Section 1.460-0 - Outline of regulations under section 460This section lists the paragraphs contained in § 1.460-1 through § 1.460-6 .
§ 1.460-1 Long-term contracts. (a) Overview. (2) Exceptions to required use of PCM. (i) Exempt construction contract.(ii) Qualified ship or residential construction contract.(b) Terms. (2) Contract for the manufacture, building, installation, or construction of property.(ii) De minimis construction activities.(3) Allocable contract costs.(7) Contract commencement date.(9) Independent research and development expenses.(10) Long-term contract methods of accounting.(c) Entering into and completing long-term contracts.(2) Date contract entered into. (ii) Options and change orders.(3) Date contract completed. (iv) Final completion and acceptance. (B) Contingent compensation.(C) Assembly or installation.(d) Allocation among activities. (2) Non-long-term contract activity.(e) Severing and aggregating contracts.(2) Facts and circumstances.(ii) Separate delivery or acceptance.(iii) Reasonable businessperson.(3) Exceptions.(ii) Options and change orders.(4) Statement with return.(f) Classifying contracts.(3) Method of accounting.(4) Use of estimates. (i) Estimating length of contract.(ii) Estimating allocable contract costs.(g) Special rules for activities benefitting long-term contracts of a related party.(1) Related party use of PCM. (ii) Exception for components and subassemblies.(2) Total contract price.(h) Effective date.(2) Change in method of accounting.(3) Changes made by Tax Cuts and Jobs Act (Pub. L. 115-97 ).§ 1.460-2 Long-term manufacturing contracts. (b) Unique. (2) Safe harbors. (i) Short production period.(c) Normal time to complete. (2) Production by related parties.(d) Qualified ship contracts.§ 1.460-3 Long-term construction contracts.(b) Exempt construction contracts. (2) Home construction contract. (ii) Townhouses and rowhouses.(iii) Common improvements.(3) Gross receipts test. (ii) Application of gross receipts test (B) Gross receipts of individuals, etc.(C) Partners and S corporation shareholders(iii) Method of accounting.(c) Residential construction contracts.§ 1.460-4 Methods of accounting for long-term contracts. (b) Percentage-of-completion method. (3) Post-completion-year income.(4) Total contract price. (i) In general. (B) Contingent compensation.(C) Non-long-term contract activities.(ii) Estimating total contract price.(5) Completion factor. (i) Allocable contract costs.(ii) Cumulative allocable contract costs.(iii) Estimating total allocable contract costs.(iv) Pre-contracting-year costs.(v) Post-completion-year costs.(c) Exempt contract methods. (2) Exempt-contract percentage-of-completion method.(ii) Determination of work performed.(d) Completed-contract method. (2) Post-completion-year income and costs.(3) Gross contract price.(4) Contracts with disputed claims.(ii) Taxpayer assured of profit or loss.(iii) Taxpayer unable to determine profit or loss.(e) Percentage-of-completion/capitalized-cost method.(f) Alternative minimum taxable income.(2) Election to use regular completion factors.(g) Method of accounting.(j) Consolidated groups and controlled groups.(1) Intercompany transactions. (ii) Definitions and nomenclature.(4) Consent to change method of accounting.(k) Mid-contract change in taxpayer.(2) Constructive completion transactions.(iv) Special rules relating to distributions of certain contracts by a partnership.(E) Section 751. (3) Step-in-the-shoes transactions. (ii) Old taxpayer. (B) Gain realized on the transaction.(iii) New taxpayer.(A) Method of accounting.(iv) Special rules related to certain corporate and partnership transactions.(A) Old taxpayer-basis adjustment.(2) Basis adjustment in excess of stock or partnership interest basis.(3) Subsequent dispositions of certain contracts.(B) New taxpayer.(1) Contract price adjustment.(C) Definition of old taxpayer and new taxpayer for certain partnership transactions.(D) Exceptions to step-in-the-shoes rules for S corporations.(v) Special rules relating to certain partnership transactions.(A) Section 704(c). (1) Contributions of contracts.(2) Revaluations of partnership property.(B) Basis adjustments under sections 743(b) and 734(b).(D) Exceptions to step-in-the-shoes rules.§ 1.460-5 Cost allocation rules. (b) Cost allocation method for contracts subject to PCM.(2) Special rules. (i) Direct material costs.(ii) Components and subassemblies.(iii) Simplified production methods.(iv) Costs identified under cost-plus long-term contracts and federal long-term contracts.(v) Interest. (C) Application of section 263A(f).(vi) Research and experimental expenses.(vii) Service costs. (A) Simplified service cost method. (C) Limitation on other reasonable cost allocation methods.(c) Simplified cost-to-cost method for contracts subject to the PCM.(d) Cost allocation rules for exempt construction contracts reported using CCM. (2) Indirect costs. (i) Indirect costs allocable to exempt construction contracts.(ii) Indirect costs not allocable to exempt construction contracts.(e) Cost allocation rules for contracts subject to the PCCM.(f) Special rules applicable to costs allocated under this section. (2) Costs incurred for non-long-term contract activities.(g) Method of accounting.§ 1.460-6 Look-back method.(b) Scope of look-back method. (2) Exceptions from section 460.(3) De minimis exception.(4) Alternative minimum tax.(c) Operation of the look-back method. (1) Overview. (ii) Post-completion revenue and expenses. (C) Discounting of contract price and contract cost adjustments subsequent to completion; election not to discount. (2) Election not to discount.(3) Year-end discounting convention.(D) Revenue acceleration rule.(2) Look-back Step One. (i) Hypothetical reallocation of income among prior tax years.(ii) Treatment of estimated future costs in year of completion.(iii) Interim reestimates not considered.(iv) Tax years in which income is affected.(v) Costs incurred prior to contract execution; 10-percent method. (vi) Amount treated as contract price. (3) Look-back Step Two: Computation of hypothetical overpayment or underpayment of tax. (ii) Redetermination of tax liability.(iii) Hypothetical underpayment or overpayment.(iv) Cumulative determination of tax liability.(v) Years affected by look-back only.(vi) Definition of tax liability.(4) Look-back Step Three: Calculation of interest on underpayment or overpayment. (ii) Changes in the amount of a loss or credit carryback or carryover.(iii) Changes in the amount of tax liability that generated a subsequent refund.(d) Simplified marginal impact method. (2) Operation. (ii) Applicable tax rate.(iii) Overpayment ceiling.(4) Application. (i) Required use by certain pass-through entities.(D) Domestic contracts. (2) Portion of contract income sourced.(E) Application to foreign contracts.(ii) Elective use. (B) Election requirements.(C) Consolidated group consistency rule.(e) Delayed reapplication method. (2) Time and manner of making election.(f) Look-back reporting. (2) Treatment of interest on return. (ii) Timing of look-back interest.(3) Statutes of limitations and compounding of interest on look-back interest.(g) Mid-contract change in taxpayer. (2) Constructive completion transactions.(3) Step-in-the-shoes transactions.(ii) Application of look-back method to pre-transaction period.(C) Interest accrual period.(D) Information old taxpayer must provide. (2) Special rules for certain pass-through entity transactions.(iii) Application of look-back method to post-transaction years.(iv) S corporation elections.(h) Examples. (4) Post-completion adjustments.(5) Alternative minimum tax.(7) Net operating losses.(8) Alternative minimum tax credit.(j) Election not to apply look-back method in de minimis cases.T.D. 9315, 55 FR 41670, Oct. 15, 1990, as amended by T.D. 8597, 60 FR 36683, July 18, 1995; T.D. 8756, 63 FR 1918, Jan. 13, 1998; T.D. 8775, 63 FR 36181, July 2, 1998; T.D. 8929, 66 FR 2224 , Jan. 11, 2001; T.D. 8995, 67 FR 34605 , May 15, 2002; T.D. 9137, 69 FR 42553 , July 16, 2004; T.D. 9942, 86 FR 272 , Jan. 5, 2021; 86 FR 32186 , June 17, 2021 T.D. 9942, 86 FR 272, 1/5/2021; 86 FR 32186, 6/17/2021