Page:United States Statutes at Large Volume 100 Part 3.djvu/550

 100 STAT. 2358

PUBLIC LAW 99-514—OCT. 22, 1986 (7) SPECIAL RULE FOR CASUALTY LOSSES.—Section 263A(d)(2) of the Internal Revenue Code of 1986 (as added by this section) shall apply to expenses incurred on or after the date of the enactment of this Act.

SEC. 804. MODIFICATIONS OF METHOD OF ACCOUNTING FOR LONG-TERM CONTRACT.

(a) GENERAL RULE.—Subpart B of part II of subchapter E of chapter 1 is amended by adding at the end thereof the following new section: "SEC. 460. SPECIAL RULES FOR LONG-TERM CONTRACTS. "(a) PERCENTAGE OF COMPLETION-CAPITALIZED COST METHOD.—

"(1) IN GENERAL.—In the case of any long-term contract— "(A) 40 percent of the items with respect to such contract shall be taken into account under the percentage of completion method (as modified by subsection (b)), and "(B) 60 percent of the items with respect to such contract shall be taken into account under the taxpayer's normal method of accounting. "(2) 40 PERCENT LOOK-BACK METHOD TO APPLY.—Upon completion of any long-term contract, the taxpayer shall pay (or shall be entitled to receive) interest determined by applying the lookback method of subsection (b)(3) to 40 percent of the items with respect to the contract. "(b) PERCENTAGE OF COMPLETION METHOD.— "(1) SUBSECTION (a) NOT TO APPLY WHERE PERCENTAGE OF COMPLETION METHOD USED.—Subsection (a) shall not apply to

any long-term contract with respect to which amounts includible in gross income are determined under the percentage of completion method. "(2) REQUIREMENTS OF PERCENTAGE OF COMPLETION METHOD.—

In the case of any long-term contract with respect to which the percentage of completion method is used— "(A) the percentage of completion shall be determined by comparing costs allocated to the contract under subsection (c) and incurred before the close of the taxable year with the estimated total contract costs, and "(B) upon completion of the contract, the taxpayer shall pay (or shall be entitled to receive) interest computed under the look-back method of paragraph (3). "(3) LOOK-BACK METHOD.—The interest computed under the look-back method of this subparagraph shall be determined by"(A) first allocating income under the contract among taxable years before the year in which the contract is completed on the basis of the actual contract price and costs instead of the estimated contract price and costs, "(B) second, determining (solely for purposes of computing such interest) the overpayment or underpayment of tax for each taxable year referred to in paragraph (1) which would result solely from the application of paragraph (1), and "(C) then using the overpayment rate established by section 6621, compounded daily, on the overpayment or underpayment determined under paragraph (1). "(c) ALLOCATION OF COSTS TO CONTRACT.—

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