Finance4U

What Is the Completed Contract Method (CCM)?


The completed contract method (CCM) is a way to recognize income and expenses for construction contracts. With this method, no income or deductions are recognized until the contract is complete. When you “recognize” income, you are recording it for tax or other reporting purposes.

Long-term contracts





These are any agreement to construct property where that construction is not expected to be finished in the same year that the contract is executed.
require special rules to determine when the income and expense from the contract is recognized. Most companies would love to defer recognition of income under the CCM, but only certain companies may use it. Other companies must use the percentage completion method (PCM), which requires income to be recognized as the project is being worked on.

Key takeaways

  • CCM is only available for companies that are exempt from using the PCM by meeting the small contractor or home construction contract exceptions.
  • If your company is eligible to use the CCM, you would keep track of your costs and the construction work you’ve done, as well as any payments you receive, over the course of the contract.
  • Under CCM, no income or expenses are recognized until the contract is completed, even if you’ve received cash from your customer.
  • CCM is elected by using it on your first return with an eligible project.
  • If you’ve used a different method for a CCM-eligible project in the past, you need to file Form 3115 to elect a change in the accounting method to use CCM.
  • Contractors that generally account for income and expenses using the cash method can still use CCM for qualified long-term contracts.

Who Is Eligible To Use the Completed Contract Method of Accounting?

The IRS allows the CCM to be used in place of the PCM under the two primary exceptions below:

  1. Small contractor construction contracts
  2. Home construction contracts

What Is the Small Contractor Exception?

A small contractor is a contractor with average sales over the last three years of less than $29 million





The Tax Cuts and Jobs Act of 2017 originally set the threshold at 25 million and is indexed annually for inflation.
. Small contractors can use the CCM for contracts related to real property that will be completed in two years or less.

When calculating the three-year average, receipts for all related companies under common control must be combined. Auditors may look for this kind of information when reviewing eligibility for the CCM.

Companies that meet the small contractor exception are exempt from recognizing revenue through PCM. For these companies, any IRS-approved method can be used to account for the construction activity, but CCM is often the best choice as it defers revenue until the contract is complete. The CCM is an approved method for small contractors, but the business could still choose to use the PCM method if it best serves the organization’s long-term strategy.

What Is the Home Construction Contract Exception?

Home construction contracts are eligible to use the CCM if at least 80% of the contract costs are related to the construction or improvement of residential units. Qualified costs include land improvements and permanent attachments to residential units—and hotels or motels do not count as residential units.

How To Elect the Completed Contract Method?

If your company qualifies for the CCM and you are accounting for this type of contract for the first time, no special election is required.

However, you will have to file Form 3115 and attach it to your timely filed tax return if:

  • You have used a different method of accounting for this type of contract in the past
  • Your company has multiple types of contracts, as each group of contracts must use the same accounting method

The form will also need to be mailed separately to the IRS address provided on the Form 3115 instructions.

This notification of accounting change is referred to as an automatic change because it is considered “automatically” approved. You assume IRS approval during the year and report it after the fact on the tax return. Note that this change is done on a “cut-off basis,” meaning that the new method of recognizing revenue and expenses only applies to transactions on or after the reported date of the change.

How To Account for the Completed Contract Method?

With the CCM, revenue and expenses are not put on an income statement until the contract is complete. In the meantime, that activity would be reported on the balance sheet, and changes to your balance sheet are made through adjustments to your balance sheet accounts. These adjustments are done by making journal entries to those accounts.

Example of Accounting for Income and Expenses Under CCM

Let’s assume Bob the Builder enters a $500,000 contract in 2024 to build a residential house. Construction begins in 2024 and will be completed in 2025.

Actual costs paid and cash payments received in 2023 and 2024 are summarized below.

2024 Journal Entries

Notice that Work in Progress and Progress Billing are both balance sheet accounts. The income statement is not affected by any of the 2024 activity.

2025 Journal Entries

In 2025, the balance sheet activity for both years is moved to the income statement.

  • “Progress Billings” of 500,000 (150,000 + 350,000) will be moved to “Revenue” on the income statement.
  • “Work in Progress” of 300,000 (200,000 + 100,000) will be moved to “Project Expenses” on the income statement.

Pros & Cons of the Completed Contract Method

Frequently Asked Questions (FAQs)


CCM is generally advantageous because it defers revenue longer than either the cash or accrual method of accounting. Specifically, it would allow you to defer tax on those construction contracts until they are complete. You would continue to use your normal accounting method (cash or accrual) for your other business activity.



Yes. You may use cash basis as your overall method of accounting and use CCM as a specialized method of accounting for your long-term contracts.



Once a contract is completed and the revenue and costs recognized, you would use your normal accounting method to account for any further expenses related to that project. For example, if you would normally deduct expenses on the cash basis, you would deduct these additional expenses when you make your cash payments.


Bottom Line

The completed contract method can be used to report construction contract income when exceptions apply to the general requirement to use the percentage of completion method apply. Generally, it is preferred to other methods because income recognition and the related tax are postponed until the contract is completed. When there is uncertainty around project completion or payment, the CCM protects against a construction company having to recognize and pay tax on income that it may not receive.

Each business has unique circumstances that should be analyzed to determine the best game plan. Before implementing a new revenue recognition strategy, consult your tax advisor for personalized advice.

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