I 

108TH CONGRESS 

1ST SESSION H. R. 1479

To amend the Internal Revenue Code of 1986 to allow the use of completed 

contract method of accounting in the case of certain long-term naval 

vessel construction contracts. 

IN THE HOUSE OF REPRESENTATIVES 

MARCH 27, 2003

Mrs. JOHNSON of Connecticut (for herself, Mr. JEFFERSON, Mr. CANTOR, Mr. 

TAYLOR of Mississippi, and Mr. WICKER) introduced the following bill; 

which was referred to the Committee on Ways and Means 

A BILL

To amend the Internal Revenue Code of 1986 to allow the 

use of completed contract method of accounting in the 

case of certain long-term naval vessel construction contracts.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. MODIFICATION OF ACCOUNTING RULES FOR 

4 CERTAIN NAVAL LONG-TERM CONSTRUCTION 

5 CONTRACTS. 

6 (a) IN GENERAL.—Section 460(e)(1) of the Internal 

7 Revenue Code of 1986 (relating to exception for certain 

8 construction contracts) is amended by striking ‘‘or’’ at the 
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1 end of subparagraph (A), by striking the period at the 

2 end of subparagraph (B) and inserting ‘‘, or’’, and by in3 serting after subparagraph (B) the following new subpara4 graph: 

5 ‘‘(C) a qualified naval construction con6 tract for which an election is made under para7 graph (7).’’. 

8 (b) QUALIFIED NAVAL CONSTRUCTION CONTRACT.—

9 Section 460(e) of the Internal Revenue Code of 1986 is 

10 amended by adding at the end the following new para11 graph: 

12 ‘‘(7) QUALIFIED NAVAL CONSTRUCTION CON13 TRACT.—

14 ‘‘(A) IN GENERAL.—A taxpayer who owns 

15 and operates a shipyard may elect to use the 

16 completed contract method of accounting with 

17 respect to any qualified naval construction con18 tract for the building, construction, reconstruc19 tion, or rehabilitation of a naval vessel at such 

20 shipyard. 

21 ‘‘(B) DEFINITIONS.—

22 ‘‘(i) QUALIFIED NAVAL CONSTRUC23 TION CONTRACT.—For purposes of this 

24 subsection, the term ‘qualified naval con25 struction contract’ means a contract—
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1 ‘‘(I) entered into by the taxpayer 

2 with the Federal Government for the 

3 building, construction, reconstruction, 

4 or rehabilitation of a naval vessel, and 

5 ‘‘(II) which the taxpayer esti6 mates (at the time such contract is 

7 entered into) will be completed more 

8 than 24 months after the contract 

9 commencement date of such contract. 

10 ‘‘(ii) NAVAL VESSEL.—For purposes 

11 of clause (i), the term ‘naval vessel’ means 

12 any vessel intended to be navigated in, on, 

13 or under the water. 

14 ‘‘(iii) COMPLETED.—For purposes of 

15 this paragraph, the term ‘completed’ 

16 means upon issuance of a letter of accept17 ance or similar document by the Federal 

18 Government. 

19 ‘‘(iv) ENTERING CONTRACTS.—For 

20 purposes of clause (i), a taxpayer shall be 

21 treated as entering into a contract with the 

22 Federal Government if the taxpayer is 

23 specified in the bid for such contract as 

24 being a member of a team (for purposes of 

25 performing the work under such contract) 
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1 that includes the person who entered into 

2 such contract. 

3 ‘‘(C) EFFECT OF ELECTION.—An election 

4 under this paragraph shall apply to all con5 tracts of the taxpayer which are entered into 

6 during the taxable year in which the election is 

7 made or any subsequent taxable year. 

8 ‘‘(D) SEPARATE CONTRACT.—For pur9 poses of applying this paragraph, in the case of 

10 a qualified naval construction contract which 

11 covers more than 1 vessel, each vessel covered 

12 by the contract shall be treated as a separate 

13 contract for the purpose of applying the com14 pleted contract method, and the gross contract 

15 price and the total contract costs shall be allo16 cated to each separate vessel contract in accord17 ance with regulations prescribed by the Sec18 retary. 

19 ‘‘(E) EARNINGS AND PROFITS.—Section 

20 312(n)(6) shall not apply to a taxpayer which 

21 has made an election under this paragraph with 

22 respect to a qualified naval construction con23 tract.’’. 

24 (c) EFFECTIVE DATE.—The amendments made by 

25 this section shall apply with respect to naval vessels for 
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1 which a letter of acceptance or similar document is issued 

2 by the Federal Government after December 31, 2003.

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