DCAA Issues Guidance on How to Compute Government Share of a Tax Refund
(Editor’s Note. The Hercules case we reported on in the July-August issue of the GCA REPORT has become a hot topic generating DCAA guidance and the contractor’s attempt to elevate it to the US Supreme Court. The case addressed the proper method of computing how much of a tax refund received by a contractor is due the government and ruled on whether cost accounting standards that are silent on the matter trump FAR cost principles that specify the credit for the government must utilize the same method used to determine the original allocation.)
The Defense Contract Audit Agency issued guidance to its auditors stating, in accordance with the Hercules decision, the government’s share of income tax refunds received by the contractor should be “based on the government’s original reimbursement of that expense.” The guidance reiterated the courts findings, indicating there is no conflict with the relevant FAR cost principles and the Cost Accounting Standards.
To illustrate the point, DCAA provides an example of the “ABC Company” which claimed $1 million in state income tax expense in a G&A expense pool in FY 2000 and then received a $500,000 refund of its 2000 tax in FY 2002. The government’s participation in the G&A allocation base for the relevant years was 65 percent in FY 2000, 70 percent in FY 2001 and 55 percent in FY 2002 in which these percentages represent federal contracts containing the FAR 52.216-7, Allowable Cost and Payment clause. In determining the amount of refund due the government, the auditor should use the percentage representing the government’s participation in the G&A base in FY 2000, resulting in the government’s share being 65 percent of $500,000 or $325,000 (MRD 02-PAC-079(R).
{TAG_FORM_TITLE}
To discuss your needs, contact Bill Lennett, Principal, at 1-925-362-0712 or email him at
This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
.
