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Under the completed contract method, the entire gross
contract price was included in income in the taxable year in
which the contract was finally completed and accepted. All costs
properly allocated to a long-term contract were deducted in the
year of completion. See sec. 1.451-3(d), Income Tax Regs.
Regulations under the completed contract method provided that any
disputed item of income which was properly allocable to a long-
term contract and which was not included in gross income in a
prior taxable year should be included in gross income in the
taxable year in which any such dispute is resolved. See sec.
1.451-3(d)(3), Income Tax Regs.
Section 460, enacted in 1986, as applicable to long-term
contracts entered into after February 28, 1986, required
taxpayers to compute income under either the “percentage of
completion capitalized cost method” or the percentage of
completion method. Under the percentage of completion
capitalized cost method, taxpayers were required to report 40
percent of the contract items under the percentage of completion
method of accounting and were permitted to report the remaining
60 percent of the contract items under their normal method of
accounting. The proportion of contract items required to be
reported under the percentage of completion method was
subsequently increased several times. Ultimately, by the
enactment of the Omnibus Budget Reconciliation Act of 1989, Pub.
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Last modified: May 25, 2011