DocketNumber： Docket No. 4585-66
Judges： Dawson
Filed Date： 3/3/1969
Status： Precedential
Modified Date： 10/19/2024
Under prime contracts for highway construction, petitioner was entitled to partial payments from the Highway Department of Georgia measured by engineers' monthly estimates of pay items complete in place less a 10-percent retainage. Petitioner, using the accrual method of accounting, did not accrue the retainage as income until final inspection and acceptance of the prime contracts. Petitioner subcontracted portions of the work, withholding retainage in the same percentage from partial payments made to the subcontractors.
*890 Respondent determined deficiencies in income tax for the fiscal years ended on March 31, 1961 and 1962, in the amounts of $ 62,880.73 and $ 29,601.05, respectively. Certain *180 minor adjustments for fiscal year 1962 relating to entertainment and sales promotion expenses and to depreciation have not been contested. The issues for decision are (1) whether petitioner, an accrual basis contractor engaged in highway construction, is entitled to deductions for amounts of "retainage" withheld from its subcontractors prior to final acceptance and approval of the work performed, and, if not, (2) whether, under the provisions of
*891 FINDINGS OF FACT
Some of the facts have been stipulated by the parties. The stipulation of facts and exhibits attached thereto are incorporated herein by this reference.
Petitioner is a corporation chartered under the laws of the State of Georgia in 1949. Its principal office and place of business is and has been at all times in Atlanta, Ga. Its books and records are kept and its Federal tax returns are prepared on an accrual method of accounting and for fiscal years ended on March *181 31. Its Federal income tax returns for the taxable years ended in 1961 and 1962 were filed with the district director of internal revenue at Atlanta, Ga.
The petitioner is principally engaged in the highway construction business and dealt primarily with governmental agencies during the years in question and the years immediately prior and subsequent thereto. With respect to the issues presented in this case, all of petitioner's income during the taxable years was received from the Highway Department of the State of Georgia (hereinafter referred to as the highway department).
Petitioner usually functions as a "prime" or general contractor and so acted during the years in issue. A prime contract sometimes requires 4 to 5 years to complete. A portion of the work called for by the prime contract was normally performed by the petitioner, including clearing, grading, paving, and pipe or cross-drainage structures exclusive of box culvert-type construction. Petitioner entered into separate contracts with various subcontractors for the performance of the remainder of the work, such as base and subbase work, concrete box culverts, bridges, concrete paving, masonry and brick work, guard rails, *182 grassing, and certain other special items such as stripe painting, signs, and lighting. The contractor, petitioner herein, acting directly or through its agents, is responsible for the fulfillment of all of the terms of the contract and for the payment of all legal debts pertaining to the work.
"Standard Specifications" for the "Construction of Roads and Bridges," prescribed by the highway department and issued from time to time in the form of bound handbooks, are made a part of the highway department contracts, and were made a part of all contracts which petitioner had with the highway department during the years in issue. 2 Any amendments, modifications, or revisions made between periodic issues of the bound handbooks are specifically set forth in the highway department contracts. The "Standard Specifications," insofar as they are pertinent to the issues presented herein, are as follows:
*892 4.01. INTENT OF PLANS AND SPECIFICATIONS: The intent of the Plans, Specifications and Special Provisions is to prescribe a work or improvement which the Contractor undertakes to do, complete in every detail, in accordance with the Contract. The Contractor shall perform all items of The Work set *183 forth in the Proposal and in the Plans, shall remove all obstructions from the highway and shall do such Extra Work as the Engineer may consider necessary to complete the Project to the finished lines, grades, cross-sections and other dimensions specified, in a satisfactory manner. He shall furnish, unless otherwise provided in the Contract, all the material, implements, machinery, equipment, tools, supplies, transportation, labor and supervision necessary for the prosecution and completion of The Work.
5.01. AUTHORITY AND DUTIES OF ENGINEER: The Work shall be done under the supervision of the Engineer.
a. Engineer's Decision and Estimates Final: The Engineer will decide promptly all questions related to the quality and acceptability of materials furnished, work performed, and as to the manner of performance and rate of progress of The Work. His decision shall be final on all questions related to the interpretation of the Specifications and the Plans and as to the acceptable fulfillment of the Contract by the Contractor. The Engineer will determine the qualities of the several kinds of work performed and materials furnished which are to be paid for under the Contract and his estimate *184 shall be final, and
5.08. INSPECTION: The Contractor shall furnish the Engineer every reasonable means of ascertaining whether or not The Work as performed and the materials used are in accordance with the Specifications and Contract. If the Engineer requires it, the Contractor shall remove or uncover such portions of the finished Work as may be directed. After examination, the Contractor shall restore said portions of The Work to the standard required by the Specifications. Should work thus exposed or examined prove acceptable, the uncovering, or removing, and the replacing of the covering and making good of the parts removed will be paid for as Extra Work but
a. Inspection Always Required: *185 No work shall be done nor materials used without suitable supervision and inspection by the Engineer or his representative. Failure to reject defective work or material shall not prevent later rejection when the defect is discovered, nor shall it oblige the Engineer to accept the defective work.
* * * *
5.09. REMOVAL OF DEFECTIVE AND UNAUTHORIZED WORK:
a. Work Rejected or Done Outside Lines: All work which has been rejected shall be remedied or removed and acceptably replaced by the Contractor, and no payment will be made for the removal and replacement. Work done outside the lines and grades given or shown on the Plans, unless it is authorized by the Engineer, and all Extra Work done without written authority will be considered unauthorized and done at the expense of the Contractor, and no payment will be made for it.
* * * *
c.
* * * *
5.13. FINAL CONSTRUCTION INSPECTION: Whenever the Engineer considers The Work provided by the Contract is nearing completion, or within 10 days after he is notified by the Contractor that The Work is completed, the Engineer will inspect The Work. If the Engineer finds that it has not all been satisfactorily completed when it is inspected, he shall advise the Contractor in writing as to the work to be done and the defects to be remedied to make The Work ready for Final Construction Inspection. After all the items of The Work required under the Contract, as modified by Work Orders or Supplemental Agreements have been satisfactorily completed, the Engineer shall make the Final Construction Inspection.
5.14.
* * * *
9.07. PARTIAL PAYMENTS: Once each month the Engineer will make an approximate estimate, on the regular form of the Department, of the Pay Items complete in place and the value thereof according to the Contract unit prices.
a.
b. Payment of Balance: The balance remaining after all deductions provided for in this Article have been made, will be paid to the Contractor.
* * * *
f. Estimates Approximate: The estimates here provided for are approximate and are subject to correction in the final estimate and payment.
* * * *
9.08. ACCEPTANCE AND FINAL PAYMENT: Final acceptance is stipulated to mean written final acceptance by the State Highway Engineer, followed by final payment in accordance with the Engineer's final statement. Whenever, in the opinion of the Engineer, the Contractor shall have completed The Work in an acceptable manner and in accordance with the terms of the Contract, he shall certify to the Treasurer of the State Highway Department in writing as to said completion, and shall further certify as to the entire amount of every class of work performed and as to the value thereof. The Treasurer, upon receipt of said certificate, shall in turn furnish the Contractor with the Standard Release Form *894 to be executed in duplicate. Upon receipt of said release, properly executed, the Treasurer shall make final *189 payment jointly to the Contractor and his Surety. The aforesaid certificate, release and final payment shall be evidence of the action of the Board and the Engineer by which the Contractor is bound according to the terms of the Contract; all prior certificates, releases, or estimates upon which payments may have been made being merely partial estimates and subject to correction in the final payment.
[Emphasis supplied.]
In accordance with the standard specifications, the State highway engineer made during the taxable years monthly estimates of the value of pay items complete in place according to the contract unit prices with respect to work in progress under highway department contracts, including its contracts with petitioner. The highway department made partial payments under its contracts with petitioner during the taxable years based upon the highway engineer's monthly estimates and retained 10 percent of each such partial payment until the contract involved became 50-percent completed, after which all subsequent partial *190 payments under the contract were made without retainage of any additional amounts. With each succeeding partial payment after a contract became 50-percent completed the percentage comprising the ratio of the retainage to the total price of the completed work under the prime contract declined so that when the petitioner's contracts became 100-percent completed the retainage withheld by the highway department constituted only 5 percent of the total prime-contract price.
During the years in issue, petitioner entered into both oral and written contracts with its subcontractors. The oral subcontracts resulted primarily from the fact that petitioner continued to obtain prices for the subcontracted work until an hour or so before its bid for the prime contract was submitted. Some of the oral contracts were confirmed by letter or were reduced to writing and signed by the parties. The terms of the various contracts were not uniform. In general, however, the subcontractors agreed to perform specific portions of the prime contracts in accordance with the plans and specifications of the highway department. Partial payments were to be made to the subcontractors based upon the pay items in place, *191 as determined by the highway engineers' monthly estimates of satisfactorily completed work on the prime contract, which were attributable to the individual subcontractors. It was understood that a retainage would be withheld from the partial payments in the same proportion as the retainage withheld by the highway department from petitioner on the prime contract. Final payment for completed work was to be made when petitioner received payment of the retainage withheld by the highway department for such work.
*895 In a standard-form written contract sometimes used by petitioner, the petitioner was expressly given the right in the event of breach by a subcontractor to set off the retainage withheld from partial payments to the subcontractor against the cost of completing the subcontract work.
In practice, petitioner made partial payments to the subcontractor promptly after receiving partial payment from the highway department on the prime contract. Retainages on all the subcontracts were withheld but were in some cases paid over to subcontractors before petitioner received final payment from the highway department. The subcontractors sometimes assigned to others their rights to receive the *192 retainages withheld by petitioner. In such case, petitioner was notified so that direct payment could be made by it to the assignees. Petitioner has never had any work performed by a subcontractor which, having been approved for partial payment on an engineer's monthly estimate, subsequently failed to pass final inspection. On one prime contract, petitioner was required to pay a penalty of $ 1,400 because it required 7 more days to complete the contract than specified. No reductions were made by petitioner in its final payments to subcontractors as a result of the penalty.
Prime contractors, including petitioner, were during the taxable years required to file written application for and obtain approval from the highway department before employing each subcontractor to perform work required under a highway department contract, and the highway engineer's monthly estimates were available to subcontractors. For the ones able to do so, petitioner required its subcontractors to supply a 100-percent performance bond.
During the taxable years in issue and during all taxable years prior thereto, petitioner accrued on its books and deducted on its Federal income tax returns the amounts withheld *193 from subcontractors for work performed by them, the payment of which was delayed pending receipt by petitioner from the highway department of retainage relating to such work. The balances of such accrued amounts at the end of each of the taxable years ended March 31, 1953, through March 31, 1963, were as follows:
| As of Mar. 31 -- | Accrued amount |
| 1953 | 1 $ 2,871.05 |
| 1954 | None accrued |
| 1955 | 6,226.37 |
| 1956 | 3,859.77 |
| 1957 | |
| 1958 | 45,062.40 |
| 1959 | 87,562.73 |
| 1960 | 101,869.35 |
| 1961 | 126,813.49 |
| 1962 | 2 197,663.66 |
| 1963 | 348,535.66 |
*896 Petitioner's gross receipts, cost of goods sold, and subcontract expense, which was shown as a part of cost of sales, were reported on its Federal income tax returns for the fiscal years ended March 31, 1961 and 1962, as follows:
| 1961 | 1962 | |
| Gross receipts | $ 2,917,976.74 | $ 4,394,363.59 |
| Cost of goods sold | 2,710,417.74 | 4,292,735.49 |
| Subcontract expense | 1,357,324.86 | 1,852,540.62 |
Petitioner does not report as income *194 on its Federal income tax returns amounts withheld from it by the highway department as retainage until the work to which such retainage relates has been completed and finally inspected and approved by the highway department.
About 30 to 40 percent of the retainage withheld by the highway department is equal in amount to the retainage withheld by petitioner from its subcontractors.
The balance of $ 101,869.35 subcontractors' retainage as of April 1, 1960, represents subcontractors' retainage accrued and unpaid by petitioner as of that date pending final inspection and final approval by the highway department but deducted by petitioner on its Federal income tax returns during taxable years prior to such date.
In the statutory notice of deficiency the respondent determined that the increases in the "subcontractors' retainage" account in the taxable years ended March 31, 1961, and March 31, 1962, in the amounts of $ 24,944.14 and $ 70,850.37 were not allowable deductions and increased the petitioner's income accordingly. In addition, he included the $ 101,869.35 balance in the "subcontractors' retainage" account as of April 1, 1960, in petitioner's taxable income for the taxable year ended *195 March 31, 1961, as an adjustment under
OPINION
Our decision requires a determination of the proper time, under petitioner's accrual method of accounting, for the deduction of a business expense which is concededly ordinary and necessary. Both parties agree that this determination ultimately depends upon a proper application of the "all events" test established in
*897 Petitioner argues that its liability to compensate its contractors in full, notwithstanding the retainages withheld from payments to them, for work which they satisfactorily performed was fixed, and determinable in amount with reasonable accuracy, at the time the subcontractors' work was approved in the highway engineers' monthly estimates. To the contrary, respondent contends that petitioner was not legally obligated to pay the retainage to the subcontractors until the prime contract was completed, finally inspected, and finally approved and petitioner had received the retainage withheld by the highway department.
The liabilities between petitioner and the highway department on the prime contracts were *197 carefully and uniformly stated according to the "Standard Specifications." Under these contracts petitioner was entitled to partial payments measured by the engineers' monthly estimates of the value of pay items complete in place less a 10-percent retainage (which was subject to suspension after the contracts were 50-percent completed). It had no right to additional payment until final inspection and acceptance of the entire work under the contract and then only if the cost of removal of defective or unauthorized work did not exceed the total retainage. In such case we have no doubt that "all events" fixing the liability of the highway department to pay over to petitioner some portion of the retainage had not occurred until the time of the final accounting. Petitioner delayed accrual of these retainages as income until such time, a practice which respondent has not questioned in this proceeding.
Petitioner's agreements with its subcontractors were both oral and written and were not uniform in their provisions. Under all, however, petitioner withheld retainage from partial payments to the subcontractors in the same proportion as the retainage withheld by the highway department. In *198 addition, it was clearly understood that all work under the subcontracts would be performed in accordance with the specifications and plans as set out in the prime contracts. In the standard-form written subcontract sometimes used, petitioner was given the same rights with respect to satisfaction of claims out of the retainage as the highway department was given in the prime contracts. We conclude that petitioner possessed similar rights under all its subcontracts through an express understanding or an implied condition.
*898 It appears from this record that petitioner generally completed its work under the prime contracts efficiently and according to specifications. Only one instance was alluded to in which petitioner was required to pay a penalty on a prime contract. We do not draw from the fact that petitioner did not reduce its final payment to any subcontractor in this instance, the conclusion that it could not have done so had the delay in performance been occasioned by a subcontractor or that it would not have the legal right to do so in future instances.
Section 446(b) gives respondent the broad discretion to compute taxable income under a method of accounting which, in his opinion, *199 clearly reflects income. See
At the time of the partial payments to its subcontractors, all events had not occurred which rendered petitioner's obligation to pay some amount of the retainage to them fixed and certain.
Our holding on the first issue raises the additional question whether respondent made a proper adjustment *200 under
The retainage herein was a recurring item which was consistently accrued by petitioner as an expense in the year withheld from payments made to subcontractors. During the years in issue the retainage balance averaged approximately $ 150,000 with a yearly increment of about $ 50,000. Clearly the retainage constituted a material item. We find that the change in the treatment of retainage initiated by respondent was a change in petitioner's "method of accounting."
A total retainage of $ 101,869.35 was improperly accrued and deducted by petitioner in years barred by the statute of limitations (petitioner's taxable year ended March 31, 1960, and years prior thereto). Under its new method of accounting, this entire amount will be properly accruable in years 1961 and thereafter upon final inspection and acceptance of the prime contracts.
Since respondent initiated the change in petitioner's method of accounting, no adjustment may be made for the balance of improperly accrued expenses ($ 2,871.05) existing in years prior to 1954.
Bruce,
*900 It having been determined that petitioner is not entitled to a deduction for the taxable year ended March 31, 1961, for the amount of "subcontractors' retainage" withheld from its subcontractors in the taxable year ended March 31, 1961, it becomes necessary to determine whether, under the provisions of
In the statement attached to the notice of deficiency, respondent explained the increase in petitioner's taxable year for the taxable year ended March 31, 1961, in the amount of $ 101,869.35, as follows:
It is determined that adjustment (a) above constitutes a change in method of accounting for a material item and that the provisions of
(a) General Rule. -- In computing the taxpayer's taxable income for any taxable year (referred to in this section as the "year of the change") -- (1) if such computation is under a method of accounting different from the method under which the taxpayer's taxable income for the preceding taxable year was computed, then (2) there shall be taken into account those adjustments which are determined to be necessary solely by reason of the change in order to prevent amounts from being duplicated or omitted, except there shall not be taken into account any adjustment in respect of any taxable year to which this section does not apply unless the adjustment is attributable to a change in the method of accounting initiated by the taxpayer.
(b) Limitation on Tax Where Adjustments are Substantial. --
(1) Three year allocation. -- If -- (A) the method of accounting from which the change is made was used by the taxpayer in computing his taxable income for the *205 2 taxable years preceding the year of the change, and (B) the increase in taxable income for the year of the change which results solely by reason of the adjustments required by subsection (a)(2), other than the amount of such adjustments to which paragraph (4) or (5) applies, exceeds $ 3,000, then the tax under this chapter attributable to such increase in taxable income shall not be greater than the aggregate increase in the taxes under this chapter (or under the corresponding provisions of prior revenue laws) which would result if one-third of such increase in taxable income were included in taxable income for the year of the change and one-third of such increase were included for each of the 2 preceding taxable years.
For purposes of clarification, it should first be pointed out: (1) That although respondent is barred by limitations from determining "deficiencies" *901 in income tax for any of the years prior to the taxable year ended in 1961,
Petitioner's principal contention with respect to this issue is that
Respondent agrees that petitioner has regularly kept its accounts and reported its income on an overall accrual method of accounting and still does. He contends, however, that the "adjustment" of petitioner's taxable income for the taxable year ended March 31, 1961, resulting from his disallowance of a deduction for subcontractors' retainage, "constitutes a change in accounting method for a material or significant item" and requires that the balance in petitioner's subcontractors' retainage account on April 1, 1960, in the amount of $ 101,869.35, be included in the taxable year ended March 31, 1961, and taxed in accordance with
In the first place, the disallowance of the deduction for subcontractors' retainage for the taxable year ended in 1961 did not involve any
Section 446, 1*209 the "General Rule for Methods of Accounting," provides *902 that taxable income shall be computed under the method of accounting regularly employed by the taxpayer in keeping his books. Permissible methods enumerated include the cash and accrual methods, any other method permitted by this chapter, 2 or any combination of the foregoing methods permitted under regulations prescribed by the Secretary or his delegate. Subsection (e) requires that a taxpayer secure the consent of the Secretary or his delegate before changing his method of accounting and computing *208 his taxable income under such new method.
A change in the method of accounting includes a change in the over-all method of accounting for gross income or deductions, or a change in the treatment of a material item.
See also section 1.481-1(a)(1) of the regulations 4 promulgated by respondent in 1959 under
Standing *211 alone, the regulatory language "change in the treatment of a material item" might seem to include the disallowance of an item of expense such as we have here. When considered in the overall context of the regulations, the statutes under which they were promulgated, *903 and the legislative history, however, I think that the word "treatment" has reference to
This construction of the regulatory language is supported by the legislative history of section 446(e), under which
A change in the method of accounting includes a change in the general method of accounting such as a change from the cash receipts and disbursements method to an accrual method, or vice versa, or a change from the cash or an accrual method to the long-term-contract method, or vice versa. It also includes a change in the treatment of a material item such as a change in the method of valuing inventory, or a change from an accrual method without estimating expenses to an accrual method with estimated expenses, or vice versa, or a change in the method of depreciating any property. A *213 change in the method of accounting is a substantial change as distinguished from each change in the treatment of each item. In computing taxable income, a taxpayer who changes his general method of accounting or who treats material items inconsistently must obtain the consent of the Secretary of his delegate unless an express provision of this chapter permits such change at the election of the taxpayer without such consent.
Thus, in equating a "change in the method of valuing inventory" and a "change in the method of depreciating any property" to a "change in the treatment of a material item," the Senate Committee on Finance used the term "
I would hold that the disallowance of the deduction for subcontractors' retainage for the taxable year ended in 1961 did not constitute a change in method of accounting and accordingly that
A contrary *215 result was reached by this Court in
This Court held that the interest expense for the months of November and December of each of the years in issue (1962, 1963, and 1964) was "improperly accrued" and that respondent made a proper adjustment under the provisions of
The term "method of accounting" includes the accounting treatment of any item.
To the extent that
The cases cited by respondent, some of which are also cited in the majority opinion, are clearly distinguishable.
*906 The requirement prescribed by section 446(e) that a taxpayer secure the consent of the Commissioner before making a change in his method of accounting is not an issue in the present case.
Even if it were to be assumed that the disallowance of the deduction for subcontractors' retainage did constitute a change in method of accounting within the meaning of
If there is a change in the method of accounting employed in computing taxable income from the method employed for the preceding taxable year, adjustments must be made in order that every item of gross income or deduction is taken into account and that none are omitted. At the same time
The inclusion of $ 101,869.35, the balance in the subcontractor's retainage account as of the end of the preceding taxable year, in petitioner's income for the taxable year ended in 1961 is clearly not *907 "necessary" "in order *221 to prevent amounts from being duplicated or omitted." Consequently,
I would deny the adjustment made by respondent under the provisions of
1. All section references herein are to the Internal Revenue Code of 1954 unless otherwise indicated.↩
2. Specific contracts between the highway department and petitioner in effect during the taxable years were not placed in evidence, apparently because of their bulk.↩
1. Includes additional estimated amounts payable to subcontractors not related to retainage receivable from the highway department.↩
2. In the computation attached to the notice of deficiency respondent used the figure $ 197,663.86 as the "Balance in 'Subcontractors' retainage' account on March 31, 1962."↩
3. "In advance of the assessment of a tax, all the events may occur which fix the amount of the tax and determine the liability of the taxpayer to pay it." (p. 441)↩
4.
(a) General rule -- * * *
(2) Taxpayer using an accrual method. Under an accrual method of accounting, an expense is deductible for the taxable year in which all the events have occurred which determine the fact of the liability and the amount thereof can be determined with reasonable accuracy. However, any expenditure which results in the creation of an asset having a useful life which extends substantially beyond the close of the taxable year may not be deductible, or may be deductible only in part, for the taxable year in which incurred. While no accrual shall be made in any case in which all of the events have not occurred which fix the liability, the fact that the exact amount of the liability which has been incurred cannot be determined will not prevent the accrual within the taxable year of such part thereof as can be computed with reasonable accuracy. * * *
5.
(a) General Rule. -- In computing the taxpayer's taxable income for any taxable year (referred to in this section as the "year of the change") -- (1) if such computation is under a method of accounting different from the method under which the taxpayer's taxable income for the preceding taxable year was computed, then (2) there shall be taken into account those adjustments which are determined to be necessary solely by reason of the change in order to prevent amounts from being duplicated or omitted, except there shall not be taken into account any adjustment in respect of any taxable year to which this section does not apply unless the adjustment is attributable to a change in the method of accounting initiated by the taxpayer.
1. SEC. 446. GENERAL RULE FOR METHODS OF ACCOUNTING.
(a) General Rule. -- Taxable income shall be computed under the method of accounting on the basis of which the taxpayer regularly computes his income in keeping his books.
(b) Exceptions. -- If no method of accounting has been regularly used by the taxpayer, or if the method used does not clearly reflect income, the computation of taxable income shall be made under such method as, in the opinion of the Secretary or his delegate, does clearly reflect income.
(c) Permissible Methods. -- Subject to the provisions of subsections (a) and (b), a taxpayer may compute taxable income under any of the following methods of accounting -- (1) the cash receipts and disbursements method; (2) an accrual method; (3) any other method permitted by this chapter; or (4) any combination of the foregoing methods permitted under regulations prescribed by the Secretary or his delegate. * * * *
(e) Requirement Respecting Change of Accounting Method. -- Except as otherwise expressly provided in this chapter, a taxpayer who changes the method of accounting on the basis of which he regularly computes his income in keeping his books shall, before computing his taxable income under the new method, secure the consent of the Secretary or his delegate.
2. For such other methods, see
3.
(
(2) (i) Except as otherwise expressly provided in chapter 1 of the Code and the regulations thereunder, a taxpayer who changes the method of accounting employed in keeping his books shall, before computing his income upon such new method for purposes of taxation, secure the consent of the Commissioner. A change in the method of accounting includes a change in the over-all method of accounting for gross income or deductions, or a change in the treatment of a material item. Consent must be secured whether or not a taxpayer regards the method from which he desires to change to be proper. Thus, a taxpayer may not compute his taxable income under a method of accounting different from that previously used by him unless such consent is secured.
4. Sec. 1.481-1 Adjustments in general.
(a) (1)
5. Respondent apparently concedes as much. On page 29 of his reply brief, he states: "a change in the method of accounting, for the purposes of
6. See Hauser "Recent developments further confuse change of accounting method,"
Incidentally, the "item," the amount of subcontractors' retainage disallowed for the taxable year ended in 1961, was $ 24,944.14, or 1.8 percent of the total subcontract expense ($ 1,357,324.86) for that year.↩
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