REPEAL OF COMPLETED CONTRACT METHOD OF ACCOUNTING FOR LONG-TERM CONTRACTS.

SEC. 7621. REPEAL OF COMPLETED CONTRACT METHOD OF ACCOUNTING FOR LONG-TERM CONTRACTS. (a) In General.—Subsection (a) of section 460 (relating to special rules for long-term contracts) is amended to read as follows: “(a) Requirement That Percentage of Completion Method Be Used.—In the case of any long-term contract, the taxable income from such contract shall be determined under the percentage of completion method (as modified by subsection (b)).” (b) Election to Use Modified Percentage of Completion Method.—Subsection (b) of section 460 (as amended by subsection (c)(1)) is amended by adding at the end thereof the following new paragraph: “(5) Election to use 10-percent method.— “(A) General rule.—In the case of any long-term contract with respect to which an election under this paragraph is in effect, the 10-percent method shall apply in determining the taxable income from such contract. “(B) 10-percent method.— For purposes of this paragraph— “(i) In general.—The 10-percent method is the percentage of completion method, modified so that any item which would otherwise be taken into account in computing taxable income with respect to a contract 103 STAT. 2376for any taxable year before the 10-percent year is taken into account in the 10-percent year. “(ii) 10-percent year.—The term ‘10-percent year’ means the 1st taxable year as of the close of which at least 10 percent of the estimated total contract costs have been incurred. “(C) Election.—An election under this paragraph shall apply to all long-term contracts of the taxpayer which are entered into during the taxable year in which the election is made or any subsequent taxable year. “(D) Coordination with other provisions.— “(i) Simplified method of cost allocation.—This paragraph shall not apply to any taxpayer which uses a simplified procedure for allocation of costs under paragraph (3)(A). “(ii) Look-back method.—The 10-percent method shall be taken into account for purposes of applying the look-back method of paragraph (2) to any taxpayer making an election under this paragraph.” (c) Conforming Amendments.— (1) Subsection (b) of section 460 is amended by striking paragraph (1) and by redesignating paragraphs (2) through (5) as paragraphs (1) through (4), respectively. (2) Paragraph (1) of section 460(b), as redesignated by paragraph (1), is amended— (A) by striking “paragraph (4)” and inserting “paragraph (3)” and (B) by striking “paragraph (3)” and inserting “paragraph (2)”. (3) Paragraph (3) of section 460(b), as redesignated by paragraph (1), is amended by striking “Paragraph (2)(B) and subsection (a)(2)” and inserting “Paragraph (1)(B)”. (4) Subparagraph (A) of section 460(b)(4), as redesignated by paragraph (1), is amended— (A) by striking “paragraph (3)” each place it appears and inserting “paragraph (2)”, (B) by striking “paragraph (3)(B)” and inserting “paragraph (2)(B)”, and (C) by striking “paragraph (3)(A)” and inserting “paragraph (2)(A)”. (5) Paragraph (5) of section 460(e) is amended by striking so much of such paragraph as precedes subparagraph (A) and inserting the following: “(5) Special bulk for residential construction contracts which are not home construction contracts.—In the Case of any residential construction contract which is not a home construction contract, subsection (a) (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1989) shall apply except that such subsection shall be applied—”. (d) Effective Date.— (1) In general.—Except as provided in paragraph (2), the amendments made by this section shall apply to contracts entered into on or after July 11, 1989. (2) Binding bids.—The amendments made by this section shall not apply to any contract resulting from the acceptance of a bid made before July 11, 1989. The preceding sentence shall 103 STAT. 2377apply only if the bid could not have been revoked or altered at any time on or after July 11, 1989. (3) Special rule for certain ship contracts.—The amendments made by this section shall not apply in the case of a qualified ship contract (as defined in section 10203(b)(2)(B) of the Revenue Act of 1987).