Construction is one of the most difficult
industries to understand from a tax perspective.
Here are several reasons why:
The sheer number of tax methods and combinations available, each with revenue and cost
The effort necessary to change or correct
these method choices as a contractor’s
The number and variety of sources for these
method tax rules; and
The fact that the IRS, the courts, and Congress
frequently change their positions on, or interpretations of, these tax rules.
Numerous Choices? Maybe . . .
Depending on the size of its revenues and the
types of contracts it undertakes, a contractor may
need to choose both a method of accounting and a
method of accounting for long-term contracts (and
also select accounting sub-routines or sub-treatments).
The method of accounting for long-term contracts relates
to the method chosen by the contractor (or dictated by the
Code if IRC §460 applies) to account for revenue and cost
recognition for long-term contracts. The list of choices
includes the completed contract method (CCM) or the percentage-of-completion method (PCM) and its varieties. 1
MARCH-A PRIL 2007 CFMA BP 9
The correct or incorrect accounting method selection, and the
accounting choice for long-term contracts, will influence a contrac-
tor’s tax position for many years to come. For financial statement pur-
poses, the percentage-of-completion accrual method is generally the
only accepted method of accounting for long-term contracts. However,
for tax purposes, various methods are permitted, depending on the size
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