31.205-41 Taxes.

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Section 3. FAR 31.205-41 - Taxes. If a deviation under section 1 includes a deviation from the requirements of FAR 31.205-41(b)(1), the following conditions, in addition to those under section 1, must also be met. This deviation permits, but does not require, the HCA to waive the requirements of FAR 31.205-41(b)(1).

To the maximum extent practical, contracts should be structured in a manner that will not result in a Contribution in Aid of Construction (CIAC) tax. Nevertheless, the HCA may determine that the CIAC tax is an allowable cost provided all of the following conditions, as well as the conditions of section 1, are met:

a.  Based on the particular facts and circumstances involved, the HCA determines that incurrence of the CIAC tax is necessary to achieve the most beneficial business case for the Government and allowing the CIAC tax will result in significant benefits to the Government that outweigh the cost of allowing the tax.

b.  The HCA has adequately documented, in writing:

(i)  The basis for the DoD determination of fair market value using a generally accepted valuation methodology.

(ii)  The basis for the determination that the benefits to the Government outweigh the estimated cost of the tax (this requires an estimate of the expected corporate tax rate of the contractor, the marginal tax liability caused by the CIAC, and the anticipated difference in fair market value between the DoD and Internal Revenue Service (IRS) valuations).

c.  The contract limits the allowable cost to the portion of the actual CIAC tax attributable to the difference between:

(i)  The fair market value determinations of DoD using a generally accepted valuation methodology; and

(ii)  The fair market value determination of the IRS in assessing the tax.