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Part 1463 Interim Prepayment of Excessive Profits

1463.3

1463.2 What constitutes interim prepay-
Sec.
1463.1 Introduction

ment of excessive profits.-(a) Repricing of
1463.2 What constitutes interim prepayment of ex-

specific contracts.-In any case in which a spe-
cessive profits.

cific prime contract or subcontract is amended
Procedure for acceptance of interim prepay-
ment of excessive profits.

to reduce the price charged, no refund paid as a
1463.4 Treatment of interim prepayment for Fed- result of such amendment will be treated as a
eral income tax purposes.

payment or prepayment of excessive profits. FORMS

(b) Voluntary refunds. A prime contractor

or subcontractor may wish to refund a portion
1463.90 Letter agreement transmitting interim pre-

of its profits to the Government before renegoti-
payment of excessive profits before close
of fiscal year.

ation without making any prior binding agree
1463.91 Letter agreement providing for prepayment ment or prior non-binding statement of policy
of excessive profits after close of fiscal

to make such refunds. Such a refund will, sub-
year.

ject to the conditions set forth in section 1463.3
1463.92 Letter agreement for voluntary prepayment
of excessive profits likely to be received or

be accepted as an interim prepayment of exces-
accrued.

sive profits.
AUTHORITY: Sections 1463.1 to 1463.92 issued under (c) Voluntary refunds of excessive profits
section 109, Pub. Law 9, 820 Cong. Interpret or apply likely to be received or accrued.--A prime con-
section 105, Pub. Law 9, 82d Cong.

tractor or subcontractor may wish to enter into 1463.1 Introduction.--Excessive profits are an agreement with the Board to pay a portion of determined under the act only pursuant to a its profits from renegotiable business to elimirenegotiation proceeding commenced and con- nate excessive profits likely to be received or ducted in the manner prescribed by the regula- accrued. Such prepayments will, subject to the tions in this subchapter. Profits refunded be

conditions set forth in section 1463.3, be accepted fore renegotiation will be deemed to be excessive as interim prepayments of excessive profits profits determined within the meaning of the likely to be received or accrued. act only if such refund is made in the manner

1463.3 Procedure for acceptance of inprescribed in section 1463.3 as an interim pre- terim prepayment of excessive profits.A payment of excessive profits to be determined

refund made under the circumstances set forth by the Board in a subsequent renegotiation and

in section 1463.2(b) will be accepted subject to only to the extent that the amount of such pre- the following conditions: payment is determined in such renegotiation to (a) Each prepayment shall be made pursuconstitute excessive profits within the meaning

ant to a letter agreement in the form prescribed of the act. It is the purpose of this part to set as follows: forth: (a) The circumstances under which the (1) If the refund is made before the close of Board will agree that such prepayments will be

the fiscal year to which it relates, a letter agreeaccepted as interim prepayments of excessive ment in the form set forth in section 1463.90 profits; and (b) the method by which such in- shall be used. terim prepayments may be made. Reference is (2) If the refund is made after the close of made to section 1460.12(b)(3) of this subchap- the fiscal year to which it relates, but before the ter for a discussion of the effect of refunds made Federal tax return for such year has been filed, before renegotiation upon the statutory factor a letter agreement in the form set forth in secof risk.

tion 1463.90 shall be used, except that the word

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2-15-08

"ending" appearing in the first sentence of such under section 1463.3, the prepayment is ultiform shall be changed to "ended”.

mately deemed to be excessive profits deter(3) If the refund is made after the Federal mined within the meaning of the act. tax return has been filed for the fiscal year to

FORMS which the refund relates, a letter agreement in

1463.90 Letter agreement transmitting the form set forth in section 1463.91 shall be used. In this latter case, it will be necessary for

interim prepayment of excessive profits be

fore close of fiscal year.
the contractor to request a tax credit under sec-
tion 3806 of the Internal Revenue Code.
(4) If the contractor desires to pay exces-

(Date)

THE RENEGOTIATION BOARD,
sive profits likely to be received or accrued, it
may enter into a letter agreement in the form

Washington 25, D.O.
set forth in section 1463.92, or in such other

GENTLEMEN: There is herewith (or has been) trans form as the Board and the contractor may agree

mitted to you a check, payable to the Treasurer of the

United States, in the amount of $----------, representupon.

ing profits received or accrued in our fiscal year ending (b) If the contractor who makes a prepay

(hereinafter referred to as "such ment is thereafter renegotiated for the par

fiscal year") derived from prime contracts and/or ticular fiscal year and excessive profits are de

subcontracts subject to the provisions of the Renega

tiation Act of 1951. termined, the prepayment will be included in the

This prepayment is made on the understanding (1) renegotiable receipts or accruals; excessive prof

that such amount shall be deemed to be a payment in its, if any, will be determined upon such basis, elimination of "excessive profits" within the meaning and the prepayment will be applied in elimina- of such term as defined in section 3806 of the Internal

Revenue Code; and (2) that such amount will not be tion of the excessive profits so determined.

included in income in the computation of taxable in(c) If the contractor, for any reason, is not

come for such fiscal year under the Internal Revenue renegotiated for the particular fiscal year, the

Code and, accordingly, no tax credit is allowable prepayment will not be refunded to the contrac- against such amount. The undersigned represents tor, but such prepayment will not be deemed that this payment is not made in satisfaction or dis

charge, in whole or in part, of any legally binding to be excessive profits determined within the

obligation heretofore existing. meaning of the act.

It is agreed that acceptance of this prepayment (d) If the contractor is renegotiated for does not constitute a commencement of renegotiation the particular fiscal year but if the amount of pursuant to the Renegotiation Act of 1951 and that, excessive profits determined is less than the except as provided herein, renegotiation may be con

ducted in all respects as though this prepayment had prepayment, such prepayment will be applied

not been made. It is further agreed that if renegotiain elimination of the excessive profits deter

tion pursuant to the Renegotiation Act of 1951 shall mined, but the excess of such prepayment over hereafter be concluded with respect to such fiscal the amount of excessive profits determined will year, (1) the amount of this prepayment will, for the not be deemed to be excessive profits determined purpose of such renegotiation, be included in renego

tiable receipts or accruals, (2) upon such basis, exwithin the meaning of the act. However, such

cessive profits, if any, will be determined under the excess will not be refunded to the contractor.

Renegotiation Act of 1951 and the regulations pro 1463.4 Treatment of interim prepayment mulgated thereunder and (3) upon such determinafor Federal income tax purposes. Any pre

tion of excessive profits, the prepayment will be

applied in elimination of the excessive profits so deterpayment, if made pursuant to the letter agree

mined, and, to the extent so applied, this prepayment ment set forth in section 1463.90 or section

will be deemed to be excessive profits determined 1463.91 or section 1463.92, is intended to con

within the meaning of the Renegotiation Act of 1951. stitute an elimination of excessive profits with

It is intended that, if any amount of excessive profits in the meaning of section 3806 of the Internal so determined is less than the amount of this prepayRevenue Code, and is to be treated as a reduc- ment, or if for any reason renegotiation pursuant to the

Renegotiation Act of 1951 shall not be concluded with tion of taxable income for the year to which the

respect to such fiscal year, then the excess of the pro prepayment relates. This is true whether or not,

payment or the full amount thereof, as the case

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Part 1464 Consolidated Renegotiation of

Affiliated Groups and Related Groups
Sec.

Section 141(d) of the Internal Revenue Code
1464.1 Consolidated renegotiation of affiliated

of 1939 provides as follows:
group.
1464.2 Request for consolidated renegotiation of (d) Definition of "affiliated group". As used in this
affiliated group; when approved.

section, an "affiliated group" means one or more chains
1464.3 Consolidated renegotiation of a related of includible corporations connected through stock
group.

ownership with a common parent corporation which is
1464.4 Request for consolidated renegotiation of re- an includible corporation if-
lated group; when granted.

(1) Stock possessing at least 95 per centum of the
1464.5 Partial fiscal years.

voting power of all classes of stock and at least 95 per 1464.6 Effect of consolidation.

centum of each class of the nonvoting stock of each of 1464,7 Miscellaneous provisions applicable to con- the includible corporations (except the common parent solidated renegotiation,

corporation) is owned directly by one or more oi the 1464.8 Allocation of excessive profits.

other includible corporations; and 1464.9 Liability of members of affiliated or related (2) The common parent corporation owns directly group.

stock possessing at least 95 per centum of the voting 1464.10 When consolidated basis not used.

power of all classes of stock and at least 95 per centum 1464.11 Separate renegotiation of partial fiscal of each class of the non voting stock of at least one of years.

the other includible corporations. 1464.12 Renegotiation losses of consolidated con- As used in this subsection, the term "stock" does not tractors.

include nonvoting stock which is limited and preferred FORMS

as to dividends.
1464.91 Letter form of request for renegotiation on
consolidated basis (affiliated group).

(2) Section 1504(a) of the Internal Rev1464.91 Letter form of request for renegotiation on enue Code of 1954 (corresponding with secconsolidated basis (related group).

tion 141 (d) of the Internal Revenue Code of AUTHORITY: 88 1464.1 to 1464.91 issued under sec.

1939 and incorporated in the act by the pro109, Pub. Law 9, 82d Cong. Interpret or apply sec. 105. visions of section 7852(b) of the Internal Pub. Law 9, 82d Cong.

Revenue Code of 1954) provides as follows: 1464.1 Consolidated renegotiation of af- (a) Definition of “affiliated group". As used in this filiated group.-(a) Statutory provision.- chapter, the term "affiliated group" means one or more Section 105(a) of the act provides in part as

chains of includible corporations connected through follows:

stock ownership with a common parent corporation

which is an includible corporation ifmo Renegotiation shall be conducted on a consolidated (1) Stock possessing at least 80 percent of the voting basis with a parent and its subsidiary corporations power of all classes of stock and at least 80 percent which constitute an affiliated group under section 141 of each class of the nonvoting stock of each of the (d) of the Internal Revenue Code if all of the cor

inclubible corporations (except the common parent corporations included in such affiliated group request poration) is owned directly by one or more of the other renegotiation on such basis and consent to such regu- includible corporations; and lations as the Board shall prescribe with respect to (2) The common parent corporation owns directly (1) the determination and elimination of excessive stock possessing at least 80 percent of the voting power profits of such affiliated group, and (2) the determina- of all classes of stock and at least 80 percent of each tion of the amount of the excess profits of such affiliated class of the nonvoting stock of at least one of the other group allocable, for the purposes of section 3806 of the includible corporations. Internal Revenue Code, to each corporation included in such affiliated group.

As used in this subsection, the term “stock" does not

include nonvoting stock which is limited and preferred (b) Definition of "affiliated group".-(1) as to dividendo

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(3) The term "affiliated group” as used in 1464.3 Consolidated renegotiation of a this part means a group of corporations which related group. (a) Statutory provision.qualify under the definition quoted in subpara- Section 105(a) of the act provides in part as graph (1) of this paragraph, with respect to

follows: fiscal years to which the Internal Revenue Code

By agreement with any contractor or subcontractor, of 1939 is applicable, or under the definition

and pursuant to regulations promulgated by it, the quoted in subparagraph (2) of this paragraph, Board may in its discretion conduct renegotiation on with respect to fiscal years to which the Internal a consolidated basis in order properly to reflect exRevenue Code of 1954 is applicable. A corpora

cessive profits of two or more related contractors or tion cannot be a member of an affiliated group

subcontractors. unless it is an "includible corporation” as de

(b) Definition of "related group."-A “refined in subsections (e), (f), (g) and (j) of sec

lated group” means two or more related contion 141 of the Internal Revenue Code of 1939,

tractors, one of whom controls the other, or or subsections (b), (c), and (d) of section 1504

others, or who are under common control (see of the Internal Revenue Code of 1954, which- § 1451.31 of this subchapter). The members of ever is applicable (see § 1451.33 of this subchap- the group may consist of persons including corter).

porations, partnerships, joint ventures, associa(c) Fiscal year of an affiliated group. The

tions, sole proprietorship, or a combination of
fiscal year of an affiliated group for the purpose

some or all of these.
of consolidated renegotiation shall be the fiscal (c) Fiscal year of a related group.--The fis-
year of the common parent corporation.

cal year of a related group shall be the fiscal
1464.2 Request for consolidated renego-

year of the member of the related group desigtiation of affiliated group; when approved.

nated as agent in accordance with § 1464.7(b), The Board will approve a request for consoli- except that the Board may, upon application of dated renegotiation of all members of an affil- the group made with the letter requesting coniated group who qualify therefor. A member of solidated renegotiation (§ 1464.91), permit such an affiliated group other than the common par

related group to adopt a different fiscal year unent corporation shall not be deemed to qualify less adoption of such different fiscal year would for consolidated renegotiation unless:

hinder conduct of the renegotiation. The fiscal (a) Such member had renegotiable receipts

year of the agent or the fiscal year adopted, as or accruals during the fiscal year under review;

the case may be, will be referred to hereafter in (b) Except as provided hereafter in this this part as the related group's fiscal year. paragraph, such member was a member of the 1464.4 Request for consolidated renegoaffiliated group during the entire fiscal year of tiation of related group; when granted. In the common parent corporation and its fiscal order properly to reflect excessive profits, the year for Federal income tax purposes ended on

Board may, in its discretion, grant a request for the same date as the fiscal year of the common

a consolidated proceeding with respect to a re

lated group if all the following conditions exist: parent corporation. The foregoing limitation shall not disqualify a member; (1) if the fiscal

(a) Each person in the group had renegotia

ble receipts or accruals during the related period of such member ended on the same date

group's fiscal year under review. as the fiscal year of the other member or mem

(b) Each of such persons who participated bers but began on a later date because such mem

in a consolidated renegotiation for a prior fiscal ber was incorporated during such fiscal year, and

year and whose fiscal year differed from the fisif such member during its entire first fiscal pe

cal year of the related group in that renegotiariod was a member of the group; or (2) if the

tion has, before the close of the renegotiation fiscal period of such member began on the same proceeding for the related group's fiscal year date as the fiscal year of the other member or

under review, adopted under the Internal Revmembers but ended on an earlier date because

enue Code a fiscal year in conformity with the such member was dissolved during such fiscal related group's fiscal year: Provided, however, year and if such member during its entire last That this requirement may be waived by the fiscal period was a member of the group. Board, in its discretion, in the case of any

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contractor who for any reason has ceased to en- whose members has a fiscal year not conforming
gage in renegotiable business before the close of with the related group's fiscal year, that the ac-
the renegotiation proceeding for the related counting records of such member or members
group's fiscal year under review.

do not properly reflect excessive profits for the
(c) Stock possessing at least 80 percent of related group's fiscal year.
the voting power of all classes of stock and at 1464.7 Miscellaneous provisions applica-
least 80 percent of each class of the nonvoting

ble to consolidated renegotiation. A request
stock of each corporate member of the group

for consolidated renegotiation proceedings shall
(except the common parent, if any), and the conform to the following requirements:
right to at least 80 percent of the profits of (a) A request made by an affiliated group
each unincorporated member of the group

shall be made in the form prescribed by
(except the common parent, if any), are owned $ 1464.90. A request made by a related group
directly or indirectly by one or more of the shall be made in the form prescribed by
other members of the group, or by the same § 1464.91. A request by either group shall in-
person or persons other than a member or clude a consolidating income account showing
members of the group.

separately the renegotiable and nonrenegotiable
1464.5 Partial fiscal years. If during a business of each member of the group in the
related group's fiscal year under review a per- detail specified in the Standard Form of Con-
son came under control of, acquired control over tractor's Report. See $ 1470.3(h) of this sub-
or came under common control with another chapter. A request by either group shall con-
member or members of such group, such person

stitute a consent by each member of such group may, in the discretion of the Board, be included to the application of the regulations governing in the consolidated proceeding with respect to consolidated renegotiation. The request shall be his receipts or accruals from the date such con- duly executed by each eligible member of the trol became effective, if such person otherwise affiliated group or by each member of the remeets the qualifications for consolidated renego- lated group. The request shall be filed with the tiation set forth in 8 1464.4. Similarly, if dur- Board on or before the first date on which any ing a related group's fiscal year under review member of the group completes the filing of such control ceases with respect to a person who the Standard Form of Contractor's Report. The is a member of such group, such person may,

in Board may grant requests filed after that date the discretion of the Board, be included in the if no inconvenience to the Board will result. consolidated proceeding with respect to his re- (b) A request filed by the members of an ceipts or accruals up to the date such control affiliated group shall designate the common ceased, if such person otherwise meets the quali- parent corporation as agent of the group and fications for consolidated renegotiation set forth shall authorize such parent corporation to repin 8 1464.4.

resent all members of the group in all respects 1464.6 Effect of consolidation.

Once the in connection with the consolidated proceeding. Board has granted a request for renegotiation A request filed by the members of a related of an affiliated group or related group on a group shall designate one member of the group consolidated basis, then, except as otherwise as agent of the group and shall authorize such provided herein, the proceeding will remain member to represent all members of the group consolidated for all purposes, regardless of

in all respects in connection with the consoliwhether a clearance issues or excessive profits dated proceeding. Such authorization in either are determined by agreement or order. How- case shall be irrevocable as long as renegotiation ever, on request of any member of the group or is conducted on a consolidated basis, and shall on its own motion, the Board may discontinue apply to all phases of the proceeding including the consolidated proceeding and convert it to commencement of renegotiation, submission of separate renegotiation proceedings or consoli- data, the making and execution of renegotiation date a different group, if satisfied that the con- agreements, administrative review, and petition solidation was improperly effected pursuant to

to the Tax Court. the regulations in this subchapter or, if satisfied (c) The Board will commence renegotiation in the case of a related group, one or more of with an affiliated group on a consolidated basis 2-10-08

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