Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 77-38

1977-1 C.B. 129

Section 446
Section 451
Section 481

IRS Headnote

Completed contract method of accounting; cost plus contracts. A taxpayer engaged in the construction business whose contracts are not completed within the taxable year in which they are entered into may report the income from "cost plus a percentage of cost," "cost plus a fixed fee," or "cost plus with a guaranteed maximum" contracts on the completed contract method of accounting; Rev. Rul. 74-129 amplified.

Full Text

Rev. Rul. 77-38

A taxpayer is engaged in the construction business and the performance of its contracts are not completed within the taxable year in which they are entered into. The contracts consist of "cost plus a percentage of cost", "cost plus a fixed fee", and "cost plus with a guaranteed maximum" contracts.

Held, the reporting of "cost plus a percentage of cost", "cost plus a fixed fee", and "cost plus with a guaranteed maximum" contracts on the completed contract method of accounting is an acceptable method of accounting for Federal income tax purposes.

A taxpayer wishing to change its method of accounting for "cost plus a percentage of cost", "cost plus a fixed fee", and "cost plus with a guaranteed maximum" contracts to the completed contract method must obtain the approval of the Commissioner in accordance with the provisions of section 446 of the Internal Revenue Code of 1954 and section 1.446-1(e) of the Income Tax Regulations.

Rev. Rul. 74-129, 1974-1 C.B. 109, is amplified.