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Respondent determined that Contract 2038 did not qualify for CCM
reporting for Federal income tax purposes.
Contract 2038 is not a long term contract that would qualify
for CCM reporting of income and deductions for Federal income tax
purposes. The relationship between Contract 2038 and Contract
2034 does not qualify Contract 2038 income and deductions to be
reported under CCM.
OPINION
I. Should Contract 2034 Be Severed Into Four Separate Contracts
for Reporting GENDYN’s Profit From the Production of Aircraft?
The primary controversy requires us to interpret certain
completed contract regulations under section 4514 and to find
facts concerning GENDYN’s production of F-16 fighter aircraft.5
The parties' disagreement arises from respondent's determination
that Contract 2034, covering 4 program years, should be severed
4 Section references, unless otherwise noted, are to the
Internal Revenue Code as amended and in effect for the years
under consideration. Rule references are to this Court's Rules
of Practice and Procedure.
5 The questions raised in this opinion have been largely
obviated by the enactment of sec. 460, added by the Tax Reform
Act of 1986, Pub. L. 99-514, sec. 804(a), 100 Stat. 2085, 2358,
which, with limited exceptions, prohibits the use of the
completed contract method for the Federal tax reporting of income
and deductions of long-term contracts. Under sec. 460, most
taxpayers, especially those as large as GENDYN, are limited to
certain prescribed forms of the percentage of completion method
for long-term contracts entered into after Feb. 28, 1986. The
contracts under consideration were entered into prior to the
effective date of sec. 460. We note that GENDYN used the
percentage completion method for its financial reporting of long-
term contracts for the periods under consideration.
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