Exempt construction contract.
(i) Exempt construction contract. The requirement to use the PCM does not apply to any exempt construction contract described in 1.460-3(b). Thus, a taxpayer may determine the income from an exempt construction contract using any accounting method permitted by 1.460-4(c) and, for contracts accounted for using the completed-contract method (CCM), any cost allocation method permitted by 1.460-5(d). Exempt construction contracts that are not subject to the PCM or CCM are not subject to the cost allocation rules of 1.460-5 except for the production-period interest rules of 1.460-5(b)(2)(v). Exempt construction contractors that are large homebuilders described in 1.460-5(d)(3) must capitalize costs under section 263A. All other exempt construction contractors must account for the cost of construction using the appropriate rules contained in other sections of the Internal Revenue Code or regulations.