Question

Which of the following statements is false?

	A.	Generally, subject to a few exceptions, taxpayers who perform long term construction contracts to construct real estate may choose between the completed contract-method of accounting or the percentage of completion method for tax accounting for long-term construction contracts.
	B.	Generally, the tax code requires the use of the percentage of completion method of accounting and blocks the use of the completed contract method for construction contracts that cannot be completed within one year.
	C.	The tax code allows the use of the completed-contract method of accounting for long-term construction contracts by taxpayers whose average annual gross receipts do not exceed $10 million. and where the contract is expected to be completed within two years from the commencement date.
	D.	B & C are both false.
	E.	A & C are both false.

Answer 1

Answer

According to IRS, A contractor should follow Percentage of Completion method for long term contract but he can follow Completed Contract Method for long term, subject to two condition:

1. Any Home Construction and
2. Any other Construction Contract Where taxpayer estimates

1. Completion of Contract with 2 years
2. And Annual Gross receipts of 3 years preceding the taxable year doesn’t exceed $10 million.

If any of the exception is met, then we can use Completed Contract Method.

So

According to this Option A is correct as subject to a few exceptions, taxpayers who perform long term construction contracts to construct real estate may choose between the completed contract-method of accounting or the percentage of completion method for tax accounting for long-term construction contracts.

Option B is false as the limit is 2 years not 1

Option C is also false as we need to met 1 exception not both of them to use Completed Contract Method

So Option D is the right answer

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