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by sending a registered letter to the common separately, renegotiations with the individual parent corporation of such group, and such members of such group will if practicable be letter will constitute an acknowledgment by conducted concurrently. the Board that the group has complied with the 1464.11 Separate renegotiation of par. regulations of the Board with respect to (1) tial fiscal years. When amounts received or the determination and elimination of excessive accrued during a portion of a person's fiscal profits of such affiliated group, and (2) the year or years are included in a consolidated prodetermination of the amount of excessive profits ceeding, such person shall, notwithstanding the of such affiliated group allocable, for the pur- provisions of § 1470.3(h) of this subchapter, poses of section 3806 of the Internal Revenue file in full a Standard Form of Contractor's ReCode, to each member of such affiliated group port for each of such fiscal years. Such Standunless the Board has previously made such an ard Form of Contractor's Report shall reflect acknowledgment. The Board will commence re- separately the amounts received or accrued by negotiation with a related group on a consoli- such person which are included in the consolidated basis by sending a registered letter to the dated proceeding. Such person will be renegotimember of such group designated as agent pur- ated separately with respect to the receipts or suant to paragraph (b) of this section, and such accruals reflected on such Standard Form of letter will constitute the granting by the Board Contractor's Report which are not included in of the request of such related group for re- the consolidated proceeding: Provided, horonegotiation on a consolidated basis, unless the

ever, That such separate renegotiation will be Board has previously granted such request. conducted concurrently with the consolidated

1464.8 Allocation of excessive profits. proceeding, if practicable. Excessive profits, whether determined by agree- 1464.12 Renegotiation losses of consoliment or order, will be allocated among the dated contractors. (a) Scope and effect of members of the consolidated group and when section. This section explains how a renegotianecessary among different fiscal years of any tion loss sustained by a contractor in a fiscal member in an equitable manner, and the agree- year prior to the fiscal year under review will ment or order will disclose the allocation. The

be treated pursuant to section 103(m) of the excessive profits will be so allocated even though act when such contractor (1) was a member some or all of the members of the consolidated of a consolidated group in the loss year, or (2) group participate in filing a consolidated Fed- is a member of a consolidated group in the eral tax return. If excessive profits have been fiscal year under review. For regulations perrealized and if the renegotiation agreement or taining to the carryforward of a renegotiation order were to impose liability generally on the loss sustained by a single contractor, see § 1457.9 entire consolidated group for the profits found

of this subchapter. to be excessive, without fixing the separate allo

(b) Definitions. As used in this section: cations, the members of the group might not (1) The term "consolidated renegotiation be allowed appropriate deductions for Federal

loss” means the amount by which the aggregate income and excess profits tax purposes under

costs paid or incurred by the members of a consection 3806 of the Internal Revenue Code.

solidated group with respect to renegotiable 1464.9 Liability of members of affiliated

receipts or accruals in a fiscal year exceed the or related groups. Although excessive prof.

aggregate renegotiable receipts cr accruals of its to be eliminated will be allocated to mem- such group in such fiscal year. bers of an affiliated or related group, each (2) The term “loss member" means a contracmember of the affiliated or related group shall

tor which sustains a renegotiation loss for a be jointly and severally liable for the total

fiscal year in which it is a member of a group amount of excessive profits, if any, to be

that sustains a consolidated renegotiation loss. eliminated as determined in the consolidated

(c) Carryforward for loss member of a conproceeding

solidated group. If a contractor who was the 1464.10 When consolidated basis not sole loss member of a consolidated group in a used. Whenever the members of an affili- loss year is renegotiated separately for subseated group or a related group are renegotiated quent fiscal years, the amount of the consoli


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dated renegotiation loss sustained by the group

consolidation in the loss year, and the aggregate shall be a renegotiation loss carryforward for amount so allowed will be limited to the amount, such contractor to each of the 5 fiscal years fol- if any, which would have been the consolidated lowing the loss year, and shall be subject to the renegotiation loss of such group in the loss year. provisions of this section and § 1457.9 of this In computing such amount, if any member of subchapter. If the group included more than the consolidated group was not a renegotiaone loss member and the members are renegoti- ble contractor in the loss year, but succeeded ated separately thereafter, the consolidated re- thereafter to the business of a renegotiable connegotiation loss will be allocated among the loss tractor and was owned during the fiscal year members in proportion to the amount of loss under review by the same person or substansustained by each, and the share so allocated to tially the same persons who owned such predeeach loss member shall be a renegotiation loss cessor in the loss year, the receipts or accruals carry forward for such contractor to each of the and costs of such predecessor will be included 5 fiscal years following the loss year, and shall in the computation. The following examples be subject to the provisions of this section and illustrate how the limitation in this subpara8 1457.9 of this subchapter.

graph is computed and applied: Hæample. In Year 1, A, B, and C were members of

(1) Members were all separate in lo88 year.. a consolidated group. A realized renegotiable profits In Year 1, A, B, and C would have qualified of $240,000; B sustained a renegotiation loss of for consolidated renegotiation, but were not $200,000; and sustained a renegotiation loss of

consolidated. A realized renegotiable profits of
$100,000. The consolidated renegotiation loss of the

$240,000; B sustained a renegotiation loss of
group was $60,000. If the members are renegotiated
separately in Year 2, $40,000 will be allowed as a

$200,000; and C sustained a renegotiation loss cost to B and $20,000 to O.

of $100,000. If A, B, and C were renegotiated No amount of a consolidated renegotiation loss separately in Year 2, $200,000 would be allowed will be allowed as a carryforward (1) if such

as a cost to B and $100,000 to C. However, A, loss resulted from gross inefficiency; and (2)

B, and C are a consolidated group in Year 2, unless it is shown that any loss member of such

with renegotiable profits of $40,000. Had they group has reasonably pursued available reme

been consolidated in Year 1, the consolidated dies for obtaining relief from such loss. renegotiation loss of the group would have been (d) Carryforward to consolidated group.

only $60,000. It is this amount of $60,000, and (1) When group was identical in lo88 year.

not the aggregate of $300,000 of renegotiation If a group consolidated in the fiscal year under

losses sustained by B and C, which is allowed review sustained a consolidated renegotiation as a cost to the consolidated group in Year 2. loss in a prior fiscal year, the amount of such

The $20,000 of loss remaining after such allowloss shall be a renegotiation loss carryforward

ance is carried forward to Year 3 and is allowed for the group to each of the 5 fiscal years fol

as a cost to the consolidated group in that year. lowing the loss year, and shall be carried for- (ii) Members were in different groups in ward in the manner provided in this section loss year.-In Year 1, A, B, and C were memand 1457.9 of this subchapter.

bers of a consolidated group; D and E were (2) When members were separate or in dif

members of another consolidated group; and ferent groups in lo88 year. If the members of all five would have qualified for consolidation a group consolidated in the fiscal year under as a single group. Their renegotiable profits review did not constitute a consolidated group

and losses were as follows: A, profit $240,000; of identical membership in a prior fiscal year

B, loss $200,000; C, loss $100,000; D, profit in which one or more of such contractors sus

$100,000; and E, loss $150,000. The consolidated tained renegotiation losses, such losses shall be renegotiation loss of A, B, and C was $60,000, carried forward as provided in this section and

allocable $40,000 to B and $20,000 to C. The $ 1457.9 of this subchapter. Such losses will be

consolidated renegotiation loss of D and E was allowed as carry-forwards to the consolidated $50,000, allocable entirely to E. In Year 2, A, group in the fiscal year under review; but no B, D, and E form a consolidated group, withsuch amount will be so allowed unless the mem

out C. If A, B, D, and E had consolidated in bers of such group would have qualified for Year 1, the consolidated renegotiation loss of 2-15-08

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affiliated group:

the group would have been only $10,000. Al- (f) Withdrawal from consolidated renego.
though the allocable shares of B and E as shown tiation. Removed to Appendix.
above aggregate $90,000, the amount allowable

to the consolidated group in Year 2 is limited
to $10,000. The $20,000 allocable to C is allow- 1464.90 Letter form of request for rene-
able to Cin that amount in Year 2.

gotiation on consolidated basis (affiliated
(iii) Some members were separate and others group).—The following letter is prescribed
were in different group in loss year.-(a) In for requesting consolidated renegotiation of an
Year 1, A (loss $500,000), B (profit $100,000),
and C (profit $300,000) were members of a

consolidated group. The consolidated renegotia-
tion loss of A, B, and C was $100,000, allocable

Washington 25, D.O. entirely to A, D (profit $200,000) was renego

GENTLEMEN: tiated separately for the same year and made a 1. Pursuant to the provisions of section 105(a) of renegotiation refund in the amount of $30,000, the Renegotiation Act of 1951 and Part 1464 of the

Renegotiation Board Regulations, the undersigned retaining $170,000 after renegotiation. E, a

corporations hereby request renegotiation on a conpartnership (profit $40,000) was also renego

solidated basis for the fiscal year ended tiated separately. In Year 2 the partners dis

2. The undersigned represent that they constitute solved E and formed a corporation F, which all the members of an "affiliated group" as that term continued the partnership business. Assume A, is defined in section 141(d) of the Internal Revenue B, C, D and E would have qualified for con- Code, except those listed as follows: solidation in Year 1.

Fiscal period (6) In a Year 2 consolidated group com- Name of corporation Principal

Began posed of A, B, C, and D, no amount of loss carryforward would be allowed to the group because A, B, C, and D as a group in Year 1 would have realized a group profit of $70,000. In making this computation, D's profits are reduced by its $30,000 renegotiation refund. The corporation or corporations listed above have not (c) In a Year 2 consolidated group com

joined in this request because each such corporation

(a) was not a member of such affiliated group during posed of A, B, and D, the full amount of the

the entire fiscal year of the common parent corpora$100,000 consolidated renegotiation loss al

tion, or its fiscal year for Federal income tax purlocable to A would be allowed to the group.

poses did not end on the same date as the fiscal year (d) In a Year 2 consolidated group com- of the common parent corporation, and (b) does not posed of A, B, C, and F, their consolidated

qualify for consolidated renegotiation with the underrenegotiation loss as a group in Year 1 would signed within the exceptions provided in 8 1464.2(b) have been $60,000; hence that amount would of said regulations as set forth in Schedule A at

tached hereto; or because it had no renegotiable busibe allowed as a loss carry forward to the group. .

ness during the year under review. (e) Carryforward upon acquisition of busi

3. Each of the undersigned hereby consents, for ne88.--The provisions of $ 1457.9(e) of this

said fiscal year, to the Renegotiation Board Regulasubchapter shall apply to the carryforward of

tions with respect to (a) the determination and elimilosses under this section.

nation of excessive profits of the undersigned affili





such fiscal year. These conditions are year under review and the preceding fiscal year
plained in the succeeding paragraphs of this are non-renegotiable. Sales for this purpose are

to be determined by any of the sales segregation
(b) Stock or catalog sales.-(1) The first methods acceptable, for purposes of renegoti-
requisite of a standard commercial article, as ation, in accordance with Part 1456 of this
provided in section 106(e) (4) (B) (i) of the act, subchapter.
is that the article must be customarily main- (2) In computing non-renegotiable receipts
tained in stock by the contractor, or must be or accruals for the purpose of subparagraph
offered for sale in accordance with a price (1) of this paragraph, the contractor shall
schedule regularly maintained by the con- not include as non-renegotiable the receipts

or accruals which it considers to be exempt
(2) An article is "customarily maintained in under this section. Also, the extent to which a
stock” if it is customarily kept in continuing prime contract or subcontract for new durable
inventory on a maximum-minimum or other ac- productive equipment is exempt by reason of
ceptable inventory basis, and if sales orders are section 106(c) of the act shall be disregarded;
customarily filled from such supply.

every such prime contract or subcontract shall,
(3) The expression "offered for sale in ac- for such purpose, be considered wholly renego-
cordance with a price schedule regularly main-

tiable. tained by the contractor" means that the prices

Example. A contractor manufactures and sells and terms at which the article is customarily typewriters to order. Its catalog lists a standard office sold by the contractor are made available to cus- model in either a black or gray finish, with no differtomers generally, by either a catalog, a price

ence in price, but $10.00 higher if equipped with elite

type rather than pica type. In the fiscal year under list, or any other acceptable means. The price

review, the contractor has $80,000 of renegotiable sales schedule need not state separately the price of

and $20,000 of nonrenegotiable sales of black standevery article, but may show the prices of certain

ard office typewriters with elite type. Of the gray basic articles and extra charges for other arti- typewriter with elite type, the contractor has renegocles containing specific variations. The fact that tiable sales of $60,000 and non-renegotiable sales of

$40,000 in the fiscal year under review. Of total sales of seasonal or other general price adjustments are

$200,000, only 30 percent are non-renegotiable. Thus, made in a price schedule does not necessarily

the exemption does not apply unless, by including its mean that it is not regularly maintained. When

sales in the preceding fiscal year, the contractor attains the contractor customarily offers an article for the qualifying percentage. Assume that in the preceding sale in accordance with daily or other period- fiscal year the contractor had renegotiable sales of

$10,000 and non-renegotiable sales of $90,000 of the ically published market quotations, such quota

black typewriter with elite type, and had no renegotitions will be considered to be a price schedule

able sales and $50,000 of non-renegotiable sales of the maintained by the contractor.

gray typewriter with elite type. Now, of aggregate sales (c) The 35 percent test.-(1) The second

of $350,000 for the two years, the contractor's sales of requisite of a standard commercial article, as typewriters with elite type are well above 35 percent,

and thus that article qualifies for exemption as a standprovided in section 106(e) (4) (B) (i) of the

ard commercial article in the fiscal year under review. act, is that the non-renegotiable receipts or ac

Since the typewriter with pica type is sold at a different cruals of the contractor from sales of the article

price, it is a different article (see $ 1467.23) and the must aggregate at least 35 percent of the con- sales thereof must be considered separately for purpose tractor's total receipts or accruals from such of the exemption. sales in the fiscal year under review, or in such 1467.26 Exemption of “like articles”.(a) fiscal year and the preceding fiscal year. The In general. Section 106(e)(1)(B) of the act purpose of this requirement is to establish the

exempts an article which is “identical in every existence of a commercial market for the arti

material respect with a standard commercial cle. The requirement is met if at least 35 percent

article”, as that term is defined in section 106(e) of the contractor's sales of the article in the

(4)(C), and whether or not the contractor has fiscal year under review are non-renegotiable. waived the exemption with respect to such standIf this is not the case, the contractor may still ard commercial article. The statute contemsatisfy the requirement if at least 35 percent of plates that such an article, although not itself a its aggregate sales of the article in the fiscal standard commercial article, is sufficiently like a

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standard commercial article to warrant similar able deviations from the standard commercial treatment for renegotiation purposes. The ex- article selected for comparison. For example, an emption of such “like articles” is not self-execu- ultra-precison bearing manufactured to exting; it may be obtained only by application to tremely close tolerances is not considered to be the Board, upon a showing that all of the condi- an article of the same kind as a bearing manutions prescribed in section 106(e) (4) (C) exist. factured of the same materials but to much If any of such conditions is not present, the ar- wider tolerances. Also, a capacitor for an airticle is not identical in every material respect craft electronic asembly, having an estimated with a standard commercial article, and the ex- reliability ratio of 1 unit in 20,000 units and emption does not apply. The necessary condi- requiring 40 hours to manufacture, is not contions are explained in the succeeding para

sidered to be an article of the same kind graphs of this section.

as a capacitor for a commercial radio, hav(b) Limitations.-(1) This exemption, if ing an estimated reliability ratio of 1 unit in granted, is effective only with respect to the only 200 units and requiring only 2 hours to fiscal year under review. If exemption is desired manufacture. for any other year, separate application must be (3) The term "of the same kind” will also be made therefor to the Board.

construed to exclude obviously unlike articles (2) The standard commercial article se- which, for accounting or other purposes, are lected for comparison must be one sold by the sometimes grouped together by the contractor contractor itself in the fiscal year under re- in a single general classification. For example, view. The requirements of the statute can- ordinary commercial plate and armor plate are not be satisfied by comparing like articles with

not considered to be articles of the same kind standard commercial articles sold by other con- although both may be carried by the contractor tractors in the fiscal year under review, or with under the single accounting classification of standard commercial articles sold by the con- "plate". tractor or by other contractors in any fiscal year (d) Same or substitute materials."-(1) other than the fiscal year under review.

Section 106(e) (4) (C) (i) provides that a like (3) No standard commercial article may be

article must be "manufactured of the same or used under this section as a basis to exempt

substitute materials" as the standard commore than one like article. When exemption is mercial article selected for comparison. This sought for two or more articles on the ground requirement may be satisfied without the that each is identical in every material respect two articles necessarily being of identical with the same standard commercial article, specifications. exemption must be sought on the class basis pro- (2) The term "same or substitute materials" vided in section 106(e) (2) and (4) (G) of the will be construed to exclude materials having act (see § 1467.27).

substantially different combinations of elements (c) Of the same kind.-(1) Section 106 or ingredients and, consequently, different in(e) (4) (C) (i) of the act provides that a like

dustrial or commercial use. For example, alumiarticle must be "of the same kindas the stand- num sheet made of an alloy containing 5 percent ard commercial article selected for comparison. zinc is not an article manufactured of “the same In determining whether articles are of the same or substitute materials" as aluminum sheet of kind, the Board will consider both their generic the same dimensions but made from an alloy and their specific qualities or attributes. The

containing 4 percent copper and having signifiarticles need not be of identical specifications.

cantly different performance characteristics, The uses made or to be made of the respective such as melting temperature, strength, etc. Be articles will be taken into consideration, but cause of these differences, and because one such uses need not be identical.

of these alloys is used predominantly in high(2) The term "of the same kind” will be speed airplane construction and users are fairly narrowly construed to exclude unreason- willing to pay a considerably higher price

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