The impact of TAMRA '88 on US construction accounting practices

This article addresses the accounting process for a long term construction contract and the effect of recent income tax reform on revenue recognition for income tax liability purposes. The Tax Reform Act of 1986 (TRA '86) introduced several significant changes in tax accounting for long term construction projects. Further tax legislation reform was promulgated via the Technical and Miscellaneous Revenue Act of 1988 (TAMRA '88). Prior to the promulgation of these income tax reform acts, a US contractor could use the percentage-completion method for reporting income to creditors and investors, while using the completed-contract method for income tax recognition purposes. After TRA '86 and ending with TAMRA '88 tax legislation, the contractor is now required by law to utilize a 90/10 split for an income recognition schedule if a contract is longer than two years and the contractor has sales of more than $10 million per year. An intent of this article is to create an awareness of these rules and resulting practices, so that international readers may gain a better understanding of any global implications.