be determined in accordance with subdivision (ii) or (iii), as the case may be, of this subparagraph. (ii) The renegotiable portion of a loss or gain with respect to depreciable or amortizable property is that portion which bears the same ratio to the whole of such loss or gain as the aggregate amount of depreciation or amortization on such property allocable to renegotiable business under the 1951 act and prior renegotiation statutes for all fiscal years of the contractor to the date of such loss or gain bears to the total amount of depreciation or amortization on such property allowable under section 23 (1) or 124A of the Internal Revenue Code, as the case may be, for all taxable years of the contractor to the date of such loss or gain. (iii) The renegotiable portion of a loss or gain with respect to land other than an emergency facility is determined as follows: (a) Allot an equal share of the loss or gain to each fiscal year beginning with the year of acquisition and including the year of the loss or gain; (b) For each such fiscal year, determine approximately the percentage of use of the land in performing prime contracts and subcontracts subject to the 1948 and 1951 acts; (c) Apply the appropriate percentage of use to each share determined under step (a) of this subdivision; and (d) Add the amounts determined under step (c) of this subdivision. The sum of such amounts is the renegotiable portion of the loss or gain. 1459.6 Interest.-(a) Allowance.-Interest on borrowed capital is deductible under the Internal Revenue Code and will, therefore, be allowed in renegotiation to the extent allocable to renegotiable business. (b) Allocation.-(1) Interest on borrowed funds will be allocated to renegotiable business according to the general principles set forth in section 1459.1 (b). allocation of interest expense to renegotiable business. (3) Premium or discount reflected in taxable income as the result of redemption or retirement of debt obligations will be reflected in interest expense for allocation purposes if such redemption or retirement is part of a normal program of debt reduction provided by the debt agreement or in accordance with a debt reduction program previously followed by the contractor. However, premium or discount on extraordinary debt retirement, or loss on purchase of debt obligations at a premium beyond the normal past practice of the contractor, will not be allowed as a cost of renegotiable business. (2) However, if a contractor has an amount of unrestricted current funds, or marketable securities obviously in excess of the reasonable working capital needs of its business, or if there is a significant amount of assets not directly related to those operations of the contractor which result in renegotiable business, consideration will be given to these circumstances in the (c) Interest on tax deficiences.-Interest on deficiences in taxes measured by income (including Federal income and excess profits taxes) is not deemed allocable in any part to renegotiable business. Accordingly, such interest is not allowable as a cost of renegotiable business, notwithstanding that such interest is deductible in the computation of taxable income under the Internal Revenue Code. 1459.7 Selling and advertising expenses.(a) Selling.-(1) Selling expense will be allocated to renegotiable business only to the extent that (i) it relates in major part to technical, consulting and other services performed in connection with the application and adaptation of products comprising the renegotiable business to the uses and requirements of the Government or other contractors; or (ii) it relates to the maintenance of offices or agencies engaged in the servicing of products comprising the renegotiable business; or (iii) it relates to the sale of products or services comprising the renegotiable business which are of the type ordinarily sold or rendered by the contractor and which are sold or rendered through the distribution system normally used by the contractor; or (iv) it is a commission of the type allowed in section 1459.2 (c). (2) The allocation of selling expenses to renegotiable business will be in accordance with the method of accounting found by the Board to be acceptable under section 1459.1(b). (b) Advertising in fiscal years ending on or before March 31, 1962.-Removed to Appendix. (e) Advertising in fiscal years ending after March 31, 1962.-(1) Items of advertising ex pense incurred solely for (i) the recruitment by the contractor of personnel required for the performance by the contractor of obligations arising under a renegotiable contract or subcontract, (ii) the procurement of scarce items required by the contractor for the performance of a renegotiable contract or subcontract, or (iii) the disposal to scrap or surplus materials acquired by the contractor in the performance of a renegotiable contract or subcontract, are recognized as costs allocable to renegotiable business in accordance with the method of accounting found by the Board to be acceptable under § 1459.1 (b). The costs of publishing catalogues, technical pamphlets, house organs and other similar publications are not, for the purposes of this paragraph, considered advertising expenses; for the treatment of such expenses, see § 1459.8 (f). (2) Other advertising expense is allocable to renegotiable business as follows: (i) In the case of renegotiable business performed under subcontracts, advertising expense will be allocated thereto provided that the products sold under such subcontracts are substantially the same as those sold in such subcontractor's normal commercial business. In the allocation of such advertising expense consideration will be given to (a) the volume of nonrenegotiable business in the year under review as contrasted with the subcontractor's normal volume of commercial business, and (b) the total amount of such advertising expense in the year under review as contrasted with the subcontractor's normal advertising expense. (ii) In cases in which it can be demonstrated that a prime contractor or subcontractor engaged in renegotiable business to the detriment of its normal commercial business in the year under review, and thereby incurred the risk of loss of its competitive position in the industry concerned, the Board will allocate to renegotiable business that portion of the prime contractor's or subcontractor's normal advertising expense which the Board deems properly attributable to the effort by the prime contractor or subcontractor to forestall such loss of competitive position. Part 1460 Principles and Factors in Determining Excessive Profits Uncompleted portions of terminated contracts. 1460.8 Application of statutory factors; general policy. 1460.1 General considerations.-In making determinations in renegotiation, the Board will proceed generally as follows: (a) All the information necessary to a sound determination will be obtained. (b) The contractor will be given an opportunity to develop and present whatever information is available to it which the contractor may consider pertinent to the determination. (c) Requests for additional information and the number of meetings held with the contractor or its representatives will be kept to a minimum. (d) Financial and factual information will be reviewed with the contractor and its agreement to the accuracy of such information will be obtained. (e) The contractor will be given every reasonable assistance and all necessary information with respect to the technical requirements of renegotiation, the act, and the regulations in this subchapter. (f) The facts and conclusions with respect to the contractor's business will be fully developed. 3-1-67 1460.2 Specific considerations.-(a) Profits before taxes.-In renegotiation the amount of excessive profits is determined before provision for Federal taxes on income. In determining the existence or amount of excessive profits, the effect of Federal income taxes on the retained profits will not be considered. (b) Separate consideration of certain types of contracts. While renegotiation will be conducted with respect to the aggregate of the contractor's renegotiable business for the fiscal year, separate consideration will be given to cost-plus-a-fixed-fee contracts and other costtype contracts and to contracts, whether fixed price or cost-plus-a-fixed-fee, which contain incentive provisions or provide for escalation, redetermination, or other revision of the contract price during the life of the contract. Patent royalty income will also be separately considered. (c) Comparisons. In evaluating the contractor's performance, comparisons will be made with the prices, costs and profits of other contractors engaged in the production of the same or similar products or using the same or similar processes. (d) Significance of settlements or profits or losses in prior years.-Renegotiation settlements for prior years are not controlling precedents. Consideration will be given to profits or losses in prior years only to the extent provided elsewhere in these regulations. Except to that extent, determinations of excessive profits will be predicated on the facts and circumstances of the year under review. (e) Reserves for possible renegotiation refund. It is recognized that sound accounting principles may make it desirable for contractors to establish reserves for possible renegotiation refunds and that the amount of such reserves established in individual situations will vary widely depending upon the policy of the par 201 ticular contractor concerned. Neither the existence nor the amount of such reserves is to be considered directly or indirectly in connection with the determination of excessive profits. The Board recognizes that conservative practice may result in setting up such reserves in excess of the anticipated liability and will not permit such a practice to prejudice the contractor in any way. 1460.3 Adjustment of sales.-The amount of excessive profits is always deducted from the renegotiable receipts or accruals, as well as from the profit thereon, for the purposes of determining the relation of retained profits to sales. 1460.4 Overextended contractors.-A contractor's lack of adequate working capital will not be taken into consideration in determining excessive profits to be eliminated. 1460.5 Minimum refund.-Except as hereinafter provided, and in the absence of unusual circumstances, no determination of excessive profits shall be made if such excessive profits before adjustment for State taxes measured by income amount to (paragraphs (a) and (b) removed to Appendix), or (c) less than $40,000 with respect to any fiscal year ending on or after June 30, 1953, or (d) less than $10,000 with respect to any fiscal year in the case of subcontracts described in section 103 (g) (3) of the act. If a determination of excessive profits would be made at or in excess of the applicable minimum amount but for the limitation set forth in section 105 (f) (1) or (2) of the act and § 1458.3 (a) or (b) of this subchapter, the determination will be made in accordance with such limitation even though the amount of the determination is less than the minimum prescribed by this section. For example, if renegotiable receipts or accruals are $258,000, and excessive profits would be determined as $20,000 but for the statutory limitation that the excessive profits to be eliminated in such case shall not exceed $8,000 (the difference between $258,000 and $250,000) a determination in the amount of $8,000 will be made. In the renegotiation of an affiliated or related group, whether or not consolidated, determinations of excessive profits with respect to individual members of the group may be made in amounts less than the applicable minimum specified in this section: Provided, That the aggregate of the determinations for all members of the group equals or exceeds such applicable minimum. If the fiscal year is a fractional part of twelve months, the applicable minimum specified in this section shall be reduced to the same fractional part thereof. 1460.7 Uncompleted portions of terminated contracts. (a) Separate consideration. When a segregation of the items allocable to the uncompleted portions of terminated prime contracts and subcontracts is made in accordance with the principles set forth in sections 1457.6 and 1459.1 (c) of this subchapter, separate consideration will be given to such items in the light of the applicable factors in determining excessive profits. The evaluation of the contractor's performance with respect to the uncompleted portions of terminated prime contracts and subcontracts will be considered in connection with the evaluation of the contractor's performance of the completed portions of such prime contracts and subcontracts and with that of other prime contracts and subcontracts in determining the excessive profits, if any, for the period involved in the renegotiation. (b) Evaluation of performance.-The evaluation of the contractor's performance with respect to the uncompleted portions of terminated prime contracts and subcontracts will be measured by the nature and extent thereof. The more nearly the nature and extent of such performance approximate the nature and extent of the contractor's performance of completed contracts and subcontracts of the same type, the more nearly the evaluation of such performance will approach that given to the contractor's performance of the completed prime contracts and subcontracts. On the other hand, if the contractor's performance under the uncompleted portions of terminated prime contracts and subcontracts has consisted largely of the acquisition of inventory which it has processed only slightly or not at all, then the value placed upon such performance must be expected to be substantially less than the value of the contractor's performance in processing such inventory into finished articles delivered under completed prime contracts and subcontracts. Sec. Part 1466 1466.1 Statutory provision. 1466.2 Definition of "termination date". Termination of Renegotiation 1466.3 Definition of "status termination date". 1466.5 Fiscal year proceedings in which amounts re- (c) Termination (1) In general.-The provisions of this title shall apply only with respect to receipts and accruals, under contracts with the Departments and related subcontracts, which are determined under regulations prescribed by the Board to be reasonably attributable to performance prior to the close of the termination date. Notwithstanding the method of accounting employed by the contractor or subcontractor in keeping his records, receipts or accruals determined to be so attributable, even if received or accrued after the termination date, shall be considered as having been received or accrued not later than the termination date. For the purposes of this title, the term "termination date" means June 30, 1968. (2) Termination of status as Department.--When the status of any agency of the Government as a Department within the meaning of section 103(a) is terminated, the provisions of this title shall apply only with respect to receipts and accruals, under contracts with such agency and related subcontracts, which are determined under regulations prescribed by the Board to be reasonably attributable to performance prior to the close of the status termination date. Notwithstanding the method of accounting employed by the contractor or subcontractor in keeping his records, receipts or accruals determined to be so attributable, even if received or accrued after the status termination date, shall be considered as having been received or accrued not later than the status termination date. For the purposes of this paragraph, the term "status termination date" means, with respect to any agency, the date on which the status of such agency as a Department within the meaning of section 103 (a) is terminated. 1466.2 Definition of "termination date"."Termination date" means June 30, 1968. 1466.3 Definition of "status termination date. "Status termination date" means, with respect to any agency of the Government, the date on which the status of such agency as a Department within the meaning of section 103 (a) of the act is terminated. 1466.4 Renegotiability of amounts received or accrued and allowability of costs paid or incurred after "date of termination". (a) Definition of "date of termination". The terms "termination date" and "status termination date" are referred to in this part collectively as the "date of termination." (b) In general.-The act applies only to amounts received or accrued which are determined under regulations prescribed by the Board to be reasonably attributable to performance before the close of the date of termination. It is immaterial whether the contracts under which such amounts are derived are completed before or after the date of termination. The purpose of this section is to state the circumstances under which amounts received or accrued and costs paid or incurred after the date of termination from prime contracts or subcontracts performed in whole or in part before the close of the date of termination will be considered to be reasonably attributable to performance before the close of the date of termination. (c) Amounts received or accrued.-(1) Completed contract method of accounting.-If a contractor, pursuant to § 1459.1 (b) of this subchapter, employed a completed contract method of accounting for the fiscal year of the contractor which included the date of termination, there will be considered as attributable to performance on or before the date of termination an amount of receipts or accruals which bears the same relationship to the total income derived from the contract as the amount of work performed under the contract on or before the date of termination bears to the total amount of work performed under the contract. 321 |