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