The way real estate developers and construction contractors account for and report income on long-term contracts has been an ongoing source of contention with the Internal Revenue Service.
Under Internal Revenue Code 460, construction contractors are generally required to account for long-term contracts during the course of construction using the percentage of completion method. However, under special circumstances, the law allows certain contractors to instead apply the completed contract method of accounting, which allows them to defer all profits, deductible costs and related tax liabilities until the entire project is complete and accepted by buyers.
