Normal time to complete. C enters into a multi-unit contract to produce four units of an item. C does not anticipate pro- ducing any additional units of the item. C expects to perform the research, design, and development that are directly allocable to the particular item and to produce the first unit in the first 24 months. C reasonably ex- pects the production period for each of the three remaining units will be 3 months. This contract is not a contract that involves the manufacture of an item that normally re- quires more than 12 months to complete be- cause the normal time to complete the item is 3 months. However, the contract does not satisfy the 90-day safe harbor for unique items because the normal time to complete the first unit of this item exceeds 90 days. Thus, the contract might involve the manu- facture of a unique item depending on the facts and circumstances. [T.D. 8929, 66 FR 2230, Jan. 11, 2001; 66 FR 18191, Apr. 6, 2001]
Normal time to complete. (1) In gen- eral. The amount of time normally re- quired to complete an item is the item’s reasonably expected production period, as described in § 1.263A–12, deter- mined at the end of the contracting year. Thus, in general, the expected § 1.460–2 production period for an item begins when a taxpayer incurs at least five percent of the costs that would be allo- cable to the item under § 1.460–5 and ends when the item is ready to be held for sale and all reasonably expected production activities are complete. In the case of components that are assem- bled or reassembled into an item or unit at the customer’s facility by the taxpayer’s employees or agents, the production period ends when the com- ponents are assembled or reassembled into an operable item or unit. To the extent that several distinct activities related to the production of the item are expected to occur simultaneously, the period during which these distinct activities occur is not counted more than once. Furthermore, when deter- mining the normal time to complete an item, a taxpayer is not required to con- sider activities performed or costs in- curred that would not be allocable con- tract costs under section 460 (e.g., inde- pendent research and development ex- penses (as defined in § 1.460–1(b)(9)) and marketing expenses). Moreover, the time normally required to design and manufacture the first unit of an item for which the taxpayer intends to produce multiple units generally does not indicate the normal time to com- plete the item.
Normal time to complete. (1) In gen- eral. The amount of time normally re- quired to complete an item is the item’s reasonably expected production period, as described in § 1.263A–12, deter- mined at the end of the contracting year. Thus, in general, the expected production period for an item begins when a taxpayer incurs at least five percent of the costs that would be allo- cable to the item under § 1.460–5 and ends when the item is ready to be held for sale and all reasonably expected production activities are complete. In the case of components that are assem- bled or reassembled into an item or unit at the customer’s facility by the taxpayer’s employees or agents, the production period ends when the com- ponents are assembled or reassembled into an operable item or unit. To the extent that several distinct activities related to the production of the item are expected to occur simultaneously, the period during which these distinct activities occur is not counted more than once. Furthermore, when deter- mining the normal time to complete an item, a taxpayer is not required to con- sider activities performed or costs in- curred that would not be allocable con- tract costs under section 460 (e.g., inde- pendent research and development ex- penses (as defined in § 1.460–1(b)(9)) and marketing expenses). Moreover, the time normally required to design and manufacture the first unit of an item for which the taxpayer intends to produce multiple units generally does not indicate the normal time to com- plete the item.
