- 36 -
If respondent's severance determination were sustained,
petitioner would not be required to report the income for the
1982, 1983, 1984, and 1985 contract years until the year the last
aircraft for the program was delivered in the 1984, 1985, 1986,
and 1987 tax years, respectively. Petitioner reported Contract
2034 as a single agreement for 480 aircraft. Reported in that
manner, the unsevered 1982 profit would be reported after 5
rather than 2 years, and the unsevered 1983 profit would be
reported after 4 rather than 2 years and so on until the 1985
year for which the profit would be reported after 2 years (1987),
irrespective of whether Contract 2034 had been severed. Although
CCM permits reporting of income and expenses beyond the usual
annual accounting period, it is respondent's contention that the
period of delay here is inherently too long to clearly reflect
income. There is no legal basis or factual predicate for such a
per se or ipso facto result.9
B. The Statute and Regulations Defining and Governing the
Use of CCM
9 As previously noted, in limiting the use of CCM, Congress
recognized that the use of that method permitted an extended
period of deferral by long-term contractors. For larger long-
term contractors like petitioner, Congress did not attempt to
place a limit on the number of accounting periods that could be
deferred. Instead, Congress generally prohibited the use of CCM.
For long-term contracts entered into after Feb. 28, 1986, smaller
contractors (those with average annual gross receipts of less
that $10 million) may use CCM for contracts expected to be
completed within 2 years. See sec. 460(e)(1). These
limitations, however, have no direct bearing on our evaluation of
whether petitioner’s approach was correct and/or whether
respondent has been arbitrary or capricious.
Page: Previous 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 NextLast modified: May 25, 2011