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of seven ther 41 2 ADOTT erited to
be determined in accordance with subdivision
allocation of interest expense to renegotiable
(3) Premium or discount reflected in tax-
deficiencies in taxes measured by income (in-
renegotiable business. Accordingly, such in-
come under the Internal Revenue Code.
tent that (i) it relates in major part to techni-
in connection with the application and adapta-
tion of products comprising the renegotiable
lates to the maintenance of offices or agencies
engaged in the servicing of products comprising 1459.6 Interest.(a) Allowance. Interest the renegotiable business; or (iii) it relates to on borrowed capital is deductible under the
the sale of products or services comprising the Internal Revenue Code and will, therefore, be
renegotiable business which are of the type ordiallowed in renegotiation to the extent allocable narily sold or rendered by the contractor and to renegotiable business.
which are sold or rendered through the dis(b) Allocation.--(1) Interest on borrowed
tribution system normally used by the confunds will be allocated to renegotiable business
tractor; or (iv) it is a commission of the type according to the general principles set forth in
allowed in section 1459.2(c). section 1459.1(b).
(2) The allocation of selling expenses to re(2) However, if a contractor has an amount
negotiable business will be in accordance with of unrestricted current funds, or marketable
the method of accounting found by the Board securities obviously in excess of the reasonable
to be acceptable under section 1459.1(b). working capital needs of its business, or if there
(b) Advertising in fiscal years ending on is a significant amount of assets not directly
or before March 31, 1962.-Removed to Aprelated to those operations of the contractor pendix. which result in renegotiable business, consideration will be given to these circumstances in the
(e) Advertising in fiscal years ending after March 31, 1962.-(1) Items of advertising ex
pense incurred solely for (i) the recruitment ucts sold under such subcontracts are substanby the contractor of personnel required for the tially the same as those sold in such performance by the contractor of obligations subcontractor's normal commercial business. In arising under a renegotiable contract or sub
the allocation of such advertising expense concontract, (ii) the procurement of scarce items sideration will be given to (a) the volume of required by the contractor for the performance nonrenegotiable business in the year under reof a renegotiable contract or subcontract, or
view as contrasted with the subcontractor's (iii) the disposal to scrap or surplus materials normal volume of commercial business, and (8) acquired by the contractor in the performance the total amount of such advertising expense in of a renegotiable contract or subcontract, are the year under review as contrasted with the recognized as costs allocable to renegotiable subcontractor's normal advertising expense. business in accordance with the method of ac- (ii) In cases in which it can be demonstrated counting found by the Board to be acceptable that a prime contractor or subcontractor enunder $ 1459.1 (b). The costs of publishing gaged in renegotiable business to the detriment catalogues, technical pamphlets, house organs of its normal commercial business in the year and other similar publications are not, for the under review, and thereby incurred the risk purposes of this paragraph, considered adver- of loss of its competitive position in the industry tising expenses; for the treatment of such ex- concerned, the Board will allocate to renegotipenses, see § 1459.8(f).
able business that portion of the prime con(2) Other advertising expense is allocable to tractor's or subcontractor's normal advertising renegotiable business as follows:
expense which the Board deems properly attrib(i) In the case of renegotiable business per- utable to the effort by the prime contractor or formed under subcontracts, advertising expense subcontractor to forestall such loss of competiwill be allocated thereto provided that the prod- tive position.
Part 1460 Principles and Factors in
to the contractor's business will be fully
1460.2 Specific considerations. (a) Prof1460.3 Adjustment of sales.
its before taxes. In renegotiation the amount
of excessive profits is determined before pro-
vision for Federal taxes on income. In determin-
ing the existence or amount of excessive profits, tracts.
the effect of Federal income taxes on the rem
tained profits will not be considered.
(b) Separate consideration of certain types
of contracts. While renegotiation will be con1460.11 Capital employed.
ducted with respect to the aggregate of the con-
tractor's renegotiable business for the fiscal
year, separate consideration will be given to
cost-plus-a-fixed-fee contracts and other costAUTHORITY: Sections 1460.1 to 1460.15 issued under
type contracts and to contracts, whether fixed section 109, Pub. Law 9, 820 Cong. Interpret or apply price or cost-plus-a-fixed-fee, which contain insection 103, Pub. Law 9, 820 Cong.
centive provisions or provide for escalation, 1460.1 General considerations. In mak- redetermination, or other revision of the coning determinations in renegotiation, the Board tract price during the life of the conwill proceed generally as follows:
tract. Patent royalty income will also be (a) All the information necessary to a sound
separately considered. determination will be obtained.
(c) Comparisons. In evaluating the con(b) The contractor will be given an oppor
tractor's performance, comparisons will be
made with the prices, costs and profits of other tunity to develop and present whatever information is available to it which the contractor
contractors engaged in the production of the
same or similar products or using the same or may consider pertinent to the determination.
(d) Significance of settlements or profits or
losses in prior years.-Renegotiation settletor or its representatives will be kept to a
ments for prior years are not controlling preceminimum.
dents. Consideration will be given to profits or (a) Financial and factual information will
losses in prior years only to the extent provided be reviewed with the contractor and its agree
elsewhere in these regulations. Except to that ment to the accuracy of such information will
extent, determinations of excessive profits will be obtained.
be predicated on the facts and circumstances of (e) The contractor will be given every rea- the year under review. sonable assistance and all necessary information (e) Reserves for possible renegotiation rewith respect to the technical requirements of fund. It is recognized that sound accounting renegotiation, the act, and the regulations in principles may make it desirable for contracthis subchapter.
tor's to establish reserves for possible renegotia(f) The facts and conclusions with respect
tion refunds and that the amount of such
reserves established in individual situations will tiation of an affiliated or related group, whether
shall be reduced to the same fractional part
cable to the uncompleted portions of terminated
prime contracts and subcontracts is made in tractor's lack of adequate working capital will accordance with the principles set forth in secnot be taken into consideration in determining tions 1457.6 and 1459.1(c) of this subchapter, excessive profits to be eliminated.
separate consideration will be given to such 1460.5 Minimum refund.Except as here- items in the light of the applicable factors in inafter provided, and in the absence of unusual determining excessive profits. The evaluation of circumstances, no determination of excessive
the contractor's performance with respect to the profits shall be made if such excessive profits uncompleted portions of terminated prime conbefore adjustment for State taxes measured by tracts and subcontracts will be considered in income amount to (paragraphs (a) and (b) connection with the evaluation of the contracremoved to Appendix), or (c) less than $40,000 tor's performance of the completed portions of with respect to any fiscal year ending on or after such prime contracts and subcontracts and with June 30, 1953, or (d) less than $10,000 with re- that of other prime contracts and subcontracts spect to any fiscal year in the case of sub- in determining the excessive profits, if any, for contracts described in section 103(g) (3) of the the period involved in the renegotiation. act. If a determination of excessive profits (b) Evaluation of performance. The evalwould be made at or in excess of the applicable uation of the contractor's performance with reminimum amount but for the limitation set
spect to the uncompleted portions of terminated forth in section 105(f) (1) or (2) of the act and prime contracts and subcontracts will be meas§ 1458.3 (a) or (b) of this subchapter, the de- ured by the nature and extent thereof. The more termination will be made in accordance with nearly the nature and extent of such performsuch limitation even though the amount of the ance approximate the nature and extent of the determination is less than the minimum pre- contractor's performance of completed conscribed by this section. For example, if renego- tracts and subcontracts of the same type, the tiable receipts or accruals are $258,000, and more nearly the evaluation of such performance excessive profits would be determined as $20,000 will approach that given to the contractor's perbut for the statutory limitation that the exces- formance of the completed prime contracts and sive profits to be eliminated in such case shall subcontracts. On the other hand, if the contracnot exceed $8,000 (the difference between tor's performance under the uncompleted por$258,000 and $250,000) a determination in the tions of terminated prime contracts and subconamount of $8,000 will be made. In the renego
tracts has consisted largely of the acquisition
Recovery of Excessive Profits After Determination
(b) Interestm(1) In general. Except as set
forth in this paragraph, and in the absence of 1461.2 Recovery of refund pursuant to agreement.
unusual circumstances, renegotiation agree-
ments will not provide for the payment of in-
terest on any refund of excessive profits.
(2) Installment payments. When a renement or order.
gotiation agreement provides for a refund of AUTHORITY : Sections 1461.1 to 1461.5 issued under
excessive profits in installments, the agreement section 109, Pub. Law 9, 820 Cong. Interpret or apply
will require the payment of interest at the rate section 105, Pub. Law 9, 820 Cong.
of 4 per centum per annum upon the amount 1461.1 Collection authority Section 105
of any such installment (other than the first
installment payable under the agreement)
years after the close of the fiscal year to which
the agreement relates, such interest to accrue
and be payable from and after the date which
after the date on which the first installment is
due and payable, whichever is later.
(C) by directing any person having a contract with (3) Default.Pursuant to section 105 (b) (2)
and be paid on any amount due and unpaid
under a renegotiation agreement from the date tractor, having excessive profits to be eliminated, and
of such default to the date of payment. Such every such person or subcontractor receiving such direction shall withhold and pay over to the United interest shall accrue and be paid whether or not States the amounts so required to be withheld; the agreement contains a provision for the pay(D) by recovery from the contractor or subcontrac
ment of interest. tor, or from any person or subcontractor directed under
1461.3 Recovery of refund pursuant to subparagraph (C) to withhold for the account of the United States, through payment, repayment, credit, or
unilateral order.. Pursuant to section 105(b) suit any amount of such excessive profits realized by the (2) of the act, interest at the rate of 4 per contractor or subcontractor or directed under subpara- centum per annum shall accrue and be payable graph (C) to be withheld for the account of the United
on the amount of excessive profits determined States; or
from the thirtieth calendar day after the date (E) by any combination of these methods, as is deemed desirable.
of the order of the Board or, in Class B cases 1461.2 Recovery of refund pursuant to
(see § 1471.2(b) of this subchapter), if the
Board does not initiate a review of a determinaagreement. (a) In general.The elimination of excessive profits ordinarily will be effected
tion made by a Regional Board, from the pursuant to an agreement providing for a re
thirtieth calendar day after the date that the fund in renegotiation proceedings with respect
order embodying such determination is deemed to a completed fiscal period. Such refund may
to be the order of the Board pursuant to the be made by the contractor in a single payment provisions of § 1475.3(b) (3) or (4) of this or in installments as the agreement may provide. subchapter, respectively.