, at the taxpayer's                
          election, for period costs.  Texas Instruments Inc. v.                      
          Commissioner, T.C. Memo. 1992-306; sec. 1.451-3(d)(5)(iii),                 
          Income Tax Regs.  Period costs include marketing and selling                
          expenses, distribution expenses, general and administrative                 
          expenses attributable to the performance of services that benefit           
          the taxpayer's activities as a whole, casualty losses, certain              




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