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actions deviate from the normal course of busi-
ness in order to achieve some tax benefit. 
‘‘SEC. 223. LONG-TERM CONTRACTS. 
‘‘(a) IN GENERAL.—In the case of a long-term con-
tract— 
‘‘(1) CONTRACTOR EXPENSES.—The contractor 
shall be entitled to deduct its business purchases 
when paid or incurred. 
‘‘(2) CONTRACTOR RECEIPTS.—The contractor 
shall recognize taxable receipts— 
‘‘(A) in the case of a project in which the 
acquirer has no ownership interest in the 
project until delivery— 
‘‘(i) upon delivery of the project, in 
the case of an accrual basis contractor, or 
‘‘(ii) upon the later of delivery of the 
project or the receipt of payment, in the 
case of cash-basis contractor. 
‘‘(B) in the case of a project in which the 
acquirer obtains an ownership interest as the 
project is constructed— 
‘‘(i) when the contractor has the right 
to payments, in the case of an accrual 
basis contractor, or
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‘‘(ii) upon the later of when the con-
tractor receives the cash or has the right 
to payments, in the case of a cash basis 
contractor. 
‘‘(3) ACQUIRER EXPENSES.—The acquirer that 
is a business entity shall be entitled to deduct its 
costs of the business purchase— 
‘‘(A) in the case of a cash-basis acquirer, 
at such time as a cash basis contractor would 
be required to treat the amounts paid as tax-
able receipts, or 
‘‘(B) in the case of an accrual-basis 
acquirer, at such time as an accrual basis con-
tractor would be required to treat the amounts 
paid or due as taxable receipts. 
‘‘(b) RIGHT TO PAYMENTS.— 
‘‘(1) IN GENERAL.—A contractor shall be treat-
ed as having a right to payments with respect to a 
project at any time to the extent that the contractor 
would not be required to return payments received 
(or would be entitled to collect payments not yet re-
ceived) if the project were terminated at such time 
by the contractor. 
‘‘(2) CONTRACTUAL
PROVISIONS.—If a long- 
term contract includes a procedure for paying the
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contractor as work is completed (for example, by 
reason of a draw down from a trust account), the 
contractual provisions shall generally govern when a 
contractor has a right to payment. 
‘‘(3) PERCENTAGE
COMPLETION
METHOD
OF 
ACCOUNTING.—If a long-term contract does not in-
clude a mechanism for paying the contractor as 
work is completed, the percentage-of-completion 
method of accounting shall be used to determine the 
timing of taxable receipts of the contractor and busi-
ness purchases of the acquirer. 
‘‘(c) LONG-TERM CONTRACT.— 
‘‘(1) 
IN
GENERAL.—‘Long-term 
contract’ 
means— 
‘‘(A) any contract that covers service or 
production through parts of two different cal-
endar years if the contract includes a formal 
deposit and draw-down mechanism, and 
‘‘(B) any contract for the manufacture, 
building, installation, or construction of prop-
erty if such contract is not completed within the 
taxable year of the contractor in which such 
contract is entered into. 
‘‘(2) EXCEPTION.—A contract for the manufac-
ture of property shall not be treated as a long-term
316 
contract unless such contract involves the manufac-
ture of— 
‘‘(A) any unique item of a type which is 
not normally included in the finished goods in-
ventory of the taxpayer, or 
‘‘(B) any item which normally requires 
more than 12 calendar months to complete. 
‘‘(d) CONSISTENCY.—The Secretary may require 
business entities to file statements containing such infor-
mation with respect to long-term contracts as the Sec-
retary may prescribe to ensure consistency in reporting. 
‘‘(e) FOREIGN CONTRACTS.—This section shall not 
be construed to permit a deduction for a business purchase 
for the cost of property produced outside the United 
States pursuant to a long-term contract at any time prior 
to the import of such property into the United States. 
‘‘SEC. 224. POST-SALE PRICE ADJUSTMENTS AND REFUNDS. 
‘‘(a) RECEIPT OF PRICE ADJUSTMENT.—In the case 
of a post-sale price adjustment attributable to a business 
purchase which was taken into account in computing gross 
profits for a prior taxable year, the amount of such adjust-
ment shall be treated as a reduction or increase, as the 
case may be, in the cost of business purchases for the tax-
able year in which the adjustment is made or incurred.