Part 1458 Receipts or Accruals Under AUTHORITY: Sections 1458.1 to 1458.6 issued under sec. 109, Pub. Law 9, 82d Cong. Interpret or apply sec. 105, Pub. Law 9, 82d Cong. 1458.1 Statutory provision.-Section 105 (f) of the act provides as follows: (1) In general.-If the aggregate of the amounts received or accrued during a fiscal year (and on or after the applicable effective date specified in section 102 (a)) by a contractor or subcontractor, and all persons under control of or controlling or under common control with the contractor or subcontractor, under contracts with the Departments and subcontracts described in section 103 (g) (1) and (2), is not more than $250,000, in the case of a fiscal year ending before June 30, 1953, or $500,000, in the case of a fiscal year ending on or after June 30, 1953, or $1,000,000, in the case of a fiscal year ending after June 30, 1956, the receipts or accruals from such contracts and subcontracts shall not, for such fiscal year, be renegotiated under this title. If the aggregate of such amounts received or accrued during the fiscal year under such contracts and subcontracts is more than $250,000, in the case of a fiscal year ending before June 30, 1953, or $500,000, in the case of a fiscal year ending on or after June 30, 1953, or $1,000,000, in the case of a fiscal year ending after June 30, 1956, no determination of excessive profits to be eliminated for such year with respect to such contracts and subcontracts shall be in an amount greater than the amount by which such aggre gate exceeds $250,000, in the case of a fiscal year ending before June 30, 1953, or $500,000, in the case of a fiscal year ending on or after June 30, 1953, or $1,000,000, in the case of a fiscal year ending after June 30, 1956. (2) Subcontracts described in section 103 (g) (8).— If the aggregate of the amounts received or accrued during a fiscal year (and on or after the applicable effective date specified in section 102 (a)) by a subcontractor, and all persons under control of or controlling or under common control with the subcontractor, under subcontracts described in section 103 (g) (3) is 3-15-66 not more than $25,000, the receipts or accruals from such subcontracts shall not, for such fiscal year, be renegotiated under this title. If the aggregate of such amounts received or accrued during the fiscal year under such subcontracts is more than $25,000, no determination of excessive profits to be eliminated for such year with respect to such subcontracts shail be in an amount greater than the amount by which such aggregate exceeds $25,000. (3) Computation.-In computing the aggregate of the amounts received or accrued during any fiscal year for the purposes of paragraph (1) of this subsection, there shall be eliminated all amounts received or accrued by a contractor or subcontractor from all persons under control of or controlling or under common control with the contractor or subcontractor and all amounts received or accrued by each such person from such contractor or subcontractor and from each other such person. If the fiscal year is a fractional part of twelve months, the $250,000 amount, the $500,000 amount, the $1,000,000 amount, and the $25,000 amount shall be reduced to the same fractional part thereof for the purposes of paragraphs (1) and (2). In the case of a fiscal year beginning in 1950 and ending in 1951, the $250,000 amount and the $25,000 amount shall be reduced to an amount which bears the same ratio to $250,000 or $25,000, as the case may be, as the number of days in such fiscal year after December 31, 1950, bears to 365, but this sentence shall have no application if the contractor or subcontractor has made an agreement with the Board pursuant to section 102 (c) for the application of the provisions of this title to receipts or accruals prior to January 1, 1951, during such fiscal year. In the case of a fiscal year beginning on or before the termination date and ending after the termination date, the $1,000,000 amount and the $25,000 amount shall be reduced to an amount which bears the same ratio to $1,000,000 or $25,000, as the case may be, as the number of days in such fiscal year before the closing of the termination date bears to 365. [Matter in italics added by Pub. Law 764, 83d Cong., approved September 1, 1954, as amended by sec. 6 (a) and (b) and sec. 7 (a) of Pub. Law 870, 84th Cong., approved August 1, 1956. The latter amendment added the references to $1,000,000 for fiscal years ending after June 30, 1956; and, in paragraph (3), changed "for the purposes of paragraphs (1) and (2)" to "for the purposes of paragraph (1)", effective only with respect to fiscal years ending on or after June 30, 1956, and added the last sentence.] 161 1458.2 Computation of aggregate receipts and accruals.-(a) Paragraphs (1) and (2) of section 105 (f) of the act, quoted in section 1458.1, are not mutually exclusive. That is, every contractor having receipts or accruals subject to the act will be renegotiated thereunder unless such contractor meets both of the following conditions: (1) The aggregate renegotiable receipts or accruals of the contractor and any related contractors for the fiscal year of the contractor under contracts with the Departments and subcontracts described in section 103 (g) (1) and (2) of the act do not exceed $250,000, in the case of a fiscal year ending before June 30, 1953, or $500,000, in the case of a fiscal year ending on or after June 30, 1953, or $1,000,000 in the case of a fiscal year ending after June 30, 1956; and (2) The aggregate renegotiable receipts or accruals of the contractor and any related contractors for the fiscal year of the contractor under subcontracts described in section 103 (g) (3) of the act do not exceed $25,000. If the contractor meets one of the above conditions but not the other, renegotiation will be conducted only with respect to the receipts or accruals as to which the condition is not met. (b) The aggregate receipts or accruals of the contractor and related contractors under subject prime contracts and subcontracts shall be determined in accordance with the method of accounting used for purposes of renegotiation. Total receipts or total billings under cost-plus-a-fixed-fee contracts shall be included in computing such aggregate receipts or accruals. There shall be excluded from such computation (1) all receipts or accruals of the contractor and related contractors under prime contracts and subcontracts which are exempt from renegotiation under section 106 (a), (d), and (e) of the act (see Parts 1453, 1455 and 1467 of this subchapter), and (2) that part of the receipts or accruals of the contractor and related contractors under prime contracts and subcontracts for new durable productive equipment which is exempt from renegotiation under section 106 (c) of the act. (See Part 1454 of this subchapter.) In making such computation for the purposes of paragraph (1) of section 105 (f) of the act, there shall also be excluded all "intercompany sales"-i. e., all amounts received or accrued by the contractor from related contractors and all amounts received or accrued by each such related contractor from the contractor and from each other such related contractor. However, in making such computation for the purposes of paragraph (2) of section 105 (f) of the act (relating to subcontracts described in section 103 (g) (3) of the act, held chiefly by brokers and manufacturers' agents), inter-company sales shall be included. This means that whenever a broker, manufacturers' agent, or other person holding a subcontract described in section 103 (g) (3) of the act receives commissions or other compensation from its parent or other related principal, all such amounts which are referable to renegotiable prime contracts or subcontracts must be included in computing the aggregate renegotiable receipts or accruals of such broker, agent or other person for the purpose of applying the $25,000 “floor.” (c) When the fiscal years of the contractor and any of the related contractors differ, the test will be whether, during the twelve-month period (or fraction thereof) which is the fiscal year of the contractor, the aggregate receipts or accruals of the contractor and related contractors were in excess of the statutory minimum. (d) In computing the receipts or accruals of a contractor and any related contractor that controlled or was under control of or under common control with the contractor during only a part of the fiscal year of the contractor, the receipts or accruals of the contractor during its entire fiscal year shall be aggregated with all amounts received or accrued by such related contractor in that part of the fiscal year of the contractor during which the relationship between the contractor and such related contractor existed, and there shall be excluded from such computation all amounts received or accrued by such related contractor in that part of the fiscal year of the contractor during which such relationship did not exist. Example. Corporation A, for its fiscal year ended December 31, has renegotiable sales of $900,000, of which $500,000 is received or accrued in the first half of the year, and $400,000 in the second half. Corporation B, for the same fiscal year, has renegotiable sales of $800,000, of which $600,000 is received or accrued in the first half of the year, and $200,000 3-15-66 in the second half. A acquires all the stock of B on June 30. A is subject to renegotiation because its sales of $900,000, plus B's sales of $200,000 during the period of relationship, exceed the "floor." B is subject to renegotiation because its sales of $800,000, plus A's sales of $400,000 during the period of relationship, exceed the floor. 1458.3 No reduction by refund below statutory minimum.-(a) No determination of excessive profits to be eliminated from the aggregate amount of receipts or accruals of the contractor and related contractors for the period of time which is the fiscal year of the contractor, under contracts with the Departments and subcontracts described in section 103 (g) (1) and (2) of the act (see sec. 1452.4 to 1452.6 of this subchapter), shall be in an amount greater than the amount by which such aggregate exceeds $250,000, in the case of a fiscal year ending before June 30, 1953, or $500,000, in the case of a fiscal year ending on or after June 30, 1953, or $1,000,000 in the case of a fiscal year ending after June 30, 1956. (b) No determination of excessive profits to be eliminated from the aggregate amount of receipts or accruals of the contractor and related contractors for the period of time which is the fiscal year of the contractor, under subcontracts described in section 103 (g) (3) of the act (see sec. 1452.7 of this subchapter), shall be in an 4-10-65 162.1 Sec. Part 1459 Costs Allocable to and Allowable Against 1459.1 Statutory provisions and general regulations. 1459.2 Salaries, wages and other compensation. 1459.3 Amortization and depreciation. 1459.4 Conversion to renegotiable production. 1459.5 Losses. 1459.6 Interest. 1459.7 Selling and advertising expenses. 1459.8 Other costs, expenses and reserves. AUTHORITY: Sections 1459.1 to 1459.9 issued under section 109, Pub. Law 9, 82d Cong. Interpret or apply section 103, Pub. Law 9, 82d Cong. 1459.1 Statutory provisions and general regulations. (a) Determination of costs.Section 103 (f) of the Act provides as follows: count of the taxes measured by income, other than Federal taxes, which are attributable to the portion of the profits which are not excessive. [Matter in italics added by Pub. Law. 870, 84th Cong., approved August 1, 1956; and see section 103 (m) of the act (§ 1457.9 of this subchapter) for allowance of losses incurred in fiscal years ending on or after December 31, 1956.] (b) Profits, cost allocation and allowance; general. (1) Accounting methods.-In connection with renegotiation on an over-all fiscal year basis, except as otherwise provided in these regulations, income received or accrued and costs paid or incurred will be considered as having been received or accrued or paid or incurred in the fiscal year to which such items are to be attributed in accordance with the method of accounting employed by the contractor in determining net income for Federal income tax purposes or in accordance with such other method of accounting as the contractor and the Board may agree upon pursuant to the provisions of subparagraph (2) of this paragraph. Nothing in the preceding sentence shall affect the authority of the Board under section 103 (f) and (i) of the Act to determine the income received or accrued or the costs paid or incurred by the contractor with respect to renegotiable business in a fiscal year in accordance with such method of accounting as, in the opinion of the Board, properly reflects such income or costs, if the method of accounting employed by the contractor in determining net income for Federal income tax purposes does not, in the opinion of the Board, properly reflect such income or costs, and the contractor and the Board are unable to agree upon a method which does properly reflect such income or costs. The term "profits derived from contracts with the Departments and subcontracts" means the excess of the amount received or accrued under such contracts and subcontracts over the costs paid or incurred with respect thereto and determined to be allocable thereto. All items estimated to be allowed as deductions and exclusions under chapter 1 of the Internal Revenue Code (excluding taxes measured by income) shall, to the extent allocable to such contracts and subcontracts, be allowed as items of cost, except that no amount shall be allowed as an item of cost by reason of the application of a carry-over or carry-back. Notwithstanding any other provision of this section, there shall be allowed as an item of cost in any fiscal year ending before December 31, 1956, subject to regulations of the Board, an amount equal to the excess, if any, of costs (computed without the application of this sentence) paid or incurred in the preceding fiscal year with respect to receipts or accruals subject to the provisions of this title over the amount of receipts or accruals subject to the provisions of this title which were received or accrued in such preceding fiscal year, but only to the extent that such excess did not result from gross inefficiency of the contractor or subcontractor. For the purposes of the preceding sentence, the term "preceding fiscal year" does not include any fiscal year ending prior to January 1, 1951. Costs shall be determinated in accordance with the method of accounting regularly employed by the contractor or subcontractor in keeping his records, but, if no such method of accounting has been employed, or if the method so employed does not, in the opinion of the Board, or, upon redetermination, in the opinion of The Tax Court of the United States, properly reflect such costs, such costs shall be determined in accordance with such method as in the opinion of the Board, or, upon redetermination, in the opinion of The Tax Court of the United States, does properly reflect such costs. In determining the amount of excessive profits to be eliminated, proper adjustment shall be made on ac (3-15-66) (2) Differing accounting methods.-(i) The Board will permit a contractor to adopt for renegotiation purposes a method of accounting other than that used by the contractor for Federal income tax purposes, provided that: (a) The Board finds that the method of accounting employed by the contractor for Federal income tax purposes is manifestly unsuitable for the purposes of renegotiation because it does not clearly reflect the profits attributable to the contractor's performance of renegotiable |