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Total contract price includes an allocable share of the gross receipts attributable to a non-long-term contract activity, as defined in § 1.460-1(d)(2), if the activity is incident to or necessary for the manufacture, building, installation, or construction of the subject matter of the long-term contract.

Total contract price also includes amounts reimbursed for independent research and development expenses (as defined in § 1.460-1(b)(9)), or for bidding and proposal costs, under a federal or cost-plus long-term contract (as defined in section 460(d)), regardless of whether the research and development, or bidding and proposal, activities are incident to or necessary for the performance of that long-term contract.

The percentage of completion must be determined by comparing allocable contract costs incurred with estimated total allocable contract costs.

Thus, the taxpayer includes a portion of the total contract price in gross income as the taxpayer incurs allocable contract costs.

The employee must also present his or her employer with acceptable documents evidencing identity and employment authorization.

The employer must examine the employment eligibility and identity document(s) an employee presents to determine whether the document(s) reasonably appear to be genuine and to relate to the employee and record the document information on the Form I-9. Employers must have a completed Form I-9 on file for each person on their payroll who is required to complete the form.

This section prescribes permissible methods of accounting for long-term contracts.

If a taxpayer has not included an amount of contingent compensation in total contract price under this paragraph (b)(4)(i) by the taxable year following the completion year, the taxpayer must account for that amount of contingent compensation using a permissible method of accounting.

If it is determined after the taxable year following the completion year that an amount included in total contract price will not be earned, the taxpayer should deduct that amount in the year of the determination.

Total contract price does not include compensation that might be earned under any other agreement that the taxpayer expects to obtain from the same customer ( exercised option or follow-on contract) if that other agreement is not aggregated under § 1.460-1(e).

For the purposes of this paragraph (b)(4)(i)(B), a taxpayer can reasonably predict that an amount of contingent income will be earned not later than when the taxpayer includes that amount in income for financial reporting purposes under generally accepted accounting principles.

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