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Section 460 was enacted by the Tax Reform Act of 1986, Pub.
L. 99-514, sec. 804(a), 100 Stat. 2385. Prior to 1986, income
from long-term contracts could be accounted for under one of two
alternative methods: the percentage of completion method or the
completed contract method. Under the percentage of completion
method, income was recognized according to the percentage of the
contract completed during each taxable year. The determination
of the portion of the contract completed during the taxable year
could be made either by (1) comparing the costs incurred during
the year to the total estimated costs to be incurred under the
contract, or (2) comparing the work performed during the year
with the estimated total work to be performed. See sec. 1.451-
3(c)(2)(i) and (ii), Income Tax Regs.
2(...continued)
underpayment of tax for each taxable year referred
to in subparagraph (A) which would result solely
from the application of subparagraph (A), and
(C) then using the overpayment rate
established by section 6621, compounded daily, on
the overpayment or underpayment determined under
subparagraph (B).
For purposes of the preceding sentence, any amount
properly taken into account after completion of
the contract shall be taken into account by
discounting (using the Federal mid-term rate
determined under section 1274(d) as of the time is
so properly taken into account) such amount to its
value as of the completion of the contract. The
taxpayer may elect with respect to any contract to
have the preceding sentence not apply to such
contract.
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Last modified: May 25, 2011