General Dynamics Corporation and Subsidiaries - Page 2

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                       MEMORANDUM FINDINGS OF FACT AND OPINION                        
               GERBER, Judge:  General Dynamics Corp. and its consolidated            
          subsidiaries (GENDYN) (docket No. 19202-94) and its foreign sales           
          corporation, General Dynamics Foreign Sales Corp.                           
          (GENDYN/FOREIGN) (docket No. 19203-94), are the petitioners in              
          these consolidated cases.  Respondent determined corporate income           
          tax deficiencies for GENDYN in the amounts of $26,118,976 and               
          $291,218,973 for its 1985 and 1986 taxable years, respectively.             
          With respect to GENDYN/FOREIGN, respondent determined a $586,533            
          corporate income tax deficiency for its 1986 taxable year.  These           
          cases are consolidated and related for purposes of briefing and             
          opinion, and the issues have been divided into two generalized              
          categories:  domestic and foreign.  This opinion addresses the              
          domestic issues involving GENDYN.1                                          
               The issues for our consideration here pertain to GENDYN’s              
          accounting methods for Federal income tax purposes.  With respect           
          to Government contract numbered F33657-82-C-2034 (Contract 2034             
          or 2034), the parties agree that GENDYN was entitled to use the             
          completed contract method.2  GENDYN reported the income and                 
          related deductions based on the premise that its Government                 

               1  See General Dynamics Corp. & Subs. v. Commissioner, 108             
          T.C. 107 (1997), for foreign issues.                                        
               2  For purposes of this case, references to the Government             
          are to the Federal Government as a party that contracted with               
          petitioners.  We do not use the term “Government” to refer to               

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