Election Not to Apply Look-Back Method in
De Minimis Cases
DEPARTMENT OF THE TREASURY
Internal Revenue Service 26 CFR Parts 1 and 602 [TD 8775] RIN 1545-
AV79
TITLE: Election Not to Apply Look-Back Method in De Minimis Cases
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final and temporary regulations.
SUMMARY: This document contains regulations explaining how a
taxpayer elects under section 460(b)(6) not to apply the look-back
method to long-term contracts in de minimis cases. The regulations
reflect changes to the law made by the Taxpayer Relief Act of 1997
and affect manufacturers and construction contractors whose long-
term contracts otherwise are subject to the look-back method.
DATES: Effective date: These regulations are effective July 2, 1998.
Applicability date: These regulations apply to long-term contracts
completed in taxable years ending after August 5, 1997.
FOR FURTHER INFORMATION CONTACT: Leo F. Nolan II or John M.
Aramburu at (202) 622-4960 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act The collection of information contained in
these final regulations has been reviewed and approved by the Office
of Management and Budget in accordance with the Paperwork Reduction
Act (44 U.S.C. 3507) under control number 1545-1572. Responses to
this collection of information are required for a taxpayer to elect
not to apply the look-back method to long-term contracts in de
minimis cases. An agency may not conduct or sponsor, and a person is
not required to respond to, a collection of information unless the
collection of information displays a valid OMB control number. The
estimated average burden per respondent is 0.2 hours.
Comments concerning the accuracy of this burden estimate should be
sent to the Internal Revenue Service, Attn: IRS Reports Clearance
Officer, OP:FS:FP, Washington, DC 20224, and to the Office of
Management and Budget, Attn: Desk Officer for the Department of the
Treasury, Office of Information and Regulatory Affairs, Washington,
DC 20503.
Books or records relating to a collection of information must be
retained as long as their contents may become material in the
administration of any internal revenue law. Generally, tax returns
and tax return information are confidential, as required by 26
U.S.C. 6103.
Background
This document contains amendments to the Income Tax Regulations (26
CFR Part 1). Section 460(b)(6) of the Internal Revenue Code was
added by section 1211 of the Taxpayer Relief Act of 1997, Public Law
105-34, 111 Stat. 788, 998, to provide an election not to apply the
look-back method of section 460(b)(2) to long-term contracts in de
minimis cases. These regulations provide guidance concerning this
new election.
A notice of proposed rulemaking was published in the Federal
Register for January 13, 1998 (63 FR 1932). No written comments were
received, and no public hearing was requested or held. The proposed
regulations under section 460 are adopted by this Treasury decision
with one revision. The final regulations provide that for long-term
contracts completed in taxable years ending after August 5, 1997, an
election not to apply the look-back method under section 460(b)(6)
automatically revokes an election under �1.460-6(e) to use the
delayed reapplication method.
Special Analyses
It has been determined that this final regulation is not a
significant regulatory action as defined in EO 12866. Therefore, a
regulatory assessment is not required. It also has been determined
that section 553(b) of the Administrative Procedure Act (5 U.S.C.
chapter 5) does not apply to these regulations.
Moreover, it is hereby certified that the collection of information
in these regulations will not have a significant economic impact on
a substantial number of small entities. This certification is based
on the fact that the time required to prepare and file an election
statement is minimal and will not have a significant impact on those
small entities that choose to make the election. In addition, the
election need only be made once by a taxpayer. Therefore, a
Regulatory Flexibility Analysis under the Regulatory Flexibility Act
(5 U.S.C. chapter 6) is not required.
Pursuant to section 7805(f) of the Internal Revenue Code, the notice
of proposed rulemaking preceding these regulations was submitted to
the Chief Counsel for Advocacy of the Small Business Administration
for comment on the impact of the proposed regulations on small
business.
Drafting Information
The principal author of these regulations is Leo F. Nolan II, Office
of Assistant Chief Counsel (Income Tax and Accounting). However,
other personnel from the IRS and Treasury Department participated in
their development.
List of Subjects
26 CFR Part 1 Income taxes, Reporting and recordkeeping
requirements.
26 CFR Part 602 Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations Accordingly, 26 CFR parts
1 and 602 are amended as follows:
PART 1--INCOME TAXES
Paragraph 1. The authority citation for part 1 is amended by
removing the entry for "�1.460-6T" to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. In �1.460-0, the entry for �1.460-6 is amended by adding
entries for paragraphs (i) and (j) and the entry for �1.460-6T is
removed to read as follows:
�1.460-0 Outline of regulations under section 460.
* * * * *
�1.460-6 Look-back method.
* * * * *
(i) [Reserved].
(j) Election not to apply look-back method in de minimis cases.
* * * * *
Par. 3. In �1.460-6, paragraph (i) is added and reserved and
paragraph (j) is added to read as follows:
�1.460-6 Look-back method.
* * * * *
(i) [Reserved].
(j) Election not to apply look-back method in de minimis cases.
Section 460(b)(6) provides taxpayers with an election not to apply
the look-back method to long-term contracts in de minimis cases,
effective for contracts completed in taxable years ending after
August 5, 1997. To make an election, a taxpayer must attach a
statement to its timely filed original federal income tax return
(including extensions) for the taxable year the election is to
become effective or to an amended return for that year, provided the
amended return is filed on or before March 31, 1998. This statement
must have the legend "NOTIFICATION OF ELECTION UNDER SECTION 460(b)
(6)"; provide the taxpayer's name and identifying number and the
effective date of the election; and identify the trades or
businesses that involve long-term contracts. An election applies to
all long-term contracts completed during and after the taxable year
for which the election is effective. An election may not be revoked
without the Commissioner's consent. For taxpayers who elected to use
the delayed reapplication method under paragraph (e) of this
section, an election under this paragraph (j) automatically revokes
the election to use the delayed reapplication method for contracts
subject to section 460(b)(6). A consolidated group of corporations,
as defined in �1.1502-1(h), is subject to consistency rules
analogous to those in paragraph (e)(2) of this section and in
paragraph (d)(4)(ii)(C) of this section (concerning election to use
simplified marginal impact method).
�1.460-6T [Removed]
Par. 4. Section 1.460-6T is removed.
PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT
Par. 5. The authority citation for part 602 continues to read as
follows:
Authority: 26 U.S.C. 7805.
Par. 6. In �602.101, paragraph (c) is amended by:
1. Removing the following entry from the table:
�602.101 OMB Control numbers.
* * * * *
(c) * * *
CFR part or section where Current OMB identified and described
control No.
* * * * *
1.460-6T....................................1545-1572
* * * * *
2. Revising the entry for �1.460-6 to read as follows:
�602.101 OMB Control numbers.
* * * * *
(c) * * *
CFR part or section where Current OMB identified and described
control No.
* * * * *
1.460-6.....................................1545-1031 1545-1572
* * * * *
Michael P. Dolan
Deputy Commissioner of Internal Revenue
Approved: June 12, 1998
Donald C. Lubick
Assistant Secretary of the Treasury
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