e. Additional space provided. f. Total Selling expense. Advertising: a. Trade papers. b. Additional space provided. c. Total Advertising expense. Total Selling and Advertising expense (per line 3, Ex. 1). 21. General and Administrative expense: a. Officers' salaries. b. Other office salaries. c. Other expense (itemize on separate schedule). d. e. Additional spaces provided. f. Contributions (see § 423.388-2 of Regulations). g. Total (per line 4, Exhibit 1). [Amdt. 9, 15 F. R. 6252, Sept. 19, 1950] § 1427.704-lb Instructions for preparation of Exhibits 1 and 1(a) (MRR 704.1 and 704.1(a)); general. When the contractor is engaged in two or more types of renegotiable business of a widely divergent nature or operates on a divisional basis, it is preferable that the sales, costs and expenses be reported separately. In such cases, Exhibits 1 and 1 (a) may be expanded as required. Renegotiable sales. Opposite line titled "Prime contracts and purchase orders", enter in columns (B) and (C) direct sales to the Department of Defense, including the Departments of the Army, the Navy, and the Air Force, under renegotiable prime contracts and purchase orders. NOTE: Sales under Cost-Plus-a-Fixed-Fee contracts (CPFF) are total billings and related accruals, including fees. Opposite line titled "Subcontracts and purchase orders," enter in columns (B) and (C) renegotiable sales under subcontracts of any tier or purchase order falling within the definition of a subcontract, except those required to be reported on the line titled "Other renegotiable business." Opposite the line titled "Other renegotiable business" enter in columns (B) and (C) renegotiable sales or revenues such as royalties, commissions, management fees, etc. Receipts and accruals, estimated if necessary, relative to the uncompleted portions of terminated contracts or subcontracts should be set out in a separate column under the appropriate caption, CPFF or Fixed Price. If these include amounts based on own subcontractors' claims, the aggregate of the latter should be shown as a footnote to Exhibit 1. Line 1. Enter total renegotiable and nonrenegotiable sales on Line 1, in the appropriate columns. If your aggregate net sales shown on this line are not in agreement with sales shown in your published income statement or your audit report, submit a reconciliation of such variation. Lines 2, 3, 4, and 7. In allocating costs and expenses between renegotiable and nonrenegotiable business, the contractor's cost system, if adequate, should be employed. Otherwise, percentages or other formulae may have to be used, either as to individual products or groups of products, or by departments, divisions, etc. Each major item of selling and general expenses should be allocated in accordance with the most equitable method in view of the particular situation. The amounts reported in columns (B) and (D) of line 7 should be those costs and expenses incurred or accrued and allocated to CPFF contracts in accordance with the contractor's system of accounts, rather than the amount of reimbursable cost and expense. Line 9. Other income. Line 10. Other deductions. Lines 9 and 10, a., b., C. Amounts representing non-operating income and expenses, which are wholly or partially applicable to renegotiable business, should be entered on lines 9a and 10a, respectively. Losses from write-downs and disposal of inventory items (if significant) should be entered on line 10c and not merged with cost of sales. Non-operating items not applicable to renegotiable business should be entered on lines 9b and 10b. Examples of these are profit on disposal of fixed assets, adjustments applicable to prior years, dividends received, write-off of intangibles, etc. Lines 18a to 1, Cost of Goods Sold. The cost of goods sold summary illustrated contemplates the summarization of the cost of sales by account classifications reflecting beginning and ending inventories. If the contractor's cost system does not lend itself readily to the captions provided under this heading, the contractor may submit in lieu thereof a schedule prepared from his own classification of accounts. Where unit costs are compiled, an over-all approximation (expressed either in dollars or percent) of the material, labor, and overhead elements will be sufficient. While it is desired that the schedule of cost of sales be filled in, it is not required if the allocation would cause an undue amount of work on the part of the contractor, or if the cost of sales is allocated in proportion to the dollar value of sales, but the reasons for omissions should be stated. Line 20, Selling and Advertising Expenses. If the contractor's accounts contain any significant amounts included under captions not listed, a separate schedule should be submitted. Salaries should include all forms of compensation, that is salaries, bonuses, etc. Line 20b applies only to commissions paid to non-employees, such as brokers, manufacturers' agents, etc. As to Advertising, it is important that § 423.387-2 of this subchapter be reviewed. Line 21, General and Administrative Expenses. Six lines have been provided for the insertion of any relatively large items. Should the captions and lines provided be considered inadequate, a separate schedule should be submitted, in line with the classifications customarily used by the contractor. [Amdt. 9, 15 F.R. 6252, Sept. 19, 1950] § 1427.704-2 Exhibit 2-Statement of Renegotiable Contracts Terminated in the Fiscal Year Under Review (MRR 704.2; NME 170). This form is generally referred to as Exhibit 2 and is in the form of a statement of sales, costs, and profits with respect to uncompleted portions of renegotiable contracts and subcontracts terminated in the fiscal year under review. The content of the form is as follows: 1. Receipts and accruals (exclusive of those based on termination claims of own subcontractors)-Fixed Price Contracts. 2. Costs and Expenses (exclusive of claims of own subcontractors); (a) direct material, (b) direct labor, (c) other. 3. Total. 4. Profit (loss) before taxes measured by income. 5. Receipts and accruals based on own subcontractors' claims (excluded above). 6. It is estimated that of the costs and expenses shown by line 3 above, the amount deducted (or properly deductible) for Federal Income Tax purposes for the year in which the terminations occurred was (8) 7. Amount of "no cost" settlements included in line 3. 8. Explain fully the difference between lines 3 and 6. If any cost-plus-fixed-fee contracts were terminated, submit information similar to the above for each such CPFF contract, specifying contract number and Government department or prime contractor involved. Instructions for Exhibit 2: Lines 2 and 3, etc. Lines 2 and 3 should include all costs and expenses reflected in claims relative to terminated portions of contracts, whether or not incurred in the year under review. If exact figures as to the elements of cost and expenses are not available, estimates should be used and a brief explanation of their basis submitted. It is recognized that the exact amount of own subcontractors' claims may not be available, and in this case an estimate will be accepted. Additional data to be submited with Exhibit 2: 1. A separate statement for each major termination included below showing (a) the Government agency or prime contractor involved, (b) the contract number, in termination of a prime Government contract, (c) the Government contract number (if known), in the termination of a subcontract, (d) the Government office handling the termination, (e) the status of each termination claim as of the close of the fiscal year covered by the statement above, and as of the date of filling Exhibit 2. 2. A reconcilation of accruals as of the close of the year under review with any subsequent settlement. In submitting separate data on individual terminations, there may be omitted any termination involving a claim aggregating less than $10,000, or representing less than 10 percent of the receipts and accruals shown in line 1 of Exhibit 2 whichever is greater. If the entire estimated value of the claim applicable to any specific terminated contract has not been accrued at the end of the year under review, an explanation should be furnished. [14 F. R. 1885, Apr. 20, 1949] § 1427.704-3 Exhibit 3-Statement of Royalties for the Use of Inventions Received or Accrued and Paid or Incurred (MRR 704.3; DD 171). This form is generally referred to as Exhibit 3. If the information requested in this form has previously been filed with a Royalty Adjustment Board or officer, an indication of the time and place of filing may be made in lieu of completing this form. (See §§ 1421.141 and 1423.388-1 of this subchapter.) The content of the form is as follows: A. Royalties Received or Accrued: All other under $5,000 each (number involved). Total amount per Statement of Income. All other under $5,000 each (number involved). Total amount per Statement of Income. Under A above, list individually the entities from which royalties in excess of $5,000, together with the aggregate amounts, were received or accrued. Under B above, list individually the entities to which royalties in excess of $5,000, together with the aggregate amounts, were paid or incurred. All others may be grouped as indicated. [14 F. R. 1885, Apr. 20, 1949] § 1427.706 Letter from Contractor to Internal Revenue Agent in Charge Relating to Computation of Federal Income Tax Credit (MRR 706). The following letter addressed to the Internal Revenue Agent in charge (not to the Collector of Internal Revenue) of the District in which the contractor's return was filed will enable the contractor to obtain the amount of tax credit allowable under section 3806 of gotiation Division, Armed Services Renegotiation Board, requests your advice as to the amount of the credit as defined by section 3806 of the Internal Revenue Code with respect to a proposed elimination of excessive profits by (Contractor inserts his name and in the amount of $--- full address here) included in its income tax return for the taxable year ended 19____, as filled with the Collector of Internal Revenue at Certified (photostat) copies of the returns as filed for such taxable year are enclosed for your assistance in computing the amount of credit. If you require copies of schedules or other papers attached to the returns, they will be furnished promptly upon request. Please forward your reply directly to the Renegotiation Division, Armed Services Renegotiation Board, Washington 25 D. C., with a copy to the undersigned. Very truly yours, 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 3806 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 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 1948 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 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 extent so applied, this prepayment will be deemed to be "excessive profits determined" within the meaning of the Renegotiation Act. 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 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 3806 of the Internal Revenue Code even though not constituting an elimination of "excessive profits determined" within the meaning of the Renegotiation Act of 1948. It is further agreed that no part of this prepayment shall be refunded to the undersigned, provided, however, that if this prepayment, or a portion thereof, shall be deemed to be "excessive profits determined" within the meaning of the Renegotiation Act of 1948, nothing herein contained shall prejudice any right which the undersigned may have to receive any refund or rebate provided for in the Renegotiation Act with respect to the excessive profits so determined. If this prepayment is acceptable on the foregoing terms, please so indicate by in "gross prepayment"). 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 term as defined in Section 3806 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 Bureau of Internal Revenue, 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 Chapters 1, 2A, and 2D, of the Internal Revenue Code, will be decreased by reason of the elimination from income of the gross prepayment pursuant to Section 3806 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 Bureau of Internal Revenue. 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 1948 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 1948 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 1948 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 1948. 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 1948 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 3806 of the Internal Revenue Code, even though not constituting an elimination of "excessive profits determined" within the meaning of the Renegotiation Act of 1948. 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 1948, nothing herein contained shall prejudice any right which the undersigned may have to receive any refund or rebate provided for in the Renegotiation Act of 1948 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 Renegotion Act of 1948, 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 Bureau of Internal Revenue at the time it applies for a computation [14 F. R. 1885, Apr. 20, 1949] Subpart B-[Reserved] Subpart C-[Reserved] Subpart D-Forms Relating to Agreements and Clearances § 1427.740 Scope of subpart. This subpart deals with the contents of a form of agreement which may be made between the contractor and the cognizant renegotiation board at the conclusion of renegotiation proceedings (except in cases of issuance of a unilateral order); variations in this form of agreement which may be necessary in certain cases; the kind of financial data and information which this agreement should contain as a minimum; and the type of clearance notice which is given the contractor when it is determined by the cognizant renegotiation board that no excessive profits have been realized by him during the fiscal year under review. [14 F. R. 6063, Oct. 5, 1949, as amended by Amdt. 10, 15 F. R. 6987, Oct. 19, 1950] § 1427.741 Agreements, variations and Exhibit A. [14 F. R. 6063, Oct. 5, 1949] § 1427.741-1 Form of agreement. ARMED SERVICES RENEGOTIATION Board, ------- RENEGOTIATION AGREEMENT This agreement is entered into as of the --th day of 19-, by and between the UNITED STATES OF AMERICA (hereinafter referred to as "the Government") and corporation organized and existing under the referred to as "the contractor”). ARTICLE 1. Profits to be eliminated. As a result of renegotiation pursuant to the Renegotiation Act of 1948, the Government and the Contractor hereby determine and agree that Dollars ($------) of the profits derived by the Contractor from contracts and subcontracts of the Contractor which are subject to renegotiation under the Renegotiation Act of 1948 (hereinafter referred to as "said contracts and subcontracts") represent the amount of profits received or accrued under said contracts and subcontracts during the Contractor's fiscal year ended 19---- (hereinafter referred to as "said fiscal year"), which, pursuant to the Renegotiation Act of 1948, should be eliminated. ART. 2. Warranty. This agreement has been entered into in reliance, among other things, upon the representations of the Contractor, including the financial and other data submitted by the Contractor upon the basis of which the statement set forth in Exhibit "A", annexed hereto and made a part hereof, was prepared. The Contractor warrants that the representations made by it to the Government in connection with this renegotiation are true and correct to the best knowledge, information and belief of the Contractor and that to its best knowledge, information and belief, the Contractor has disclosed all material facts required to make the Contractor's representations complete and not misleading. ART. 3. Tax credit under section 3806 of the Internal Revenue Code. The Contractor represents that the profits, the amount of which is agreed in Article 1 hereof to be eliminated, were included in income in the Contractor's Federal income tax returns for said fiscal year and that the Contractor has applied or will promptly apply for a computation by the Bureau of Internal Revenue, based upon the assessments made to the date of such computation, of the amount by which the taxes of the Contractor for said fiscal year payable under Chapters 1, 2A, and 2D of the Internal Revenue Code are decreased by reason of the application of Section 3806 of the Internal Revenue Code. The amount, if any, so computed will be allowed as a credit against the amount of profits to be eliminated pursuant to Article 1 hereof. ART. 4. Terms of payment. The Contractor agrees to pay to the Government the sum of ($‒‒‒‒‒‒‒‒), being the amount determined in Article 1 hereof to be eliminated, by check to the order of the Treasurer of the United States in an amount equal to the difference between said sum of ($--------) and the amount, if any, of the credit referred to in Article 3 hereof. Such check shall be forwarded to within ten (10) days after the execution of this Agreement by the Government or within ten (10) |