Construction Industry - Audit Technique Guide - Uncle Fed's Tax ...

Chapter 4: Large Construction ContractorsIntroduction........................................................................................ 4-1Methods of Accounting, Contracts subject to IRC Section 460 ........ 4-1Cost-to-Cost Method.......................................................................... 4-1Allocable Contract Costs ................................................................... 4-2Impact of Cost Allocation on the Percentage of CompletionComputation .......................................................................................4-4Cost-Plus Contracts and Federal Long-Term Contracts .................... 4-6Simplified Cost-to-Cost Method........................................................ 4-6Percentage-of-Completion (10 Percent Method)............................... 4-7Percentage-of-Completion/Capitalized-Cost Method (PCCM)......... 4-7Total Estimated Contract Price and Claim Income............................ 4-8Additional Considerations for PCM .................................................. 4-9Terminated Contract: Reversal of Income......................................... 4-10Chapter 5: Look-Back Interest - New ChapterIntroduction........................................................................................ 5-1Look-Back is Hypothetical ................................................................ 5-1Scope of Look-Back Method............................................................. 5-2Exceptions from the Application of Look-Back................................ 5-3Election Not to Apply Look-Back ..................................................... 5-4Computation of Look-Back ............................................................... 5-5Step 1, Hypothetically Reapply the PCM to all Long-Term Contracts..... 5-5Step 2, Hypothetical Overpayment or Underpayment of Tax ................. 5-7Step 3, Interest on Underpayment or Overpayment of Tax..................... 5-9