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contract rule: (1) A nuclear fuel transfer system pursuant to a
contract with Stearns Catalytic Corp. (Stearns Catalytic); (2)
transmission equipment constructed pursuant to the interchange
contract with the Southern companies; (3) the LMS equipment
acquired under the A.B. Chance contract; and (4) equipment
purchased for the SJRPP pursuant to the JEA contract.
There are few cases that have interpreted the binding
contract rule. However, the conference report sheds light on
Congress’s intent in granting transition relief to taxpayers:
The conference agreement does not apply to
property that is constructed, reconstructed, or
acquired by a taxpayer pursuant to a written contract
that was binding as of * * * (December 31, 1985, for
investment tax credits), and at all times thereafter.
* * *
The general binding contract rule applies only to
contracts in which the construction, reconstruction,
erection, or acquisition of property is itself the
subject matter of the contract.
A contract is binding only if it is enforceable
under State law against the taxpayer, and does not
limit damages to a specified amount (e.g., by use of a
liquidated damages provisions). A contractual
provision that limits damages to an amount equal to at
least five percent of the total contract price is not
treated as limiting damages.
* * * * * * *
A binding contract to acquire a component part of
a larger property will not be treated as a binding
contract to acquire the larger property under the
general rule for binding contracts. * * *
* * * * * * *
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