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Part 1463 Interim Prepayment of Excessive Profits
1463.2 What constitutes interim prepay-
ment of excessive profits.-(a) Repricing of
specific contracts.--In any case in which a spe-
cific prime contract or subcontract is amended
to reduce the price charged, no refund paid as a
payment or prepayment of excessive profits. FORMS
(b) Voluntary refunds. A prime contractor
or subcontractor may wish to refund a portion
of its profits to the Government before renegoti-
ation without making any prior binding agree
to make such refunds. Such a refund will, subyear.
ject to the conditions set forth in section 1463.3
be accepted as an interim prepayment of exces-
tractor or subcontractor may wish to enter into 1463.1 Introduction.--Excessive profits are an agreement with the Board to pay a portion of determined under the act only pursuant to a its profits from renegotiable business to elimirenegotiation proceeding commenced and con nate excessive profits likely to be received or ducted in the manner prescribed by the regula accrued. Such prepayments will, subject to the tions in this subchapter. Profits refunded be
conditions set forth in section 1463.3, be accepted fore renegotiation will be deemed to be excessive as interim prepayments of excessive profits profits determined within the meaning of the likely to be received or accrued. act only if such refund is made in the manner
1463.3 Procedure for acceptance of inprescribed in section 1463.3 as an interim pre terim prepayment of excessive profits.A payment of excessive profits to be determined
refund made under the circumstances set forth by the Board in a subsequent renegotiation and in section 1463.2(b) will be accepted subject to only to the extent that the amount of such pre the following conditions: payment is determined in such renegotiation to (a) Each prepayment shall be made pursuconstitute excessive profits within the meaning
ant to a letter agreement in the form prescribed of the act. It is the purpose of this part to set as follows: forth: (a) The circumstances under which the (1) If the refund is made before the close of Board will agree that such prepayments will be
the fiscal year to which it relates, a letter agreeaccepted as interim prepayments of excessive ment in the form set forth in section 1463.90
shall be used. profits; and (b) the method by which such interim prepayments may be made. Reference is (2) If the refund is made after the close of made to section 1460.12(b)(3) of this subchap the fiscal year to which it relates, but before the ter for a discussion of the effect of refunds made Federal tax return for such year has been filed, before renegotiation upon the statutory factor a letter agreement in the form set forth in secof risk.
tion 1463.90 shall be used, except that the word
"ending" appearing in the first sentence of such under section 1463.3, the prepayment is ultiform shall be changed to "ended”.
mately deemed to be excessive profits deter(3) If the refund is made after the Federal mined within the meaning of the act. tax return has been filed for the fiscal year to
FORMS which the refund relates, a letter agreement in
1463.90 Letter agreement transmitting the form set forth in section 1463.91 shall be
interim prepayment of excessive profits be used. In this latter case, it will be necessary for
fore close of fiscal year.
THE RENEGOTIATION BOARD,
Washington 25, D.O.
GENTLEMEN: There is herewith (or has been) trans form as the Board and the contractor may agree
mitted to you a check, payable to the Treasurer of the
United States, in the amount of $----------, representupon.
ing profits received or accrued in our fiscal year ending (b) If the contractor who makes a prepay
(hereinafter referred to as "such ment is thereafter renegotiated for the par
fiscal year") derived from prime contracts and/or ticular fiscal year and excessive profits are de
subcontracts subject to the provisions of the Renega
tiation Act of 1951. termined, the prepayment will be included in the
This prepayment is made on the understanding (1) renegotiable receipts or accruals; excessive prof
that such amount shall be deemed to be a payment in its, if any, will be determined upon such basis, elimination of "excessive profits" within the meaning and the prepayment will be applied in elimina of such term as defined in section 3806 of the Internal
Revenue Code; and (2) that such amount will not be tion of the excessive profits so determined.
included in income in the computation of taxable in(c) If the contractor, for any reason, is not
come for such fiscal year under the Internal Revenue renegotiated for the particular fiscal year, the Code and, accordingly, no tax credit is allowable prepayment will not be refunded to the contrac against such amount. The undersigned represents tor, but such prepayment will not be deemed that this payment is not made in satisfaction or dis
charge, in whole or in part, of any legally binding to be excessive profits determined within the
obligation heretofore existing. meaning of the act.
It is agreed that acceptance of this prepayment (d) If the contractor is renegotiated for does not constitute a commencement of renegotiation the particular fiscal year but if the amount of pursuant to the Renegotiation Act of 1951 and that, excessive profits determined is less than the except as provided herein, renegotiation may be con
ducted in all respects as though this prepayment had prepayment, such prepayment will be applied
not been made. It is further agreed that if renegotiain elimination of the excessive profits deter
tion pursuant to the Renegotiation Act of 1951 shall mined, but the excess of such prepayment over hereafter be concluded with respect to such fiscal the amount of excessive profits determined will year, (1) the amount of this prepayment will, for the not be deemed to be excessive profits determined purpose of such renegotiation, be included in renego
tiable receipts or accruals, (2) upon such basis, exwithin the meaning of the act. However, such
cessive profits, if any, will be determined under the excess will not be refunded to the contractor.
Renegotiation Act of 1951 and the regulations pro 1463.4 Treatment of interim prepayment mulgated thereunder and (3) upon such determinafor Federal income tax purposes. Any pre
tion of excessive profits, the prepayment will be
applied in elimination of the excessive profits so deterpayment, if made pursuant to the letter agree
mined, and, to the extent so applied, this prepayment ment set forth in section 1463.90 or section
will be deemed to be excessive profits determined 1463.91 or section 1463.92, is intended to con
within the meaning of the Renegotiation Act of 1951. stitute an elimination of excessive profits with
It is intended that, if any amount of excessive profits in the meaning of section 3806 of the Internal so determined is less than the amount of this prepayRevenue Code, and is to be treated as a reduc ment, or if for any reason renegotiation pursuant to the
Renegotiation Act of 1951 shall not be concluded with tion of taxable income for the year to which the
respect to such fiscal year, then the excess of the pro prepayment relates. This is true whether or not,
payment or the full amount thereof, as the case
Section 141(d) of the Internal Revenue Code
of 1939 provides as follows:
section, an "affiliated group" means one or more chains
ownership with a common parent corporation which is
(1) Stock possessing at least 95 per centum of the
voting power of all classes of stock and at least 95 per 1464.6 Effect of consolidation.
centum of each class of the nonvoting stock of each of 1464,7 Miscellaneous provisions applicable to con the includible corporations (except the common parent solidated renegotiation,
corporation) is owned directly by one or more oi the 1464.8 Allocation of excessive profits.
other includible corporations; and 1464.9 Liability of members of affiliated or related (2) The common parent corporation owns directly group.
stock possessing at least 95 per centum of the voting 1464.10 When consolidated basis not used.
power of all classes of stock and at least 95 per centum 1464.11 Separate renegotiation of partial fiscal of each class of the non voting stock of at least one of years.
the other includible corporations. 1464.12 Renegotiation losses of consolidated con As used in this subsection, the term "stock" does not tractors.
include nonvoting stock which is limited and preferred
as to dividends.
(2) Section 1504(a) of the Internal Rev1464.91 Letter form of request for renegotiation on enue Code of 1954 (corresponding with secconsolidated basis (related group).
tion 141 (d) of the Internal Revenue Code of AUTHORITY: 88 1464.1 to 1464.91 issued under sec.
1939 and incorporated in the act by the pro109, Pub. Law 9, 82d Cong. Interpret or apply sec. 105. visions of section 7852(b) of the Internal Pub. Law 9, 82d Cong.
Revenue Code of 1954) provides as follows: 1464.1 Consolidated renegotiation of af (a) Definition of “affiliated group". As used in this filiated group. (a) Statutory provision. chapter, the term "affiliated group" means one or more Section 105 (a) of the act provides in part as
chains of includible corporations connected through follows:
stock ownership with a common parent corporation
which is an includible corporation ifmo Renegotiation shall be conducted on a consolidated (1) Stock possessing at least 80 percent of the voting basis with a parent and its subsidiary corporations power of all classes of stock and at least 80 percent which constitute an affiliated group under section 141 of each class of the nonvoting stock of each of the (d) of the Internal Revenue Code if all of the cor
inclubible corporations (except the common parent corporations included in such affiliated group request poration) is owned directly by one or more of the other renegotiation on such basis and consent to such regu includible corporations; and lations as the Board shall prescribe with respect to (2) The common parent corporation owns directly (1) the determination and elimination of excessive stock possessing at least 80 percent of the voting power profits of such affiliated group, and (2) the determina of all classes of stock and at least 80 percent of each tion of the amount of the excess profits of such affiliated class of the nonvoting stock of at least one of the other group allocable, for the purposes of section 3806 of the includible corporations. Internal Revenue Code, to each corporation included in such affiliated group.
As used in this subsection, the term “stock" does not
include nonvoting stock which is limited and preferred (b) Definition of "affiliated group".-(1) as to dividendo
(3) The term "affiliated group” as used in 1464.3 Consolidated renegotiation of a this part means a group of corporations which related group. (a) Statutory provision.qualify under the definition quoted in subpara Section 105(a) of the act provides in part as graph (1) of this paragraph, with respect to
follows: fiscal years to which the Internal Revenue Code
By agreement with any contractor or subcontractor, of 1939 is applicable, or under the definition
and pursuant to regulations promulgated by it, the quoted in subparagraph (2) of this paragraph, Board may in its discretion conduct renegotiation on with respect to fiscal years to which the Internal a consolidated basis in order properly to reflect exRevenue Code of 1954 is applicable. A corpora
cessive profits of two or more related contractors or tion cannot be a member of an affiliated group
subcontractors. unless it is an "includible corporation” as de
(b) Definition of "related group."-A “refined in subsections (e), (f), (g) and (j) of sec
lated group” means two or more related contion 141 of the Internal Revenue Code of 1939,
tractors, one of whom controls the other, or or subsections (b), (c), and (d) of section 1504
others, or who are under common control (see of the Internal Revenue Code of 1954, which § 1451.31 of this subchapter). The members of ever is applicable (see § 1451.33 of this subchap the group may consist of persons including corter).
porations, partnerships, joint ventures, associa(c) Fiscal year of an affiliated group. The
tions, sole proprietorship, or a combination of
some or all of these.
cal year of a related group shall be the fiscal
year of the member of the related group desigtiation of affiliated group; when approved.
nated as agent in accordance with § 1464.7(b), The Board will approve a request for consoli except that the Board may, upon application of dated renegotiation of all members of an affil the group made with the letter requesting coniated group who qualify therefor. A member of solidated renegotiation (§ 1464.91), permit such an affiliated group other than the common par
related group to adopt a different fiscal year unent corporation shall not be deemed to qualify less adoption of such different fiscal year would for consolidated renegotiation unless:
hinder conduct of the renegotiation. The fiscal (a) Such member had renegotiable receipts
year of the agent or the fiscal year adopted, as or accruals during the fiscal year under review;
the case may be, will be referred to hereafter in (b) Except as provided hereafter in this this part as the related group's fiscal year. paragraph, such member was a member of the 1464.4 Request for consolidated renegoaffiliated group during the entire fiscal year of tiation of related group; when granted. In the common parent corporation and its fiscal order properly to reflect excessive profits, the year for Federal income tax purposes ended on
Board may, in its discretion, grant a request for the same date as the fiscal year of the common
a consolidated proceeding with respect to a re
lated group if all the following conditions exist: parent corporation. The foregoing limitation shall not disqualify a member; (1) if the fiscal
(a) Each person in the group had renegotia
ble receipts or accruals during the related period of such member ended on the same date
group's fiscal year under review. as the fiscal year of the other member or mem
(b) Each of such persons who participated bers but began on a later date because such mem
in a consolidated renegotiation for a prior fiscal ber was incorporated during such fiscal year, and
year and whose fiscal year differed from the fisif such member during its entire first fiscal pe
cal year of the related group in that renegotiariod was a member of the group; or (2) if the
tion has, before the close of the renegotiation fiscal period of such member began on the same proceeding for the related group's fiscal year date as the fiscal year of the other member or
under review, adopted under the Internal Revmembers but ended on an earlier date because
enue Code a fiscal year in conformity with the such member was dissolved during such fiscal related group's fiscal year: Provided, however, year and if such member during its entire last That this requirement may be waived by the fiscal period was a member of the group. Board, in its discretion, in the case of any
contractor who for any reason has ceased to en whose members has a fiscal year not conforming
do not properly reflect excessive profits for the
ble to consolidated renegotiation. A request
for consolidated renegotiation proceedings shall
shall be made in the form prescribed by
separately the renegotiable and nonrenegotiable
the Standard Form of Contractor's Report. The is a member of such group, such person may,
in Board may grant requests filed after that date the discretion of the Board, be included in the if no inconvenience to the Board will result. consolidated proceeding with respect to his re (b) A request filed by the members of an ceipts or accruals up to the date such control affiliated group shall designate the common ceased, if such person otherwise meets the quali parent corporation as agent of the group and fications for consolidated renegotiation set forth shall authorize such parent corporation to repin 8 1464.4.
resent all members of the group in all respects 1464.6 Effect of consolidation. Once the in connection with the consolidated proceeding. Board has granted a request for renegotiation A request filed by the members of a related of an affiliated group or related group on a group shall designate one member of the group consolidated basis, then, except as otherwise as agent of the group and shall authorize such provided herein, the proceeding will remain member to represent all members of the group consolidated for all purposes, regardless of in all respects in connection with the consoliwhether a clearance issues or excessive profits dated proceeding. Such authorization in either are determined by agreement or order. How
case shall be irrevocable as long as renegotiation ever, on request of any member of the group or is conducted on a consolidated basis, and shall on its own motion, the Board may discontinue apply to all phases of the proceeding including the consolidated proceeding and convert it to commencement of renegotiation, submission of separate renegotiation proceedings or consoli data, the making and execution of renegotiation date a different group, if satisfied that the con agreements, administrative review, and petition solidation was improperly effected pursuant to
to the Tax Court. the regulations in this subchapter or, if satisfied (c) The Board will commence renegotiation in the case of a related group, one or more of with an affiliated group on a consolidated basis 2-10-08