General Dynamics Corporation and Subsidiaries - Page 4

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          produced and/or provided other miscellaneous goods and services.            
          GENDYN was also involved in other business activities, including            
          the design, engineering, and manufacture of commercial aircraft;            
          the mining of coal, lime, limestone, sand, and gravel; the                  
          manufacture and sale of ready-mix concrete, concrete pipe, and              
          other building products; production of commercial aircraft                  
          subassemblies; the design, engineering, and manufacture of                  
          commercial space launch vehicles; and shipbuilding.                         
               GENDYN, for the taxable years 1977 through 1986 (concerning            
          the contracts under consideration), used the completed contract             
          method (CCM) for reporting Federal income tax and the percentage            
          of completion method for its financial accounting purposes.  In             
          1976, GENDYN applied to respondent for permission to change its             
          accounting method to the completed contract method for reporting            
          income from its long-term contracts for all of its divisions.               
          GENDYN advised respondent that CCM would not be used for                    
          financial reporting purposes.  In 1977, respondent approved                 
          GENDYN's use of CCM for all its long-term contracts.                        
               During 1980, an Internal Revenue Service examining agent               
          challenged GENDYN's use of CCM.  The agent submitted a request              
          for a technical advice memorandum to respondent's National                  
          Office.  The agent argued, inter alia, that GENDYN's use of CCM             
          resulted in the unreasonable deferral of income.  In a technical            
          advice memorandum released in 1983, the National Office rejected            

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