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contract year would not be complete until the Federal income tax
reporting for the 1984 tax year. In part, respondent’s theory
relies on any right(s) the Government may have had to cancel. In
that regard, the Government no longer possessed an ability to
cancel for lack of funding when petitioner filed its return for
1984, the first year in which the decision to sever would have
had any consequence to petitioner’s tax returns.
4. Separate Delivery and Acceptance
Respondent also argues that the aircraft were delivered by
program year and that each aircraft was separately delivered and
accepted. The regulations provide that separate delivery or
separate acceptance of portions of the subject matter of a
contract is a factor to be considered in deciding whether to
sever. Sec. 1.451-3(e)(1)(iii), Income Tax Regs. Separate
delivery or acceptance does not, by and of itself, require
severance. Example (4), section 1.451-3(e)(2), Income Tax Regs.,
does not require severing by separate delivery and acceptance
where there was a business reason for entering one contract
rather than several contracts. In Sierracin Corp. v.
Commissioner, 90 T.C. 341 (1988), we rejected severance of long-
term contracts even though there was separate delivery under the
contracts in question. From the perspective of Sierracin,
separate delivery was mitigated by the existence of
interdependent pricing.
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