- 57 -
the first 120 aircraft at the price implicit in Contract 2034
without a binding agreement to build the remaining 360.
The record here supports petitioner’s reasoning on this
point. Petitioner made several proposals for price, depending on
whether there would be multiyear or annual contracts. In
addition, the Air Force and petitioner stood to enjoy meaningful
cost savings under a multiyear contract as opposed to four annual
contracts.
The parties next debate the significance of Example (6), of
section 1.451-3(e)(2), Income Tax Regs., which presents an
aggregation situation. Respondent argues that the price terms
within Contract 2034 are almost on all fours with the facts set
forth in Example (6). Petitioner counters that the most
significant factor in Example (6) precluding aggregation of the
two aircraft contracts is that
In negotiating the price for the agreement, B and T
take into account the expected total cost of
manufacturing the 10 aircraft, the risks and the
opportunities associated with the agreement, and all
other factors that the parties consider relevant, in
such a manner that T would have entered into the
agreement with the terms agreed upon whether or not T
would actually enter into one or more additional
production agreements. * * * [Sec. 1.451-3(e)(2),
Example (6), Income Tax Regs.; emphasis added.]
We agree with petitioner’s analysis that neither the taxpayer in
the example nor petitioner would have accepted the price terms
agreed to in the multiyear contract as the basis for an annual
Page: Previous 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 NextLast modified: May 25, 2011