The advantage of the completed-contract method
is that it normally achieves the maximum deferral of taxes.
The Service says courts erred in decisions on the placed-in-service date of a retail store, the use of the completed-contract method
, and an S corporation's payment of an employee's personal expenses.
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.
The completed-contract method
is used when reasonable estimates cannot be made as to costs, profits, or time of completion; when the contract is not clear; collection is doubtful; or when the company may not be able to satisfy the contract.
There are two methods to recognize revenue on long-term construction-type contracts: the percentage-of-completion method and the completed-contract method
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.
Does the supplier do enough business to qualify for the completed-contract method
of accounting for tax purposes?
Defer all revenue until completion of installation as per the completed-contract method
from completed-contract method
to percentage-of-completion method.