31, 2013, the following would have yielded AMT tax adjustments had G not met the exemption for 2013: Excess MACRS depreciation over AMT depreciation--$4,000; adjustment for income on long-term contracts recognized on
completed-contract method rather than percentage-of-completion method--$15,000.
Although the
completed-contract method allows you to defer taxes on your income, it prevents you from deducting losses on unprofitable jobs until the contract ends.
Under the
Completed-Contract Method, revenues and expenses are recognized when services have been performed and the projects have been completed.
Does the supplier do enough business to qualify for the
completed-contract method of accounting for tax purposes?
17) Since enactment in the Tax Reform Act of 1986, section 460 has been repeatedly amended to reduce and ultimately eliminate the deferral benefit of the
completed-contract method of accounting for long-term contracts.
The SEC staff has questioned whether McDermott's accounting for these projects using the percentage-of-completion method was appropriate, or if the
completed-contract method of accounting should have been used.
If a taxpayer meets the requirements of the exception, it may use the
completed-contract method of accounting for income recognition (Sec.
Any income item that was taken into account properly during the recognition period under the
completed-contract method is recognized as built-in gain to the extent it would have been included in gross income under the percentage-of-completion method before the first day of the recognition period.
Smith added that since Newcor now uses the
completed-contract method of accounting to report financial results, "the third quarter was the principle beneficiary of the revenues and earnings associated with this important business.
from
completed-contract method to percentage-of-completion method.
Contractors who use the cash, accrual or
completed-contract method must use the percentage-of-completion method for AMT purposes, under Sec.
This is consistent with the general repeal of the
completed-contract method of accounting.