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1463.2 What constitutes interim prepayment 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.

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 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.

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(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 sen-
tence 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 neces-
sary for the contractor to request a tax credit
under section 3806 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 3806 of the Internal Revenue Code, and is to be treated as a

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GENTLEMEN: There is herewith (or has been) transmitted to you a check, payable to the Treasurer of the United States, in the amount of $--‒‒‒‒‒‒‒‒ representing profits received or accrued in our fiscal year ending (hereinafter referred to as "such fiscal year") derived from prime contracts and/or subcontracts subject to the provi sions of the Renegotiation Act of 1951.

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 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 extent 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

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