Industry Priorities

Increase for Inflation the Threshold at Which the Percentage-of-Completion Method of Accounting Is Required


  • The Tax Reform Act of 1986 revised the long-term contract accounting rules for contractors in Section 460 of the Internal Revenue Code. A contractor whose contracts will be completed within two years of the contract commencement date, and whose average annual gross receipts for the three tax years preceding the tax year the contract is entered into do not exceed $10 million, is exempt from the percentage-of-completion (PoC) requirements.

AGC Message:

  • Section 460 of the Tax Code Place Unfair Burdens on Smaller Contractors. Long-term contracts are contracts for the manufacturing, building, installation, or construction of property that are not completed within the tax year in which they are entered into. The PoC method requires contractors to calculate what percentage of the contract is complete in a tax year and then pay taxes on that percentage. Prior to the 1986 change, a contractor could pay taxes on their income from a long-term contract when the contract was completed under the completed-contract method (CCM). Congress clearly recognized the burden this change places on smaller contractors forced to switch to the PoC method and created the exemption.
  • Inflation Not Addressed in Section 460. Section 460 of the Internal Revenue Code should modify the $10 million threshold by indexing for inflation. Today, more and more small contractors are crossing this threshold and are being forced into the burdensome and costly PoC method.
  • Increase Exception to $40 million. AGC simply advocates that the $10 million exemption be raised to $40 million and indexed to inflation in the future.
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