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contains the further caveat that costs properly accounted for are
not otherwise to be allocated in accord with the section formula.
The regulations and other authority cited by petitioner in
support of treating Contract 2038 as part of Contract 2034 for
CCM reporting are directed at specific income, expenses and/or
costs which are incidental or inconsequential to a long-term
contract. Although the services performed under Contract 2038
were necessary for the performance of Contract 2034, respondent
did not err by disallowing petitioner’s approach of treating
Contract 2038 as part of a long-term contract for income tax
reporting purposes. Petitioner must fail here because Contract
2038 is a separate and substantial agreement for which a separate
accounting is required. Contract 2038, as a separate contract,
is only partially related to Contract 2034. Petitioner reports
its income for Federal tax purposes under differing methods of
accounting, depending on the type of contract it is performing.
In that regard, Contract 2038 is not a long-term contract and
does not separately qualify for the completed contract method of
tax accounting. As noted above, the income and expenses
attributable to services under Contract 2038 are the substance of
a separate and substantial contract for services, separate and
apart from Contract 2034, and should not be treated as incidental
or inconsequential to Contract 2034. Contract 2038 is a
separately reportable contract and does not merely constitute
indirect costs and expenses attributable to a long-term contract.
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