the State income taxes of the partners or the proprietor. (4) If a so-called "salary allowance" is made in renegotiation for the services of partners or proprietors, the amount of such "salary" allowed to each partner or to the proprietor will be deducted from the partner's or proprietor's share of non-excessive renegotiable profits before calculation of the State income tax attributable to such non-excessive renegotiable profits. Such "salary allowance" will also be deducted before calculating any such unincorporated business tax adjustment. 1459.10 Costs incident to discontinuance of a renegotiable operation.-(a) In general.-Costs paid or incurred upon the physical termination of a renegotiable operation will be allocated to renegotiable business to the extent provided in this section. The term "renegotiable operation", as used in this section, means an operation which constitutes the performance, in whole or in part, of one or more renegotiable prime contracts or subcontracts. (b) Inventories and certain other tangible property.-(1) The following losses and costs will be allocated to renegotiable business to the extent provided in subparagraph (2) of this paragraph: (i) Losses established through the writedown or sale of, and costs of protecting and handling inventories acquired for the purposes of, and reasonably necessary for the performance of a renegotiable operation; and (ii) A portion of the costs of moving, dismantling, demolishing, protecting, storing, or disposing of tangible property, the original cost of which was deducted as an expense rather than treated as a capital expenditure, which portion shall be determined on the basis of the use of the property in the performance of a renegotiable operation. (2) Losses and costs under this paragraph are allocable to renegotiable business to the extent that the sum thereof exceeds the sum of non-renegotiable gains and other income from the sale or other disposition of inventories or other tangible property of the character described in subparagraph (1) of this paragraph. The amounts of such gains and other income shall be determined in the same manner as losses and costs are determined under said subparagraph (1). (c) Severance pay.-Payments made upon separation of employees, which payments are required by law, contract or the custom of the business, are allocable to renegotiable business to the extent that salaries and wages of such employees were allocable thereto under the provisions of §§ 1459.1 (b) and 1459.2 and paragraph (d) (3) of this section during the period of time immediately preceding separation which is equal to the average tenure of the separated employees. 3-11-70 1460.9 Uncompleted portions of terminated contracts. Application of statutory factors; general policy. Efficiency of contractor. 1460.10 Reasonableness of costs and profits. 1460.11 Capital employed. 1460.12 Extent of risk assumed. AUTHORITY: Sections 1460.1 to 1460.15 issued under section 109, Pub. Law 9, 82d Cong. Interpret or apply section 103, Pub. Law 9, 82d Cong. 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. to the contractor's business will be fully developed. (d) Financial and factual information will be reviewed with the contractor and its agreement to the accuracy of such information will be obtained. 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. (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 (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 contractor's to establish reserves for possible renegotiation refunds and that the amount of such 201 reserves established in individual situations will vary widely depending upon the policy of the particular 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.— (a) In general. Except as otherwise provided in this section, and in the absence of unusual circumstances, no determination of excessive profits for a fiscal year will be made in an amount less than $40,000 or, in the case of subcontracts described in section 103 (g) (3) of the act, in an amount less than $10,000, in each instance before adjustment for taxes measured by income, other than Federal taxes (see § 1459.9 of this chapter). (b) "Floor" cases. If the excessive profits of the contractor equal or exceed the applicable minimum provided in paragraph (a) of this section, a determination will be made in the amount of the excessive profits realized, even though the amount thereof that can be eliminated is limited by the provisions of section 105 (f) (1) or (2) of the act and § 1458.3 (a) or (b) of this chapter. For example, if renegotiable receipts or accruals are $1,028,000, and the excessive profits are $100,000, a determination in the amount of $100,000 will be made, although the amount that will be eliminated is $28,000. (c) Related contractors. In the renegotiation of an affiliated or related group of contractors, 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 provided in paragraph (a) of this section: Provided, That the aggregate of the determinations for all members of the group equals or exceeds such applicable minimum. (d) Short fiscal years. If in any case the fiscal year of a contractor is a fractional part of 12 months, the applicable minimum provided in paragraph (a) of this section will be reduced to the same fractional part thereof. 1460.6 Reserved. 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 3-11-70 |