section concerns the propriety of a filing made under the following circumstances: A Corporation and B Corporation both report for Federal income tax purposes on the calendar year basis. On July 15, the capital stock of A Corporation was wholly acquired by B Corporation. The two corporations thereafter filed a Federal income tax return on a consolidated basis for the taxable year ended December 31. A similar consolidated filing of the Standard Form of Contractor's Report was made for renegotiation purposes for the fiscal year ended December 31. In addition, A Corporation made a renegotiation filing for a stated fiscal year ended July 15. It is this filing that is here considered.

(b) Under section 103 (h) of the Act, the fiscal year of a contract is its taxable year under the Internal Revenue Code. Accordingly, the filing of a A Corporation for the fiscal year ended July 15 is proper only if that is its taxable year for Federal income tax purposes. (See § 1451.19 of this chapter.)

(b) Under section 103 (h) of the Act, the fiscal year of a contractor is its taxable year under the Internal Revenue Code. Accordingly, the filing of a A Corporation for the fiscal year ended July 15 is proper only if that is its taxable year for Federal income tax purposes. (See § 1451.19 of this chapter.)

(c) Section 1.1502-76 (b) of the regula-
tions under the Internal Revenue Code of
1954 (26 CFR 1.1502-76 (b)) provides, in
pertinent part, as follows:

(b) Income to be included in returns for taxable year.—(1)
Inclusion of income in consolidated return. The consolidated
✡ * and *** the
return of a group must include the income of the common parent
for that corporation's entire taxable year *
income of each subsidiary for the portion of such taxable year
during which it was a member of the group.

(2) Separate return for period not included in a consolidated
return. If the consolidated return of a group properly includes the
income of a corporation for only a portion of such corporation's
taxable year, then the income for the portion of such
taxable year not included in the consolidated return must be
included in a separate return * * *.

(d) Section 1.1502-76 (d) of the regulations under the Internal Revenue Code of 1954 (26 CFR 1.1502-76 (d)) provides as follows:

(d) Taxable year of less than 12 months. Any period of less than 12 months for which either a separate return or a consolidated return is filed under the provisions of this section shall be considered as a separate taxable year.

(e) Under the cited regulations, A Corporation was required to file a separate return for the period from January 1 to July

15, a period of less than 12 months; and
such period is a taxable year. It is therefore
a fiscal year for renegotiation purposes, and
the filing in question is proper.

1499.1-18 Renegotiation Ruling No. 18:
Joint venture; separate renegotiation status;
subcontracts or assignments to or from mem-
bers (interprets act sections 103(j), 105(e);
§ 1457.4 of this chapter).-(a) This section
concerns the necessity, for renegotiation pur-
poses, of separating a joint venture from its
component members.

(b) Section 105 (e) of the Renegotiation Act of 1951 provides that every person having renegotiable business in excess of the prescribed minimum amount in a fiscal year must file a report with the Board. The term "person" as defined in section 103 (j) includes a joint venture. Thus, receipts or accruals under renegotiable contracts and subcontracts held by a joint venture must be reported by the venture; receipts or accruals under contracts and subcontracts held by a member of the venture must be reported by the member in its own individual filing. In the determination and elimination of excessive profits, the joint venture is an entity separate and distinct from its members (see § 1457.4 of this chapter; Bass v. Stimson, 20 T.C. 428, 434 (1953)).

(c) In a typical case, two or more firms enter into a joint venture agreement to procure and perform a renegotiable contract or subcontract. Each member agrees to contribute working capital, or to perform a specified portion of the contract, or otherwise to further the object of the venture. The joint venture itself may or may not establish a central office and hire its own employees.

(d) For renegotiation, the joint venture is the contractor. It files the Standard Form of Contractor's Report with The Renegotiation Board. The report shows the aggregate amounts received or accrued by the venture under the contract. It shows the aggregate costs paid or incurred by the venture, including amounts paid to individual members in reimbursement of labor or material costs. or other expenses incurred by any member for the venture. Costs incurred for materials supplied or work done by such member are costs of the venture, not of the member.

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(e) It is improper in such a case for the joint venture to omit filing a report with the Board. It is equally improper for any member of the venture, in filing its own separate renegotiation report, to include as a renegotiable cost the amount of any expense reimbursed by the venture, or to include as a renegotiable receipt the amount of such reimbursement or the amount received from the joint venture as its distributive share of the profits of the joint venture.

(f) It is recognized that a joint venture may contract with one or more of its members individually. For example, it may lease equipment from a member when the furnishing of such equipment is no part of the member's capital contribution or other obligation as a participant in the venture. If a genuine subcontract is shown to exist between a joint venture and one of its members, the operations of the member under such subcontract must be included in its own separate renegotiation report.

(g) If a corporation (or any other contractor) obtains a renegotiable contract which thereafter is subcontracted to and performed by a joint venture of which it is a member, the joint venture must make a filing. But the corporation must file, too, even though its report may show a complete "wash" of its sales and costs on the contract, with zero profits.

(h) The assignment of a Government contract is prohibited by law (41 U.S.C. 15). However, in certain limited circumstances the Government will recognize a third party as the successor in interest to a Government contract (see, for example, Armed Services Procurement Regulation, § 1-1602 (a) (32 CFR 1-1602 (a)). Except when a third party has been so recognized by the contracting Department, a purported "assignment" of a Government contract will not be recognized by the Board.

1499.1-19 Renegotiation Ruling No. 19: Renegotiation loss carryforward; effect on,

when loss sustained on sales below the floor (interprets act sections 102(a), 103(m), 105(f) (1) and (2); § 1457.9 of this chap ter). (a) This section concerns the propriety of carrying forward a renegotiation loss sustained in a fiscal year, when the aggregate renegotiable sales of the contractor in such year are below the minimum amount or "floor" prescribed for renegotiation in section 105 (f) (1) or (2) of the Renegotiation Act of 1951, as amended.

(b) The term "renegotiation loss' is de-
fined in section 103 (m) of the act as mean-
ing, for any fiscal year, "the excess, if any,
of costs *** paid or incurred in such fiscal
year with respect to receipts or accruals
subject to the provisions of this title over
the amount of receipts or accruals subject
to the provisions of this title which were re-
ceived or accrued in such fiscal year **
Receipts or accruals are subject to the pro-
visions of the act whenever they are derived
from contracts with any of the Departments
named in or designated under section 102 (a),
or related subcontracts. Pursuant to section
105 (f) (1) and (2), receipts or accruals may
not "be renegotiated" when they do not ex-
ceed the applicable minimum amount pro-
vided in such section, but this involves the
jurisdiction of the Board, not the coverage
of the act.

(c) It follows that the right to carry forward a renegotiation loss is not affected by the fact that the loss is sustained in a fiscal year in which the renegotiable receipts or accruals of the contractor aggregate less than the minimum amount prescribed for renegotiation in section 105 (f) (1) or (2) of the act.

1499.1-20 Renegotiation Ruling No. 20: Common control; consolidated renegotiation of related contractors; effect of voting trusts (interprets act section 105 (a) and (f); SS 1458.6 and 1464.4 (c) of this chapter).

1012.1