1461.4 Withholding as a method of re- applicable provisions of section 106(b) (6) of
covery.-(a) Excessive profits may be elimi- the act and also to the applicable provisions of
nated by withholding the amount thereof from the Assignment of Claims Act of 1940, as
amounts otherwise due to a prime contractor amended.
or by directing any person having a contract 1461.5 Administration of determinations
with any agency of the Government, or any by agreement or order.-(a) The Secretary
subcontractor thereunder, to withhold for the of each of the Departments is authorized to
account of the United States amounts otherwise

eliminate, by any of the methods set forth in
due from such person or such subcontractor to section 105(b) of the act, all excessive profits
a prime contractor, or subcontractor, having ex- which he is directed by the Board to eliminate.
cessive profits to be eliminated. Excessive profits (b) When an agreement is made, or when the
to be eliminated by such direction shall include Board makes and enters an order determining
the interest thereon, if any, as provided by sec- excessive profits, or when an order of a Re-
tion 1461.2(c).

gional Board determining excessive profits is (b) Withholding by any person having a deemed to be the order of the Board pursuant to contract with any agency of the Government, the provisions of section 1475.3(b) (3) or (4) or by any subcontractor thereunder, will be of this subchapter, respectively, the Board will effected by such person or such subcontractor direct the Secretary of one of the Departments upon a direction issued by a Secretary of a to eliminate such excessive profits by any of the Department or pursuant to his authority. No methods set forth in section 105(b) of the act. amounts shall be withheld, in accordance with (c) Pursuant to each direction referred to in the provisions of this section, by any such per- paragraph (b) of this section, in the case of an son or any such subcontractor other than by

agreement, the Secretary shall first endeavor to authority of a direction issued by, or pursuant effect the collection of the amount of excessive to the authority of, a Secretary of a Depart- profits determined by such agreement in acment. Any amount so withheld by any person or cordance with the terms and conditions of the any such subcontractor shall be held by him agreement and to secure the performance by the for the account of the United States and shall contractor of any other provisions which may be paid only upon a direction issued by or pur- be included therein. If the contractor does not suant to the authority of a Secretary of a De- pay the full amount of such excessive profits in partment. The act indemnifies each person accordance with the terms and conditions of the against all claims on account of amounts so agreement, the Secretary may use such of the withheld and paid over to the United States. other methods for the elimination of excessive

(c) Action to withhold under prime contracts profits set forth in section 105(b) of the act as and subcontracts may be taken upon default in

he in his discretion shall deem necessary or apthe elimination of excessive profits determined propriate to effect the collection of the amount by agreement as well as in cases of determina- unpaid. If, however, within the time provided in tions of excessive profits made by unilateral $ 1474.6 of this subchapter, the contractor has order.

made a timely request for an extension of time (d) Any withholding or recovery under any to pay any amount due and payable under the prime contract with any Department or agency, agreement, the Secretary will not, before such or related subcontract, when claims under such request is acted upon by the Board, use any of prime contract or subcontract have been as- such collection methods other than the withsigned to any bank, trust company, or other holding of such amount, or any part thereof, financing institution, shall be subject to the from amounts otherwise due to the contractor

etermination The Sec authorized

set forth in site probe O eliminate or when the etermining

Part 1462 Renegotiation and Taxes

profits is

suant to

Sec.

(2) When excessive profits are determined 1462.1 Scope of part.

for a taxable year for which completo Federal 1462.2 Statutory provisions.

income tax returns, as distinguished from ten-
1462.3 Renegotiation after filing of Federal tax re-

tative returns, have been filed, the difference
turns.
1462.4 Determination of Federal tax credit for part- between the amount of Federal income tax as-
nerships and joint ventures.

sessed in respect of the contractor's income for
1462.5 Determination of Federal tax credit for sole

the period (including the excessive profits) and proprietor, partnership and joint venture in

the amount of Federal income tax which would community property States.

have been assessed if the excessive profits had 1462.6 Determination of Federal tax credit in the case

of a joint return by husband and wife. been excluded from the returns, is allowed as a 1462.7 Renegotiation before filing of Federal tax re

credit against the excessive profits determined. turns.

(3) The amount of the credit is based upon 1462.8 Special allocations of excessive profits elimina

the amount of taxes assessed before the credit tion required for Federal tax purposes.

computation. If the assessment based upon AUTHORITY: Sections 1462.1 to 1462.8 issued under

the return filed has not been revised by the section 109, Pub. Law 9, 82d Cong. Interpret or apply

Bureau of Internal Revenue, the credit is comsection 105, Pub, Law 9, 820 Cong.

puted upon the basis of such assessment. If
1462.1 Scope of part. This part deals with

such assessment has been revised, the credit
the effect of renegotiation upon a contractor's
Federal income tax.

is computed upon the basis of the revised

assessment. 1462.2 Statutory provisions.--(a) Section

(4) Adjustments of a contractor's returns 105(b) (8) of the act provides as follows:

to reflect the reduction of taxable gross and net In eliminating excessive profits, the Secretary shall

income and the amount of tax are made by the allow the contractor or subcontractor credit for Fed

Bureau of Internal Revenue after tax credits eral income and excess profits taxes as provided in

have been allowed. Any subsequent changes section 3806 of the Internal Revenue Code.

in the contractor's net income or tax liabilities (b) Section 3806 of the Internal Revenue

are based upon these adjusted figures. Amended Code requires, as a general rule, that the

returns are not to be filed. amount of a contractor's Federal income tax,

(5) The effect of this credit provision is to which has been assessed for the taxable year

require precisely the same aggregate amount of under renegotiations in respect of excessive

payments to the Government (as taxes and exprofits realized in such year, be allowed as a

cessive profits) when renegotiation occurs after credit against the total excessive profits to be

the filing of Federal tax returns, as would have eliminated.

been required if the gross amount of the exces1462.3 Renegotiation after filing of Fed

sive profits had been repaid to the Government eral tax returns.--(a) Allowance of credit for before the filing of the Federal tax returns and Federal taxes.-(1) The allowance of a credit no Federal taxes had been assessed. for Federal taxes is provided by section 3806 of (b) Computation of credit for Federal the Internal Revenue Code for the purpose of taxes.--(1) The Bureau of Internal Revenue relieving contractors from double payments of computes the credit allowable under section 3806 excessive profits to the United States, once in of the Internal Revenue Code for Federal inthe form of taxes and again as excessive profits, come taxes assessed for a prior taxable year. The and to avoid the necessity for tax refunds by contractor shall submit a written request for the Treasury.

such computation directly to the Director of

2-15-08

241

ten of BTOSISIC 011 25 Con 172 before

1492 profit purpo porte

a bas Degi be e the the

COL
Be

WE

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Internal Revenue where the contractor filed its dividual Federal income taxes of A and B will
tax returns for the taxable year involved. Such represent the credit to be allowed, under section
request shall state that such tax returns include 3806, against the partnership’s obligation to re-
as income the amount with respect to which a fund excessive profits of $1,000,000.
tax credit is claimed.

1462.5 Determination of Federal tax
(2) If the original or any amended returns credit for sole proprietor, partnership and
for the taxable year involved have been filed joint venture

venture in community property
less than one year before the request for tax States. If a portion of the excessive profits
credit computation is made, a photostatic or received or accrued by a sole proprietor, part-
certified copy of each such return shall be sub- ner, or joint venturer in any taxable year was
mitted with such request to the Director of included in the Federal income tax return of
Internal Revenue. There shall be attached to his or her spouse, by virtue of the community
each such return a statement, signed by the tax- property laws of the State in which they were
payer, or by a responsible official of the tax- domiciled during such year, the tax credit
payer, certifying that the copy so submitted is allowed under section 3806 will include the
a true and complete copy of the return as signed, amount, as determined by the Director of In-
except (if such is the case) that schedules not ternal Revenue, by which the tax of the spouse
pertinent to the tax credit computation are is decreased by the elimination of the excessive
omitted.

profits. In such cases, both the husband and
(3) The contractor shall mail to the Board the wife shall submit to the Director of Internal
a copy of each request made to the Director of Revenue a written request for a determination
Internal Revenue. Copies of tax returns will of tax credit.
not be enclosed with copies of requests so mailed 1462.6 Determination of

of Federal tax to the Board.

credit in the case of a joint return by hus1462.4 Determination of Federal tax band and wife.--If all or a portion of the excredit for partnerships and joint ventures. cessive profits received or accrued by a sole pro(a) Since a partnership files only an informa- prietor, partner, or joint venturer was included tion return and the Federal tax is imposed on in a Federal income tax return made jointly the individual income of the partners, the tax with his or her spouse and the tax is computed credit to which a partnership is entitled under with respect thereto under section 12(d) of section 3806 for the taxable year under renego- the Internal Revenue Code, the tax credit altiation is the aggregate amount of the separate lowed under section 3806 will be the amount, as credits to which the individual partners are en- determined by the Director of Internal Revetitled, because their shares of the partnership’s nue, by which the tax of the spouses under the income are reduced by the elimination of the joint return is reduced by reason of the eliminaexcessive partnership profit. A request for a tion of the excessive profits. In such cases, both credit computation shall be made for each spouses shall submit to the Director of Internal partner.

Revenue a written request for a determination (b) For example, if A and B are partners of tax credit. with 60 percent and 40 percent interests, re- 1462.7 Renegotiation before filing of Fedspectively, and the partnership has realized eral tax returns. (a) Exclusion of excessive excessive profits of $1,000,000 for a prior tax- profits from returns.-(1) When, as a result of able year, the elimination of $1,000,000 exces- renegotiation, the amount of excessive profits sive profits of the partnership will reduce the is determined for a period for which Federal taxable income of A for the year by $600,000 income tax returns have not yet been filed, such and that of B by $400,000. Upon request for a amount of excessive profits may be excluded determination of credit under section 3806, the from the contractor's income tax returns for the Director of Internal Revenue will determine period. the amount by which the elimination of those (2) The amount of excessive profits elimiexcessive profits would reduce the individual nated for a particular taxable year may not be income taxes of A and B for the year. The deducted or excluded from taxable income for aggregate amount of such reductions in the in

any other taxable year.

(3) For the tax effect of renegotiation for negotiation has been conducted on a completed
periods for which Federal income tax returns contract basis although the contractor has used
have not been filed, see I.T. 3577, I.T. 3611 and some other method of accounting for Federal
I.T. 3671 (pages xlii to xlv).

tax purposes in reporting income from some
(b) Effect of tenative tax return. When a or all of the contracts covered by the
contractor has filed a tentative return for the

renegotiation.
year involved and has been granted an exten- (b) When renegotiation is conducted on a
tion of time for filing its completed return, the consolidated basis, excessive profits to be elim-
provisions of I.T. 3577, I.T, 3611 and I.T. inated will be allocated between the entities so
3671 as noted in paragraph (a) (3) of this sec- consolidated. (See sec. 1464.8 of this subchap-
tion will apply if the renegotiation takes place ter.)
before the filing of the complete return.

(c) The allocation of excessive profits will
1462.8 Special allocations of excessive be made by the Board and not by the contractor.
profits elimination required for Federal tax The contractor may, however, furnish or be re-
purposes.--(a) When the contractor has re- quired to furnish such supplementary informa-
ported earnings for Federal tax purposes on tion in explanation of the sources of taxable in-
a basis different from the basis upon which re- come reported for any year as may be pertinent
negotiation is conducted, the excessive profits to to such allocation.
be eliminated will, for purposes of computing (d) Allocations of excessive profits to be
the allowable tax credit under section 3806 of eliminated under paragraphs (a) and (b) of
the Internal Revenue Code, be allocated to the this section will be set forth in the renegotia-
contractor's taxable year or years in which the tion agreement or in the unilateral order deter-
Board determines that such excessive profits mining excessive profits and shall also be set
were reported as income in the tax returns. This forth in any request to a Director of Internal
procedure is applicable, for example, when re- Revenue for tax credit computation.

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