(d) Costs in excess of fair market value. A contractor whose total costs, as shown above, exceed the fair market value of pig iron will be allowed to charge its costs to renegotiable business in accordance with Part 1459 of this chapter without limitation with respect to fair market value. The cost allowance benefits conferred by section 106 (b) of the act would not be applicable in such a case. Where the contractor is engaged in processing iron ore in several plants, any excess of costs over fair market value ascertained with respect to one or more plants will, in the absence of unusual circumstances, be offset against the allowable amounts ascertained with respect to other plants in determining the net amount of the cost allowance for pig iron.

(e) Application of statutory factors. Generally, if a contractor's allowable costs are enhanced by the integrated producer's cost allowance, all processing up to the exemption line is regarded, in application of the statutory factors, as if it were nonrenegotiable business.

1499.2-12 Renegotiation Bulletin No. 12: Guide to the partial mandatory exemption for new durable productive equipment.-(a) This section states certain principles adopted by the Renegotiation Board in connection with the partial mandatory exemption of prime contracts and subcontracts for new durable productive equipment (section 106 (c) of the Renegotiation Act of 1951, as amended). In addition to the regulations set forth in Part 1454 and § 1456.4 of this chapter, this section may be used as a guide to the application of the exemption.

(1) "New". The term "new," as used in the Act, does not refer to the age of the equipment, but only to its use. For the purposes of this exemption, equipment is new.

when it is unused, without regard to the date when it was manufactured.

(2) "Durable". (i) Under the act, equipment is durable when it "has an average useful life of more than 5 years." The act provides that the average useful life of equipment is as set forth in Bulletin F of the Internal Revenue Service (1942 edition) or, if not so set forth, then as estimated by the Board.

(ii) In making such estimates, the Board considers all available evidence bearing upon the usable life of the equipment to users, including evidence of actual length of use, physical deterioration and economic obsolescence. The accounting practices of users in depreciating the equipment are also taken into consideration.

(3) "Productive". (i) For the purposes of this exemption, equipment sold under either a prime contract or a subcontract will be deemed productive if:

(a) It is used or designed to be used by the purchaser to manufacture tangible materials; or

(b) It has substantial industrial use and its principal industrial use is to manufacture tangible materials; or

(c) It is used or designed to be used to supply motive power directly to equipment which qualifies under either (a) or (b) above.

(ii) In determining whether equipment is productive, it is the equipment as sold that will be considered. For the purposes of (b) of subdivision (i) of this subparagraph, minor differences between the equipment as sold and other equipment with which it is compared will be disregarded.

(iii) The industry use test referred to in (b) of subdivision (i) of this subparagraph does not apply to any equipment with respect to which, at the time the seller is required to file its Standard Form of Contractor's Report for the fiscal year in which it has received or accrued payment for the equipment, the seller knows that the equipment has been or is intended to be used by the purchaser for purposes other than to manufacture tangible materials and in such a manner as to render the equipment incapable of being used thereafter to manufacture tangible materials.

(iv) An equipment part (see subparagraph (4) of this paragraph) is deemed productive if the equipment into which it is to be incorporated is productive under the principles stated above.

(4) "Equipment". (i) The term "equipment" includes not only machines fully equipped for actual operation, but all the parts of a machine as well. For reasons of administrative feasibility, standard materials (such as nuts, bolts, screws, etc.) having uses other than as parts of productive equipment, are excluded.

(ii) The rule of the Board with respect to the exemption of equipment parts is as follows:

A new durable accessory, component, subassembly or other portion of an item of productive equipment will qualify for the partial mandatory exemption if:

(a) It is to be physically incorporated in or attached to such other item, it is necessary to or customarily employed in the operation of such other item, and it has no other commercial or industrial use; or

(b) It is to be used to supply motive power to such other item.

It will be noted that an equipment part, to qualify for exemption, must, among other requirements, be durable. Section 1454.27 provides that the extent to which the act applies to a part "will be determined by reference to the avearage useful life of the equipment in question and not by reference to the life of the equipment of which it becomes a part."

(5) "Convertible" to commercial use. (i) Section 106 (c) of the act and § 1454.28 of

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this chapter, read together, provide that prime contracts for new durable productive equipment are excluded from the exemption when the Board finds that the equipment cannot practicably be adapted, converted, or retooled for commercial use. This limitation does not apply to subcontracts.

(ii) The practicability of conversion to commercial use includes, in the opinion of the Board, both economic and engineering feasibility, as well as a willingness on the part of buyers generally to acquire the equipment. The Board has therefore adopted the following principles:

(a) When equipment can be applied to commercial use in its existing form or can be adapted to such use with only minor modifications, the Board will not make a finding that the equipment cannot practicably be adapted, converted, or retooled for commercial use unless the facts show that the equipment could not reasonably be expected to be used commercially in substantial quantity.

(b) When equipment cannot be applied to commercial use either in its existing form or with only minor modifications, the Board will not make a finding that the equipment cannot practicably be adapted, converted, or retooled for commercial use unless the facts show:

(1) That the engineering or other changes required to convert the equipment to commercial use are not feasible; or

(2) That the cost of making such changes would be unreasonable in relation to the cost of similar new equipment; or

(3) That the equipment in its converted state could not reasonably be expected to be used commercially in substantial quantity.

(iii) Important: Whenever a contractor believes that the partial mandatory exemption is applicable to any of its prime contracts or subcontracts for a fiscal year, the contractor is requested to submit to the Board, with its filing for such year, sufficient information and data to support its claim for exemption under the principles set forth in this bulletin. This will help the Board to make a proper and expeditious decision on the applicability of the exemption. The co

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operation of contractors in this respect is solicited in their own interest.

1499.2-13 Renegotiation Bulletin No. 13: Voluntary refunds and interim prepayments. This section sets forth the rules adopted by the Board for determining when voluntary refunds by contractors and subcontractors shall be treated as reductions of renegotiable sales. Each type of voluntary refund is dealt with separately below. For convenience, the year in which the amount represented by a voluntary refund was originally received or accrued by the contractor will be referred to herein as "the related year." A voluntary refund made during such year, or at any time before the filing of the contractor's Federal income tax return for such year, will be referred to herein as a "current refund"; if made after the close of such year, and after the filing of the contractor's Federal income tax return for such year, it will be referred to herein as a "post-year refund."

(a) Interim prepayment by prime contractor or subcontractor to The Renegotiation Board. (1) A voluntary refund allocable to a given fiscal year, made by either a prime contractor or a subcontractor to The Renegotiation Board in the manner prescribed in Part 1463 of this chapter, is an interim prepayment of excessive profits for such fiscal year. When the prepayment is made during the related year, the amount is not included in income in the computation of the taxable income of the contractor for such fiscal year, and accordingly no tax credit is allowable thereon (see § 1463.90 of this chapter). When the prepayment is made after the close of the related year, by the use of the letter agreement set forth in § 1463.91 of this chapter, the contractor obtains a tax credit computation from the Internal Revenue Service and the prepayment made is the gross amount, less the amount of the tax credit so computed.

(2) In either case, if renegotiation is thereafter conducted with the contractor for the related year, the amount of the gross prepayment is included in renegotiable sales; upon such basis, excessive profits, if any, are determined; and upon such determination, the gross prepayment is applied in the elim

ination of the excessive profits so determined. The tax credit allowed to the contractor who made a prepayment after the close of the related year is, of course, the aggregate of the credit applicable to the prepayment and the credit applicable to the balance of the excessive profits so determined.

(b) Refund by prime contractor or subcontractor to the procuring Department. (1) When a prime contractor makes a voluntary refund to a Department, the payment is usually accomplished either by modification of the prime contract or contracts to which the refund relates, or (see I.T. 3671, set forth in 1944 C.B. 456 of the Bureau of Internal Revenue) by an exchange of correspondence between the contractor and the Department. Of course, in the case of a refund by a subcontractor direct to a Department, only the latter method is available. Either of these transactions, whether current or postyear. is a "renegotiation" as that term is used in section 1481 of the Internal Revenue Code of 1954. The contractor is, accordingly, entitled to a tax benefit on the amount so refunded. To obtain this benefit, in the case of a refund made after the related year, the contractor either obtains a tax credit computation in advance of the payment and they pay only the net amount after application of that credit, or pays the gross amount and then applies under section 1481 (c) of the Internal Revenue Code of 1954 for a refund of taxes paid thereon. The amount of a current refund is excluded from taxable income.

(2) Such refunds are not interim prepayments of excessive profits. Thus, § 1463.2 of this chapter provides that no refund paid as a result of an amendment of a specific prime contract or subcontract will be treated as a payment or prepayment of excessive profits. A refund made by an exchange of corre spondence, since not made in the manner prescribed in § 1463.3 of this chapter, is likewise not an interim prepayment (see § 1463.1 of this chapter). The renegotiation treatment is as follows:

(3) When a refund to a Department is made pursuant to a specific contract amendment, the gross amount before tax credit, if any, is treated in renegotiation as a reduction of sales for the related year. If the

the amendments of March 21, 1962. Section 1459.7 (b) (1) of this chapter provides for the allocation of the expense of catalogues and technical pamphlets designed to aid users of the contractor's products, and house organs and other publications directed to labor and personnel management and relations. Although many contractors record such expenses as advertising expenses, they are not generally considered to be such. Accordingly, these items have not been included in the new paragraph (c) (1) but now appear in § 1459.8 (f) of this chapter, where provision is made for their allowance and allocation to renegotiable business.

1499.2-17 Renegotiation Bulletin No. 17: Procedure for exemption of contracts with Military Airlift Command under § 106(a)(4) of the act.—(a) This section describes the procedure for the exemption of contracts with the Military Airlift Command (MAC) of the Department of the Air Force for air transportation of military cargo or per. sonnel.

(b) Section 106 (a) (4) of the Renegotiation Act of 1951, as amended, exempts "any contract or subcontract with a common carrier for transportation, *** when made

* at rates not in excess of published rates or charges filed with, fixed, approved, or regulated by a public regulatory body, State, Federal, or local ***." Implementing regulations under this section are set forth in § 1453.3 of this chapter.

(c) Under its statutory authority and the authority of its regulations, the Civil Aeronautics Board has established minimum rates for certain military traffic. In establishing such minimum rates, the Civil Aeronautics Board takes into consideration the use by the carriers of certain military facilities, services, and personnel, and the fact that the carriers are thereby relieved, in whole or in part, from incurring certain expenses incident to ordinary commercial transportation.

(d) The fixing of such rates represents an exercise of the regulatory authority of the Civil Aeronautics Board under the Federal Aviation Act of 1958. As such, they are regulated rates within the meaning of section 106 (a) (4) of the Renegotiation Act of 1951. (e) Accordingly:

(1) In any case in which the Department of the Air Force has advised the Board that a contract was awarded at minimum rates established by the Civil Aeronautics Board, such contract will be considered exempt under § 1453.3 (e) (1) of this chapter to the extent of performance of such minimum rates.

(2) In any case in which the Air Force has not advised the Board that a contract was awarded at minimum rates established by CAB, but the contractor claims that it was so awarded, the contractor will be asked to furnish the number and date of the contract, the type of load involved (cargo or personnel, or both), and the flight destination; to certify that the rate provided in the contract is the minimum rate authorized to be charged; and to furnish evidence of the authority upon which such certification is based. If the contractor's certification is corroborated by the Air Force, the contract will be considered exempt under § 1453.3 (e) (1) of this chapter to the extent of performance at such minimum rates.

(3) In any case in which a contract is performed in part at minimum rates established by the Civil Aeronautics Board, and in part at rates in excess of such minimum rates, the portion of the contract which is performed at rates in excess of such minimum rates will not be considered exempt under subparagraph (1) or (2) of this paragraph. Exemption of any such portion will be determined in accordance with the procedures described in subparagraph (4) of this paragraph.

(4) In any case in which the Air Force has not advised the Board that a contract was awarded at minimum rates established by CAB, and the contractor has not furnished a certification to that effect but claims an exemption of a contract for air transportation, the contractor will be asked to furnish a copy of the contract involved, a copy of the tariff with which the contract rate is to be compared, and an evaluation of any benefits available to the contractor under the contract. When received, such evaluation will be transmitted to the appropriate Air Force authority, to determine whether the contractor has evaluated all benefits under the

contract, and, if so, whether such evaluation is fair and reasonable. If the Board concludes that the contract rate, aggregated with the prorated fair value of any Government-furnished benefits or other advantages, does not exceed the comparable regulated rate, the contract will be considered exempt under § 1453.3 (e) (2) (ii) of this chapter.

(f) In order that exemption claims may be processed expeditiously, contractors are urged to observe the foregoing procedures and to avoid delay in furnishing required information.

1499.2-18 Renegotiation Bulletin No. 18: Concurrent renegotiation (Limited to fiscal years ending on or before June 30, 1973).— (a) Section 105 (a) of the act requires consolidated renegotiation upon the request of an affiliated group of contractors who consent to the Board's regulations, and authorizes it in the case of a related group. The Board has also authorized, in certain circumstances, consideration of commonly-owned contractors on a group basis without the formalities of consolidation. This is the procedure known as "concurrent renegotiation." In concurrent renegotiation, a loss or profit deficiency of one member of a group can be offset against excessive profits of any other member or members.

(b) The allowance and conduct of concurrent renegotiation will be subject to the following rules and conditions:

(1) Contractors desiring concurrent renegotiation for a fiscal year shall file a request therefor with the Board on or before the first date on which any member of the group files the Standard Form of Contractor's Report for such fiscal year. The Board may grant requests filed after that date if no inconvenience to the Board will result (cf. § 1464.7 (a) of this chapter). The Board may conduct concurrent renegotiation of contractors upon its own motion if, in the opinion of the Board, such treatment is necessary or appropriate, but the Board will not do so in any case in which any member of the group sustained a renegotiation loss unless such member files a Waiver of Loss Carryforward as provided in subparagraph (5) below.

(2) Notwithstanding any other provisions of this section, the allowance of concurrent

renegotiation to any group of contractors is subject to the discretion of the Board. Thus, even if the conditions prescribed in subparagraph (3) below exist, the Board in its discretion may deny concurrent renegotiation in a particular case.

(3) Concurrent renegotiation will not be allowed unless (i) all members of the group have the same fiscal year and were members of the group for such entire fiscal year, except that any differences resulting from the organization or dissolution of a member during such fiscal year will be disregarded; and (ii) all members of the group would, upon their request, be allowed consolidated renegotiation as a group for such fiscal year (see §§ 1464.2 and 1464.4 of this chapter).

(4) A renegotiation loss sustained in a prior fiscal year by a member of the group will be allowed as a carryforward to the concurrent renegotiation of the group for the fiscal year under review only if the members of the group would have qualified for consolidated renegotiation in the loss year; and the aggregate amount so allowed will be limited to the amount, if any, which would have been the consolidated renegotiation loss of the group in the loss year (cf. § 1464.12 (d) (2) of this chapter).

(5) With the request for concurrent renegotiation, each loss member of the group shall file, in form acceptable to the Board, a waiver of any right to carry forward its loss, except to the same extent as that provided in § 1464.12 (c) of this chapter for å contractor who was a loss member of a consolidated group in the loss year. The Board will not permit a loss to be used once in offsetting profits within the group for the year in which the loss was sustained, and then used a second time as a carryforward to the years following the loss year. Thus, as in consolidated renegotiation, both the profit deficiency of a loss member, as well as the loss of such member, will be included in the concurrent renegotiation for the loss year. The waiver shall be in substantially the following form:

Waiver of Loss Carryforward

A. The undersigned is a member of a group of contractors requesting concurrent renegotiations for the fiscal year of the group ended