Completed Contract accounting for Corp Taxes - reference material?

BulldogTom · October 17, 2013

Do any of you have a good reference guide for using Completed Contract method of accounting for a Corp Tax Return? I know very little about it and I need to get educated in a hurry.

Thanks in advance.

Tom

Hollister, CA

Mr. Pencil · October 17, 2013

Do any of you have a good reference guide for using Completed Contract method of accounting for a Corp Tax Return?

That's a GAAP thing, Tom, and pretty rare. Hopefully one of our CPA members is online this time of year. For purposes of the tax return, Section 312(n)(6) says, "In the case of a taxpayer who uses the completed contract method of accounting, earnings and profits shall be computed as if such taxpayer used the percentage of completion method of accounting." In other words, even though you aren't going to tell your stockholders about the income until next year, you still have to pay taxes on it.

Does that help?

Elrod · October 17, 2013

Tom,

See if this is any help.

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Accounting-for-Construction-Contracts-Construction-Tax-Tips

Elrod

BulldogTom · October 17, 2013

It is actually a tax thing. For GAAP, you must use the Percentage of Completion method for your books. Not a problem there. I have always understood that. However, if you are a small contractor (generally under 10MM revenue for last three years), you can use the completed contract method for your tax returns for long term contracts. There is an exception for large contractors working on "residential" property. They can use the completed contract method as well.

I need to know what the legal definition (case law) of "residential property". The generic definition is a building with 4 or less dwelling units. I need to know the legal definition of a "building" and a dwelling unit (again, tax case law).

I have also found that AMT kicks in for using the Completed Contract Method. You have to calculate profit based on Percentage of Completion and make an AMT adjustment if you use Completed Contract and are a large contractor. I need to know more about case law on this point as well.

There is also some kind of funky hybrid method that I need to take a look at.

Thanks for the post, but I don't think it helps much. But I do appreciate you chiming in.

Tom

Hollister, CA

BulldogTom · October 17, 2013

Tom,

See if this is any help.

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Accounting-for-Construction-Contracts-Construction-Tax-Tips

Elrod

Thanks Elrod, I read that. But it is too generic for what I am looking for.

Appreciate the post.

Tom

Hollister, CA

OldJack · October 17, 2013

Sec 312(n)(6) is regarding corporate distributions/dividends in determining "earnings and profits".

Sec 312 is not the section for income tax reporting purposes. A small business corporation may report income on the completed contract method of accounting or the percentage of completion method of accounting. The difference in the two methods, if book is one way and tax return the other method, is reconciled in the 1120 schedule M1. It is common that GAAP financial statements are prepared with the percentage of completion method with books and tax return prepared on the completed contract method.

Completed contract method is sometimes referred to as "income is recognized when job is done and the last nail driven". Whereas income is recognized as the job progresses (such as partial billing) on the percentage of completion.

Mr. Pencil · October 17, 2013

I do appreciate you chiming in.

It's a bit out of my league (not that that would ever stop me from posting). At least it helped me, in that I discovered I am not one of the three you blocked. I was worried that my political posts were too edgy for a Haybaler. Some of the moderators think I'm an imposter anyway.

BulldogTom · October 18, 2013

It's a bit out of my league (not that that would ever stop me from posting). At least it helped me, in that I discovered I am not one of the three you blocked. I was worried that my political posts were too edgy for a Haybaler. Some of the moderators think I'm an imposter anyway.

Did I block three - I thought it was only 2. And you would never be blocked by me. I appreciate you way to much, even if I don't agree with your political views.

And I am not a haybaler, but my son is.