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"change order"), the supplying of such additional items
generally results in the agreement being changed into
several agreements. * * *
These regulations also include several examples that
illustrate the regulatory language. Examples (2), (3), and (6)
of section 1.451-3(e)(2), Income Tax Regs., are of particular
relevance to this case.
In Sierracin Corp. v. Commissioner, 90 T.C. at 369, we
emphasized that the independent pricing factor should, among the
various facts and circumstances, be given “special emphasis”.
Example (2) illustrates the independent pricing factor for
purposes of aggregating two separate contracts and involves a
shipbuilder on CCM who entered into two agreements at about the
same time to construct two submarines of the same class. The two
agreements were the product of a single negotiation. It was
anticipated that, because the shipbuilder had never constructed
this class of submarine before, the costs incurred in
constructing the first submarine would be substantially greater
than the costs incurred in constructing the second submarine,
which was to be delivered 1 year after the first submarine. It
was pointed out in Example (2) that
If the agreements are treated as separate contracts, it
is estimated that the first contract could result in
little or no gain, while the second contract would
result in substantial profits. * * *
It is unlikely that the shipbuilder would have entered into the
contract to construct the first submarine for the price specified
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