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Tax Policy: Congress Should Further Restrict Use of the Completed Contract Method

GGD-86-34 Published: Jan 17, 1986. Publicly Released: Feb 07, 1986.
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Highlights

In response to a congressional request, GAO developed and analyzed data on the extent to which manufacturing and construction contractors use the completed contract method to defer federal taxes to determine whether continued use of the method is justified.

Recommendations

Matter for Congressional Consideration

Matter Status Comments
Congress should not allow the use of the completed contract method for income tax purposes, except in those instances where taxpayers can satisfactorily demonstrate to IRS that they cannot obtain reasonably dependable estimates of the costs to complete or the extent of progress toward completion of a particular contract.
Closed – Implemented
The Tax Reform Act of 1986 substantially adopted this recommendation by prohibiting the use of the completed contract method for all contractors, with the exception of small construction contractors. The Joint Committee on Taxation estimated that this change would generate $3.5 million in revenue over the 1987 through 1991 time frame.

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Accounting systemsDepartment of Defense contractorsFederal taxesIncome taxesProjectionsTax administration systemsTax expendituresTax lawTax nonpaymentConstruction