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Respondent contends that the income from the disputed claims
should be included in the total contract price as required by
section 1.460-6(c)(2)(vi), Income Tax Regs. Petitioner contends
that disputed claims should, as a matter of law, be reported in
accord with the all events test and included in income in the
taxable year in which income from the disputed claim is
ultimately awarded. Petitioner contends that, to the extent the
all events test has not been employed, section 1.460-6(c)(2)(vi),
Income Tax Regs., is invalid.
Discussion
Section 460 contains special rules for long-term contracts
and generally requires the use of the percentage of completion
method for tax reporting. To the extent that a taxpayer
underestimates the percentage completed or the amount includable
in income, section 460(b) provides for “look-back” interest to be
paid by the taxpayer.2
2 Sec. 460(b) provides:
(2) Look-back method.--The interest computed under the
look-back method of this paragraph shall be determined
by--
(A) first allocating income under the
contract among taxable years before the year in
which the contract is completed on the basis of
the actual contract price and costs instead of the
estimated contract price and costs,
(B) second, determining (solely for purposes
of computing such interest) the overpayment or
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