Taxable Year | |||
2001 | 2002 | 2003 | |
(A) Cumulative incurred costs | $200,000 | $600,000 | $750,000 |
(B) Estimated total costs | 800,000 | 900,000 | 750,000 |
(C) Completion factor: (A) ÷ (B) | 25.00% | 66.67% | 100.00% |
(D) Total contract price | 1,000,000 | 1,000,000 | 1,000,000 |
(E) Cumulative gross receipts: (C) * (D) | 250,000 | 666,667 | 1,000,000 |
(F) Cumulative gross receipts (prior year) | (0) | (250,000) | (666,667) |
(G) Current-year gross receipts | 250,000 | 416,667 | 333,333 |
(H) Cumulative incurred costs | 200,000 | 600,000 | 750,000 |
(I) Cumulative incurred costs (prior year) | (0) | (200,000) | (600,000) |
(J) Current-year costs | 200,000 | 400,000 | 150,000 |
(K) Gross income: (G) - (J) | $50,000 | $16,667 | $183,333 |
Taxable Year | |||
2001 | 2002 | 2003 | |
(A) Cumulative incurred costs | $200,000 | $300,000 | $700,000 |
(B) Estimated total costs | 600,000 | 400,000 | 700,000 |
(C) Completion factor: (A) ÷ (B) | 33.33% | 75.00% | 100.00% |
(D) Target price | $1,000,000 | $1,000,000 | $1,000,000 |
(E) Estimated total costs | 600,000 | 400,000 | 700,000 |
(F) Target costs | 600,000 | 600,000 | 600,000 |
(G) Cost (underrun)/overrun: (E) - (F) | 0 | (200,000) | 100,000 |
(H) Adjustment rate | 70% | 70% | 70% |
(I) Target price adjustment | 0 | (140,000) | 70,000 |
(J) Total contract price: (D) + (I) | $1,000,000 | $860,000 | $1,070,000 |
(K) Cumulative gross receipts: (C) * (J) | $333,333 | $645,000 | $1,070,000 |
(L) Cumulative gross receipts (prior year): | (0) | (333,333) | (645,000) |
(M) Current-year gross receipts | 333,333 | 311,667 | 425,000 |
(N) Cumulative incurred costs | 200,000 | 300,000 | 700,000 |
(O) Cumulative incurred costs (prior year): | (0) | (200,000) | (300,000) |
(P) Current-year costs | 200,000 | 100,000 | 400,000 |
(Q) Gross income: (M) - (P) | $133,333 | $211,667 | $25,000 |
Taxable Year | |||
2001 | 2002 | 2003 | |
(A) Cumulative incurred costs | $40,000 | $300,000 | $600,000 |
(B) Estimated total costs | 600,000 | 600,000 | 600,000 |
(C) Completion factor (A) ÷ (B) | 6.67% | 50.00% | 100.00% |
(D) Total contract price | 1,000,000 | 1,000,000 | 1,000,000 |
(E) Cumulative gross receipts: (C) * (D)* | 0 | 500,000 | 1,000,000 |
(F) Cumulative gross receipts (prior year): | (0) | (0) | (500,000) |
(G) Current-year gross receipts | 0 | 500,000 | 500,000 |
(H) Cumulative incurred costs | 0 | 300,000 | 600,000 |
(I) Cumulative incurred costs (prior year): | (0) | (0) | (300,000) |
(J) Current-year costs | 0 | 300,000 | 300,000 |
(K) Gross income: (G) - (J) | $0 | $200,000 | $200,000 |
*Unless (C) [LESS THAN]10 percent.
Example. Corporations P, S, and B file consolidated returns on a calendar-year basis. In 1996, B enters into a long-term contract with X, a nonmember, to manufacture 5 airplanes for $500 million, with delivery scheduled for 1999. Section 460 requires B to determine the gross income from its contract with X under the PCM. S enters into a contract with B to manufacture for $50 million the engines that B will install on X's airplanes. Section 460 requires S to determine the gross income from its contract with B under the PCM. S estimates that it will incur $40 million of total contract costs during 1997 and 1998 to manufacture the engines. S incurs $10 million of contract costs in 1997 and $30 million in 1998. Under paragraph (j) of this section, S determines its gross income from the long-term contract under the PCM rather than taking its income or loss into account under section 267(f) or § 1.1502-13 . Thus, S includes $12.5 million of gross receipts and $10 million of contract costs in gross income in 1997 and includes $37.5 million of gross receipts and $30 million of contract costs in gross income in 1998.
26 C.F.R. §1.460-4