Sec.

1463.1

1463.2

1463.3

1463.4

Introduction.

What constitutes interim prepayment of excessive profits.

Procedure for acceptance of interim prepayment of excessive profits.

Treatment of interim prepayment for Federal income tax purposes.

FORMS

1463.90 Letter agreement transmitting interim prepayment of excessive profits before close of fiscal year.

1463.91 Letter agreement providing for prepayment of excessive profits after close of fiscal year.

1463.92 Letter agreement for voluntary prepayment of excessive profits likely to be received or accrued.

AUTHORITY: Sections 1463.1 to 1463.92 issued under section 109, Pub. Law 9, 82d Cong. Interpret or apply section 105, Pub. Law 9, 82d Cong.

1463.1 Introduction.-Excessive profits are determined under the act only pursuant to a renegotiation proceeding commenced and conducted in the manner prescribed by the regulations in this subchapter. Profits refunded before renegotiation will be deemed to be excessive profits determined within the meaning of the act only if such refund is made in the manner prescribed in section 1463.3 as an interim prepayment of excessive profits to be determined by the Board in a subsequent renegotiation and only to the extent that the amount of such prepayment is determined in such renegotiation to constitute excessive profits within the meaning of the act. It is the purpose of this part to set forth: (a) The circumstances under which the Board will agree that such prepayments will be accepted as interim prepayments of excessive profits; and (b) the method by which such interim prepayments may be made. Reference is made to section 1460.12(b) (3) of this subchapter for a discussion of the effect of refunds made before renegotiation upon the statutory factor of risk.

1463.2 What constitutes interim prepay

ment of excessive profits.-(a) Repricing of specific contracts.-In any case in which a specific prime contract or subcontract is amended to reduce the price charged, no refund paid as a result of such amendment will be treated as a payment or prepayment of excessive profits.

(b) Voluntary refunds.-A prime contractor or subcontractor may wish to refund a portion of its profits to the Government before renegotiation without making any prior binding agreement or prior non-binding statement of policy to make such refunds. Such a refund will, subject to the conditions set forth in section 1463.3 be accepted as an interim prepayment of excessive profits.

(c) Voluntary refunds of excessive profits likely to be received or accrued.-A prime contractor or subcontractor may wish to enter into an agreement with the Board to pay a portion of its profits from renegotiable business to eliminate excessive profits likely to be received or accrued. Such prepayments will, subject to the conditions set forth in section 1463.3, be accepted as interim prepayments of excessive profits likely to be received or accrued.

1463.3 Procedure for acceptance of interim prepayment of excessive profits.-A refund made under the circumstances set forth in section 1463.2 (b) will be accepted subject to the following conditions:

(a) Each prepayment shall be made pursuant to a letter agreement in the form prescribed as follows:

(1) If the refund is made before the close of the fiscal year to which it relates, a letter agreement in the form set forth in section 1463.90 shall be used.

(2) If the refund is made after the close of the fiscal year to,which it relates, but before the Federal tax return for such year has been filed, a letter agreement in the form set forth in section 1463.90 shall be used, except that the word "ending" appearing in the first sentence of such form shall be changed to "ended".

(3) If the refund is made after the Federal tax return has been filed for the fiscal year to which the refund relates, a letter agreement in the form set forth in section 1463.91 shall be used. In this latter case, it will be necessary for the contractor to request a tax credit under section 1481 of the Internal Revenue Code.

(4) If the contractor desires to pay excessive profits likely to be received or accrued, it may enter into a letter agreement in the form set forth in section 1463.92, or in such other form as the Board and the contractor may agree upon.

(b) If the contractor who makes a prepayment is thereafter renegotiated for the particular fiscal year and excessive profits are determined, the prepayment will be included in the renegotiable receipts or accruals; excessive profits, if any, will be determined upon such basis, and the prepayment will be applied in elimination of the excessive profits so determined.

(c) If the contractor, for any reason, is not renegotiated for the particular fiscal year, the prepayment will not be refunded to the contractor, but such prepayment will not be deemed to be excessive profits determined within the meaning of the act.

(d) If the contractor is renegotiated for the particular fiscal year but if the amount of excessive profits determined is less than the prepayment, such prepayment will be applied in elimination of the excessive profits determined, but the excess of such prepayment over the amount of excessive profits determined will not be deemed to be excessive profits determined within the meaning of the act. However, such excess will not be refunded to the contractor.

1463.4 Treatment of interim prepayment for Federal income tax purposes.-Any prepayment, if made pursuant to the letter agreement set forth in section 1463.90 or section 1463.91 or section 1463.92, is intended to constitute an elimination of excessive profits within the meaning of section 1481 of the Internal Revenue Code, and is to be treated as a reduction of taxable income for the year to which the prepayment relates. This is true whether or not, under section 1463.3, the prepayment is ultimately deemed to be excessive profits determined within the meaning of the act.

This prepayment is made on the understanding (1) that such amount shall be deemed to be a payment in elimination of "excessive profits" within the meaning of such term as defined in section 1481 of the Internal Revenue Code; and (2) that such amount will not be included in income in the computation of taxable income for such fiscal year under the Internal Revenue Code and, accordingly, no tax credit is allowable against such amount. The undersigned represents that this payment is not made in satisfaction or discharge, in whole or in part, of any legally binding obligation heretofore existing.

It is agreed that acceptance of this prepayment does not constitute a commencement of renegotiation pursuant to the Renegotiation Act of 1951 and that, except as provided herein, renegotiation may be conducted in all respects as though this prepayment had not been made. It is further agreed that if renegotiation pursuant to the Renegotiation Act of 1951 shall hereafter be concluded with respect to such fiscal year, (1) the amount of this prepayment will, for the purpose of such renegotiation, be included in renegotiable receipts or accruals, (2) upon such basis, excessive profits, if any, will be determined under the Renegotiation Act of 1951 and, the regulations promulgated thereunder and (3) upon such determination of excessive profits, the prepayment will be applied in elimination of the excessive profits so determined, and, to the extert so applied, this prepayment will be deemed to be excessive profits determined within the meaning of the Renegotiation Act of 1951. It is intended that, if any amount of excessive profits so determined is less than the amount of this prepayment, or if for any reason renegotiation pursuant to the Renegotiation Act of 1951 shall not be concluded with respect to such fiscal year, then the excess of the prepayment or the full amount thereof, as the case may be, shall constitute a payment in elimination of "excessive profits" as such term is defined in section 1481 of the Internal Revenue Code even though not constituting an elimination of excessive profits determined within the meaning of the Renegotiation Act of

1951.

It is further agreed that no part of this prepay. ment shall be refunded to the undersigned, provided,

This prepayment is to be made on the understanding (1) that the gross prepayment shall be deemed to be a payment in elimination of "excessive profits" within the meaning of such terms as defined in section 1481 of the Internal Revenue Code; (2) that the gross prepayment has been included in the Federal income and excess profits tax returns filed by the undersigned for such fiscal year; (3) that the undersigned will promptly apply for a computation by the Internal Revenue Service based upon the assessments made to the date of such computation, of the amount by which the taxes of the undersigned for such fiscal year payable under the Internal Revenue Code, will be de

creased by reason of the elimination from income of the gross prepayment pursuant to section 1481 of the Internal Revenue Code; and (4) that the undersigned will, upon receiving such computation, pay to the Government the gross prepayment, less the amount of the tax credit, if any, so computed by the Internal Revenue Service. The undersigned represents that this prepayment is not made in satisfaction or discharge, in whole or in part, of any legally binding obligation heretofore existing.

It is agreed that neither acceptance of this letter nor acceptance of the prepayment to be made hereunder constitutes a commencement of renegotiation pursuant to the Renegotiation Act of 1951 and that except as provided herein, renegotiation may be conducted in all respects as though this prepayment had not been made. It is further agreed that if renegotiation pursuant to the Renegotiation Act of 1951 shall hereafter be concluded with respect to such fiscal year, (1) the amount of the gross prepayment will, for the purpose of such renegotiation, be included in renegotiable receipts or accruals; (2) upon such basis, excessive profits, if any, will be determined under the Renegotiation Act of 1951 and the regulations promulgated thereunder, and (3) upon such determination of excessive profits, the amount of gross prepayment will be applied in elimination of the excessive profits so determined, and, to the extent so applied, the gross prepayment will be deemed to be excessive profits determined within the meaning of the Renegotiation Act of 1951. It is intended that, if the amount of excessive profits so determined is less than the amount of the gross prepayment, or if for any reason renegotiation pursuant to the Renegotiation Act of 1951 shall not be concluded with respect to such fiscal year, then the excess of this gross prepayment, or the full amount thereof, as the case may be, shall constitute a payment in elimination of "excessive profits" as such term is defined in section 1481 of the Internal Revenue Code, even though not constituting an elimination of excessive profits determined within the meaning of the Renegotiation Act of 1951.

It is further agreed that no part of this prepayment shall be refunded to the undersigned, provided, however, that if this gross prepayment or a portion thereof, shall be deemed to be excessive profits determined within the meaning of the Renegotiation Act of 1951, nothing herein contained shall prejudice any right which the undersigned may have to receive any refund or rebate which may be provided by law with respect to the excessive profits so determined. The undersigned further agrees that if this gross prepayment, or a portion thereof, shall be deemed to be excessive profits determined within the meaning of the Renegotiation Act of 1951, the undersigned shall not be entitled to any tax credit with respect to the gross prepayment, or portion thereof, as the case may be, other than the tax credit computed as provided in the second paragraph of this agreement, and that the undersigned will so inform the Internal Revenue Service at the time it applies for a computation of tax credit with respect to the excessive profits determined pursuant to the Renegotiation Act of 1951.

GENTLEMEN: The undersigned, desiring to eliminate excesive profits likely to be received or accrued in its fiscal year ending

(hereinafter referred to as "such fiscal year") from prime contracts and/or subcontracts subject to the provisions of the Renegotiation Act of 1951, hereby agrees to pay monthly (or: quarterly) on the day of each month (or: quarter) to the United States of America a sum equal to percent (%) of the amounts received or accrued (or: the profits realized) during the preceding month (or: quarter) of such fiscal year. The first payment shall be made on the day of ____

All payments pursuant to this agreement will be made by check drawn to the order of the Treasurer of the United States and delivered to The Renegotiation Board, Washington 25, D.C.

All payments hereunder will be made on the understanding (1) that such amounts shall be deemed to be payments in elimination of "excessive profits" within the meaning of such term as defined in section 1481 of the Internal Revenue Code; and (2) that such amounts will not be included in income in the computation of taxable income for such fiscal year under the Internal Revenue Code and, accordingly, no tax credit will be allowable against such amounts.

It is agreed that the execution of this agreement does not constitute a commencement of renegotiation

pursuant to the Renegotiation Act of 1951 and that, except as provided herein, renegotiation may be conducted in all respects as though this agreement had not been made. It is further agreed that if renegotiation pursuant to the Renegotiation Act of 1951 shall hereafter be concluded with respect to such fiscal year, (1) the amounts paid hereunder will, for the purpose of such renegotiation, be included in renegotiable receipts or accruals, (2) upon such basis, excessive profits, if any, will be determined under the Renegotiation Act of 1951 and the regulations promulgated thereunder and (3) upon such determination of excessive profits, the payments made hereunder will be applied in elimination of the excessive profits so determined, and, to the extent so applied, the payments made hereunder will be deemed to be excessive profits determined within the meaning of the Renegotiation Act of 1951. It is intended that, if any amount of excessive profits so determined is less than the amount of the payments made hereunder, or if for any reason renegotiation pursuant to the Renegotiation Act of 1951 shall not be concluded with respect to such fiscal year, then the excess of the payments made hereunder, or the full amount thereof, as the case may be, shall constitute a payment in elimination of excessive profits as such term is defined in section 1481 of the Internal Revenue Code even though not constituting an elimination of excessive profits determined within the meaning of the Renegotiation Act of 1951.

It is further agreed that no part of the payments made hereunder shall be refunded to the undersigned, provided, however, that if the payments made hereunder, or any portion thereof, shall be deemed to be excessive profits determined within the meaning of the Renegotiation Act of 1951, nothing herein contained shall prejudice any right which the undersigned may have to receive any refund or rebate which may be provided by law with respect to the excessive profits so determined.

If this letter agreement is acceptable on the foregoing terms, please so indicate by indorsement of one of the three (3) copies enclosed and return such copy to us.