We signed separate contracts for one customer's project. Can each use its own tax method?

Separate signatures do not guarantee separate contracts for Section 460. Regulations permit or require aggregation or severing when needed to clearly reflect income, considering pricing, negotiations, delivery and the parties' rights. Separate contract accounting must follow the economic arrangement rather than a preferred tax result.

A specific business-owner situation

A contractor signs separate foundation and shell agreements with one customer. Both prices were negotiated together, and neither phase would have been undertaken independently.

Illustrative example, not a client result.

What to establish before filing

1. Compare negotiation and pricing history.
2. Review interdependent performance and acceptance terms.
3. Apply the regulatory aggregation and severing factors.

Which fact changes the answer?

Independently priced jobs with separate acceptance can differ from interdependent phases sold as one package. Common customer ownership alone does not answer the question.

A mistake to avoid

Splitting a project into invoices does not by itself create independently reportable contracts.

Records that support the decision

• All related agreements.
• Bid and negotiation records.
• Phase-level job-cost schedules.

The decision to document

Write down why the selected unit of account reflects the actual transaction before calculating completion percentages.

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Related questions

• Does a small job that crosses December automatically require percentage-of-completion reporting?
• We bought materials in December for a job starting next year. Do they reduce this year's contract income?

Sources and editorial context

• Section 460: long-term contracts
• Treasury regulation 1.460-1: contract classification and completion
• Treasury regulation 1.460-5: contract costs
• Treasury regulation 1.460-4: contract revenue and estimates

General educational information prepared with AI assistance. No individual professional review is claimed. Apply the relevant tax-year rules to the actual records. Editorial policy · AI disclosure.