- 66 -
reported for 1987. Finally, Contract 2034 was fully funded
before the first severed annualized reporting period matured for
tax reporting purposes.
Accordingly, under the regulation by which the question of
severance and/or aggregation of long-term contracts is to be
judged, we find that respondent's determination that Contract
2034 must be severed was without sound basis in law and/or fact
and, thus, was arbitrary or capricious.
II. Should Contract 2038 Be Treated as a Long-term Contract and
Reported Under the Completed Contract Method?
Respondent determined that Contract 2038 is not a long-term
contract within the meaning of section 1.451-3(a), Income Tax
Regs. Petitioner does not contend that Contract 2038 qualified
on its own as a long-term contract. Nor does petitioner contend
that the services performed under Contract 2038 (the MSIP
contract) were of benefit solely to Contract 2034. Instead,
petitioner argues that the services performed under the MSIP
contract were incidental to and necessary for performance of
Contract 2034 and should be accounted for as part of Contract
2034 under petitioner’s completed contract method of accounting.
Even though Contract 2038 is substantial and completely separate
from Contract 2034, petitioner seeks to treat Contract 2038 as
though it consisted of incidental indirect costs attributable to
a long-term contract as described in various regulations cited
below.
Page: Previous 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 NextLast modified: May 25, 2011