- 38 -
For the purpose of clearly reflecting income (e.g. to
prevent the unreasonable deferral of recognition of
income or the premature recognition of loss), it may be
necessary in some instances for the Commissioner either
to treat one agreement as several contracts or to treat
several agreements as one contract. [Sec. 1.451-
3(e)(1)(i)(A), Income Tax Regs.]
The regulation continues by providing criteria for
severance or aggregation of contracts, as follows:
Whether an agreement should be so severed or several
agreements so aggregated will depend on all the facts
and circumstances. Such facts and circumstances may
include whether there is separate delivery or separate
acceptance of units representing a portion of the
subject matter of the contract, whether such units are
independently priced, whether there is no business
purpose for one agreement rather than several
agreements or several agreements rather than one
10(...continued)
more than one contract, and
(B) two or more agreements will be
treated as one contract, and
(3) properly allocate all costs which
directly benefit, or are incurred by reason of,
the extended period long-term contract activities
of the taxpayer. [96 Stat. 493.]
The TEFRA legislative history contains the following comment:
Congress believed that the prior rules relating to the
completed contract method of accounting needed to be
changed because the income of some taxpayers using that
method of accounting was not being clearly reflected.
* * * completion of contracts had been deferred for tax
purposes by treating certain agreements as a single
contract for several units rather than several
contracts for single units, even though each unit was
delivered or accepted separately and had been
separately and independently priced. Congress
believed, therefore, that Treasury should amend its
regulations to prevent this inappropriate deferral of
income. [Staff of Joint Comm. on Taxation, General
Explanation of the Revenue Provisions of the Tax Equity
and Fiscal Responsibility Act of 1982 at 150 (J. Comm.
Print 1982).]
Page: Previous 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 NextLast modified: May 25, 2011