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107TH CONGRESS

1ST SESSION H. R. 2189

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

JUNE 14, 2001

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

Mr. SPENCE, Mr. HUNTER, Mr. WELDON of Pennsylvania, Mr. TAYLOR

of Mississippi, Mr. SAXTON, Mr. SIMMONS, Mr. MALONEY of Connecticut,

Mrs. JO ANN DAVIS of Virginia, Mr. SCHROCK, Mr. CUNNINGHAM, Mr.

WICKER, Mr. VITTER, Mr. COOKSEY, Mr. CANTOR, Mr. SCOTT, Mr.

PICKERING, and Mr. SHOWS) 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,
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1 SECTION 1. MODIFICATION OF ACCOUNTING RULES FOR

2 CERTAIN NAVAL LONG-TERM CONSTRUCTION

3 CONTRACTS.

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

5 Revenue Code of 1986 (relating to exception for certain

6 construction contracts) is amended by striking ‘‘or’’ at the

7 end of subparagraph (A), by striking the period at the

8 end of subparagraph (B) and inserting ‘‘, or’’, and by in9 serting after subparagraph (B) the following new subpara10 graph:

11 ‘‘(C) a qualified naval construction con12 tract for which an election is made under para13 graph (7).’’.

14 (b) QUALIFIED NAVAL CONSTRUCTION CONTRACT.—

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

16 amended by adding at the end the following new para17 graph:

18 ‘‘(7) QUALIFIED NAVAL CONSTRUCTION CON19 TRACT.—

20 ‘‘(A) IN GENERAL.—A taxpayer may elect

21 to use the completed contract method of ac22 counting with respect to any qualified naval

23 construction contract.

24 ‘‘(B) DEFINITIONS.—

25 ‘‘(i) QUALIFIED NAVAL CONSTRUC26 TION CONTRACT.—For purposes of this
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1 subsection, the term ‘qualified naval con2 struction contract’ means a contract—

3 ‘‘(I) entered into by the taxpayer

4 with the Federal Government for the

5 building, construction, reconstruction,

6 or rehabilitation of a naval vessel, and

7 ‘‘(II) which the taxpayer esti8 mates (at the time such contract is

9 entered into) will be completed more

10 than 24 months after the contract

11 commencement date of such contract.

12 ‘‘(ii) NAVAL VESSEL.—For purposes

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

14 any vessel intended to be navigated in, on,

15 or under the water.

16 ‘‘(iii) COMPLETED.—For purposes of

17 this paragraph, the term ‘completed’

18 means upon issuance of a letter of accept19 ance or similar document by the Federal

20 Government.

21 ‘‘(iv) ENTERING CONTRACTS.—For

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

23 treated as entering into a contract with the

24 Federal Government if the taxpayer is

25 specified in the bid for such contract as
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1 being a member of a team (for purposes of

2 performing the work under such contract)

3 that includes the person who entered into

4 such contract.

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

6 under this paragraph shall apply to all con7 tracts of the taxpayer which are entered into

8 during the taxable year in which the election is

9 made or any subsequent taxable year.

10 ‘‘(D) SEPARATE CONTRACT.—For pur11 poses of applying this paragraph, in the case of

12 a qualified naval construction contract which

13 covers more than 1 vessel, each vessel covered

14 by the contract shall be treated as a separate

15 contract for the purpose of applying the com16 pleted contract method, and the gross contract

17 price and the total contract costs shall be allo18 cated to each separate vessel contract in accord19 ance with regulations prescribed by the Sec20 retary.

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

22 312(n)(6) shall not apply to a taxpayer which

23 has made an election under this paragraph with

24 respect to a qualified naval construction con25 tract.’’.
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1 (c) EFFECTIVE DATE.—The amendments made by

2 this section shall apply with respect to contracts entered

3 into after December 31, 2000.

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