U.S. Individual Income Tax Return

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Page 1 of 4

Instructions for Form 8866

14:03 - 6-OCT-2005

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Instructions for Form 8866

Department of the Treasury
Internal Revenue Service

(Rev. September 2005)
(Use with the November 2002 revision of Form 8866)
Interest Computation Under the Look-Back Method for Property Depreciated Under
the Income Forecast Method
Section references are to the Internal Revenue Code unless otherwise noted.

General Instructions

for the property under the income
forecast method.

What’s New

Additional Costs

• Form 8866 is not being revised at

this time. Continue to use the
November 2002 revision of Form 8866
in conjunction with these updated
instructions.
• The tax rates used for the interest
computation have changed. See the
instructions for line 6 on page 3.

Purpose of Form
Use Form 8866 to figure the interest
due or to be refunded under the
look-back method of section 167(g)(2)
for property placed in service after
September 13, 1995, that is
depreciated under the income forecast
method as described in section 167(g).
The income forecast method
generally is limited to depreciation of:
• Motion picture films,
• Video tapes,
• Sound recordings,
• Copyrights,
• Books, and
• Patents.

Who Must File
General Rule
You generally must file Form 8866 to
figure interest under the look-back
method for each recomputation year for
property placed in service after
September 13, 1995, that you
depreciate under the income forecast
method.
Exception. The look-back method
does not apply for any property that
had an unadjusted basis (total
capitalized cost) of $100,000 or less at
the end of the recomputation year.

Recomputation Year
A recomputation year is generally the
3rd and 10th tax years after the tax
year in which the property was placed
in service.
Exception. A tax year is not a
recomputation year for the property if,
for each year before the recomputation
year, the actual income from the
property is within 10% of the estimated
income taken into account in
determining the depreciation deduction

Any costs incurred after the property
was placed in service (that is not
treated as separate property — see
below) is taken into account by
discounting (using the Federal mid-term
rate determined under section 1274(d)
as of the time the cost was incurred)
the cost to its value as of the date the
property was placed in service.
However, you may elect not to apply
this discounting rule to any property.
Separate property. The following
costs are treated as separate property.
• Any costs incurred related to any
property after the 10th tax year after the
tax year the property was placed in
service.
• Any other costs incurred if they are
significant and give rise to a significant
increase in the income from the
property which was not included in the
estimated income from the property.

Pass-Through Entities
A pass-through entity (partnership, S
corporation, or trust) that is not closely
held must apply the look-back method
at the entity level to any property for
which substantially all of the gross
income is from U.S. sources. A
pass-through entity is considered
closely held if, at any time during any
tax year for which there is income
related to the property, 50% or more
(by value) of the beneficial interests in
the entity is held (directly or indirectly)
by or for five or fewer persons. For this
purpose, rules similar to the
constructive ownership rules of section
1563(e) apply.
If you are an owner of an interest in
a pass-through entity for every year in
which any property was depreciated
under the income forecast method and
the entity is not subject to the look-back
method at the entity level for that
property, you must file this form for your
tax year that ends with or includes the
end of the entity’s recomputation year.
The pass-through entity will provide on
Schedule K-1 the information you need
to complete this form.

Change of Taxpayer
If the taxpayer deducting depreciation
under the income forecast method
Cat. No. 26332N

changes prior to the recomputation
year, the taxpayer as of the end of the
recomputation year will be responsible
for the payment of interest, if any, due
for any year in which the property was
depreciated under the income forecast
method. Generally, only the taxpayer
that had depreciated property under the
income forecast method in a year that
an overpayment occurred may request
a refund of interest on the
overpayment.

Filing Instructions
Interest You Owe
If you owe interest, or no interest is to
be refunded to you, attach Form 8866
to your income tax return. Neither you
nor any paid preparer is required to
complete the Signature section on
Form 8866.
For taxpayers other than
partnerships (that are not electing large
partnerships), include any interest due
in the amount to be entered for total tax
(after credits and other taxes) on your
return (for example, 2002 Form 1040,
line 61; 2002 Form 1120, Schedule J,
line 11, etc.). Next to the entry space,
write “From Form 8866” and the
amount of interest due.
For partnerships (other than electing
large partnerships), write “From Form
8866” and any interest due in the
bottom margin of the tax return, and
attach a check or money order for the
full amount payable to “United States
Treasury.” Write the partnership’s
employer identification number (EIN),
daytime phone number, and “Form
8866 Interest” on the check or money
order.

Interest To Be Refunded
If interest is to be refunded to you, do
not attach Form 8866 to your income
tax return. Instead, file Form 8866
separately with the IRS at the
applicable address listed below.
• Individuals:
Philadelphia, PA 19255-0001
• All others:
Cincinnati, OH 45999-0001
Complete the Signature section on
Form 8866 following the instructions for
the Signature section of your income
tax return. A paid preparer must also
complete the Signature section. If

Page 2 of 4

Instructions for Form 8866

14:03 - 6-OCT-2005

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

additional Forms 8866 are needed (to
show more than 3 prior tax years), sign
only the first Form 8866.
File Form 8866 by the date you are
required to file your income tax return
(including extensions). Keep a copy of
Form 8866 and any attached schedules
for your records.

Filing a Corrected Form
8866
You must file a corrected Form 8866
only if the amount shown on line 6 for
any prior year changes as a result of an
error you made, an income tax
examination, or the filing of an
amended tax return.
When completing line 1 of the
corrected Form 8866, follow the
instructions on the form but do not
enter the adjusted taxable income from
line 3 of the original Form 8866. When
completing line 5 of the corrected Form
8866, do not include the interest due, if
any, from line 10 of the original Form
8866 that was included in your total tax
when Form 8866 was filed with your tax
return.
• If both the original and corrected
Forms 8866 show interest you owe, file
an amended income tax return
following the filing instructions on page
1 and the amended return instructions
for your tax return.
• If both the original and corrected
Forms 8866 show interest to be
refunded to you, write “Amended” in the
top margin of the corrected Form 8866,
and file it separately following the filing
instructions beginning on page 1.
• If your original Form 8866 shows
interest you owe and the corrected
Form 8866 shows interest to be
refunded to you, you must:
1. File an amended tax return
showing $0 interest from Form 8866
and
2. File the corrected Form 8866
separately (but do not write “Amended”
at the top of the form because this is
the first Form 8866 that you will file
separately for this recomputation year).
Follow the filing instructions beginning
on page 1 and the amended return
instructions for your tax return.
• If the original Form 8866 shows
interest to be refunded to you and the
corrected Form 8866 shows interest
you owe, you must:
1. File the corrected Form 8866
separately (with “Amended” written at
the top) showing $0 interest to be
refunded and
2. File an amended income tax
return and attach a copy of the
corrected Form 8866. Follow the filing
instructions on page 1 and the
amended return instructions for your tax
return.

Attachments
If you need more space, attach
separate sheets to the back of Form

8866. Put your name and identifying
number on each sheet.

the income forecast method for
look-back purposes.

Specific Instructions

In each column, show a net increase to
taxable income as a positive amount
and a net decrease as a negative
amount.
In figuring the net adjustment to be
entered in each column on line 2, be
sure to take into account any other
income and expense adjustments that
may result from the increase (or
decrease) to depreciation under the
income forecast method (for example,
for an individual, a change to adjusted
gross income may affect charitable
contributions or medical expenses).
Include the following on an attached
schedule.
1. Identify each property
depreciated under the income forecast
method to which this form applies.
2. For each property, report in
columns for each prior year: (a) the
amount of depreciation previously
deducted based on estimated future
income and (b) the amount of
depreciation allowable for each prior
year based on actual income earned
before the end of the recomputation
year and estimated future income to be
earned after the recomputation year.
Total the columns for each prior year
and show the net adjustment to
depreciation.
3. Identify any other adjustments
that result from a change in
depreciation under the income forecast
method and show the amounts in the
columns for the affected years so that
the net adjustment shown in each
column on the attached schedule
agrees with the amounts shown on line
2.

Recomputation Year
If you were an owner of an interest in a
pass-through entity that has
depreciated one or more properties
under the income forecast method,
enter your tax year that ends with or
includes the end of the entity’s
recomputation year.

Name
Enter the name shown on your Federal
income tax return for the recomputation
year. If you are an individual filing a
joint return, also enter your spouse’s
name as shown on Form 1040.

Address
Enter your address only if you are filing
this form separately. Include the
apartment, suite, room, or other unit
number after the street address.

P.O. Box
Enter your box number instead of your
street address only if your post office
does not deliver mail to your home.

Foreign Address
Enter the information in the following
order: city, province or state, and
country. Follow the country’s practice
for entering the postal code. Please do
not abbreviate the country name.

Identifying Number
If you are an individual, enter your
social security number. Other filers
must use their EIN.

Columns (a), (b), and (c)
Enter at the top of each column the
ending month and year for:
• Each tax year prior to the
recomputation year in which you
depreciated property under the income
forecast method to which this form
applies and
• Any other tax year affected by such
years.
Note. If there are more than 3 prior tax
years, attach additional Forms 8866 as
needed. On the additional Forms 8866,
enter your name, identifying number,
and tax year. Complete lines 1 through
8 (as applicable), but do not enter totals
in column (d). Enter totals only in
column (d) of the first Form 8866.

Line 1
Do not reduce taxable income or
increase a loss on line 1 by any
carryback of a net operating loss, net
section 1256 contracts loss, or capital
loss, except to the extent that carryback
resulted from or was adjusted by the
redetermination of depreciation under

-2-

Line 2

An owner of an interest in a
pass-through entity is not required to
provide the detail listed in 1 and 2 with
respect to prior years. The entity should
provide the line 2 amounts with
Schedule K-1 or on a separate
statement for its recomputation year.
Note. Taxpayers reporting line 2
amounts from more than one Schedule
K-1 (or a similar statement) must attach
a schedule detailing by entity the net
change to depreciation under the
income forecast method.

Lines 4 and 5
Reduce the tax liability to be entered on
lines 4 and 5 by allowable credits (other
than refundable credits, for example,
the credit for taxes withheld on wages,
the earned income credit, the additional
child tax credit, the credit for Federal
tax paid on fuels, etc.), but do not take
into account any credit carrybacks to
the prior year in computing the amount
to enter on lines 4 and 5 (except to the
extent of carrybacks that resulted from
or were adjusted by the redetermination
of depreciation for look-back purposes).

Page 3 of 4

Instructions for Form 8866

14:03 - 6-OCT-2005

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Include on lines 4 and 5 any taxes
(such as alternative minimum tax)
required to be taken into account in the
computation of your tax liability (as
originally reported or as redetermined).

Line 6
Pass-through entities. Multiply the
amount on line 2 by the applicable
regular tax rate for each prior year
shown in column (a), (b), or (c). The
applicable regular tax rate is as follows.
1. Pass-through entities in which, at all
times during the year, more than 50%
of the interests in the entity are held by
individuals directly or through other
pass-through entities — For tax years
beginning:
a. In 2000 or earlier .
b. In 2001 . . . . . . .
c. In 2002 . . . . . . . .
d. In 2003 or later . .

.
.
.
.

.
.
.
.

.
.
.
.

.
.
.
.

.
.
.
.

.
.
.
.

.
.
.
.

39.6%
39.1%
38.6%
35.0%

2. All other pass-through entities not
included in 1 above: 35%.

Lines 7 and 8
For the increase or decrease in tax for
each prior year, interest due or to be
refunded must be computed at the
adjusted overpayment rate determined
under section 460(b)(7) and
compounded on a daily basis, generally
from the due date (not including
extensions) of the return for the prior
year until the earlier of:
• The due date (not including
extensions) of the return for the
recomputation year, or
• The date the return for the
recomputation year is filed and any
income tax due for that year has been
fully paid.

Exceptions
• If a net operating loss, capital loss,

net section 1256 contracts loss, or
credit carryback is being increased or
decreased as a result of the adjustment
made to net income due to refiguring
depreciation under the income forecast
method, the interest due or to be
refunded must be computed on the
increase or decrease in tax attributable
to the change to the carryback only
from the due date (not including
extensions) of the return for the prior
year that generated the carryback and
not from the due date of the return for
the year in which the carryback was
absorbed. See section 6611(f).
• In the case of a decrease in tax on
line 6, if a refund has been allowed for

any part of the income tax liability
shown on line 5 for any year as a result
of a net operating loss, capital loss, net
section 1256 contracts loss, or credit
carryback to such year, and the amount
of the refund exceeds the amount on
line 4, interest is allowed on the amount
of such excess only until the due date
(not including extensions) of the return
for the year in which the carryback
arose.
Note. If a different method of interest
computation must be used to produce
the correct result in your case, use that
method and attach an explanation of
how the interest was computed.
You must determine the adjusted
overpayment rate for each interest
accrual period. The interest accrual
period starts on the day after the return
due date (not including extensions) for
each prior tax year and ends on the
return due date for the following tax
year. The adjusted overpayment rate in
effect for the entire interest accrual
period is the overpayment rate
determined under section 6621(a)(1) for
the calendar quarter in which the
interest accrual period begins.
Taxpayers other than corporations use
Table 1 on this page to figure the
interest for each interest accrual period
that began during the applicable period
shown in the table. Corporations
generally use Table 2, for each interest
accrual period that began during the
applicable period shown in that table on
page 4, but must use Table 3 to figure
the interest on any portion of the
increase or decrease in tax exceeding
$10,000.
Tables of interest factors to compute
daily compound interest were published
in Rev. Proc. 95-17, 1995-1 C.B. 556.
The overpayment rate in effect for each
calendar quarter in which an interest
accrual period begins and the table and
corresponding page number in 1995-1
C.B. for calendar quarters through
September 30, 2005, are shown in
Table 1 below and in Tables 2 and 3 on
page 4.
For periods beginning after
September 30, 2005, use the
applicable overpayment rate under
section 6621(a)(1) in the revenue
rulings published quarterly in the
Internal Revenue Bulletin.

Line 9
Additional interest to be refunded for
periods after the due date of the return,

-3-

if any, will be computed by the IRS and
included in your refund. Report the
amount on line 9 (or the amount
refunded by the IRS if different) as
interest income on your income tax
return for the tax year in which it is
received or accrued.

Line 10
Corporations (other than S
corporations) may deduct this amount
(or the amount computed by the IRS if
different) as interest expense for the tax
year in which it is paid or incurred. For
individuals and other taxpayers, this
interest is not deductible.
Table 1
Interest Rates for Taxpayers Other
Than Corporations
From

Through

Rate

9/14/95
10/1/95
1/1/96
4/1/96
7/1/96
10/1/96
1/1/97
4/1/97
7/1/97
10/1/97
1/1/98
4/1/98
7/1/98
10/1/98
1/1/99
4/1/99
7/1/99
10/1/99
1/1/00
4/1/00
7/1/00
10/1/00
1/1/01
4/1/01
7/1/01
10/1/01
1/1/02
4/1/02
7/1/02
10/1/02
1/1/03
4/1/03
7/1/03
10/1/03
1/1/04
4/1/04
7/1/04
10/1/04
1/1/05
4/1/05
7/1/05

9/30/95
12/31/95
3/31/96
6/30/96
9/30/96
12/31/96
3/31/97
6/30/97
9/30/97
12/31/97
3/31/98
6/30/98
9/30/98
12/31/98
3/31/99
6/30/99
9/30/99
12/31/99
3/31/00
6/30/00
9/30/00
12/31/00
3/31/01
6/30/01
9/30/01
12/31/01
3/31/02
6/30/02
9/30/02
12/31/02
3/31/03
6/30/03
9/30/03
12/31/03
3/31/04
6/30/04
9/30/04
12/31/04
3/31/05
6/30/05
9/30/05

8%
8%
8%
7%
8%
8%
8%
8%
8%
8%
8%
7%
7%
7%
7%
8%
8%
8%
8%
9%
9%
9%
9%
8%
7%
7%
6%
6%
6%
6%
5%
5%
5%
4%
4%
5%
4%
5%
5%
6%
6%

Table

Page

21
21
69
67
69
69
21
21
21
21
21
19
19
19
19
21
21
21
69
71
71
71
23
21
19
19
17
17
17
17
15
15
15
13
61
63
61
63
15
17
17

575
575
623
621
623
623
575
575
575
575
575
573
573
573
573
575
575
575
623
625
625
625
577
575
573
573
571
571
571
571
569
569
569
567
615
617
615
617
569
571
571

Page 4 of 4

Instructions for Form 8866

14:03 - 6-OCT-2005

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Table 2
General Interest Rates for
Corporations
From

Through

Rate

9/14/95
10/1/95
1/1/96
4/1/96
7/1/96
10/1/96
1/1/97
4/1/97
7/1/97
10/1/97
1/1/98
4/1/98
7/1/98
10/1/98
1/1/99
4/1/99
7/1/99
10/1/99
1/1/00
4/1/00
7/1/00
10/1/00
1/1/01
4/1/01
7/1/01
10/1/01
1/1/02
4/1/02
7/1/02
10/1/02
1/1/03
4/1/03
7/1/03
10/1/03
1/1/04
4/1/04
7/1/04
10/1/04
1/1/05
4/1/05
7/1/05

9/30/95
12/31/95
3/31/96
6/30/96
9/30/96
12/31/96
3/31/97
6/30/97
9/30/97
12/31/97
3/31/98
6/30/98
9/30/98
12/31/98
3/31/99
6/30/99
9/30/99
12/31/99
3/31/00
6/30/00
9/30/00
12/31/00
3/31/01
6/30/01
9/30/01
12/31/01
3/31/02
6/30/02
9/30/02
12/31/02
3/30/03
6/30/03
9/30/03
12/31/03
3/31/04
6/30/04
9/30/04
12/31/04
3/31/05
6/30/05
9/30/05

8%
8%
8%
7%
8%
8%
8%
8%
8%
8%
8%
7%
7%
7%
6%
7%
7%
7%
7%
8%
8%
8%
8%
7%
6%
6%
5%
5%
5%
5%
4%
4%
4%
3%
3%
4%
3%
4%
4%
5%
5%

Table

Page

21
21
69
67
69
69
21
21
21
21
21
19
19
19
17
19
19
19
67
69
69
69
21
19
17
17
15
15
15
15
13
13
13
11
59
61
59
61
13
15
15

575
575
623
621
623
623
575
575
575
575
575
573
573
573
571
573
573
573
621
623
623
623
575
573
571
571
569
569
569
569
567
567
567
565
613
615
613
615
567
569
569

Table 3
Interest Rates for Corporate
Increases or Decreases in Tax
Exceeding $10,000
From

Through

Rate

Table

Page

9/14/95
10/1/95
1/1/96
4/1/96
7/1/96
10/1/96
1/1/97
4/1/97
7/1/97
10/1/97
1/1/98
4/1/98
7/1/98
10/1/98
1/1/99

9/30/95
12/31/95
3/31/96
6/30/96
9/30/96
12/31/96
3/31/97
6/30/97
9/30/97
12/31/97
3/31/98
6/30/98
9/30/98
12/31/98
3/31/99

6.5%
6.5%
6.5%
5.5%
6.5%
6.5%
6.5%
6.5%
6.5%
6.5%
6.5%
5.5%
5.5%
5.5%
4.5%

18
18
66
64
66
66
18
18
18
18
18
16
16
16
14

572
572
620
618
620
620
572
572
572
572
572
570
570
570
568

From
4/1/99
7/1/99
10/1/99
1/1/00
4/1/00
7/1/00
10/1/00
1/1/01
4/1/01
7/1/01
10/1/01
1/1/02
4/1/02
7/1/02
10/1/02
1/1/03
4/1/03
7/1/03
10/1/03
1/1/04
4/1/04
7/1/04
10/1/04
1/1/05
4/1/05
7/1/05

Through
6/30/99
9/30/99
12/31/99
3/31/00
6/30/00
9/30/00
12/31/00
3/31/01
6/30/01
9/30/01
12/31/01
3/31/02
6/30/02
9/30/02
12/31/02
3/31/03
6/30/03
9/30/03
12/31/03
3/31/04
6/30/04
9/30/04
12/31/04
3/31/05
6/30/05
9/30/05

Rate
5.5%
5.5%
5.5%
5.5%
6.5%
6.5%
6.5%
6.5%
5.5%
4.5%
4.5%
3.5%
3.5%
3.5%
3.5%
2.5%
2.5%
2.5%
1.5%
1.5%
2.5%
1.5%
2.5%
2.5%
3.5%
3.5%

Table
16
16
16
64
66
66
66
18
16
14
14
12
12
12
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Privacy Act and Paperwork
Reduction Act Notice. The Privacy
Act of 1974 and Paperwork Reduction
Act of 1980 say that when we ask you
for information, we must tell you our
legal right to ask for it, why we are
asking for it, and how it will be used.
We must also tell you what could
happen if we do not receive it and
whether your response is voluntary or
mandatory under the law.
Section 167(g) provides special rules
for computing interest under the
look-back method for property
depreciated under the income forecast
method. Section 6001 and its
regulations say that you must file a
return or statement with us for any tax
for which you are liable. Your response
is mandatory under this section and its
regulations. Section 6109 and its
regulations say that you must show
your identifying number (social security
number or employer identification
number) on what you file. This is so we
know who you are and can process
your return and other papers.
You are not required to provide the
information requested on a form that is
subject to the Paperwork Reduction Act
unless the form displays a valid OMB
control number. Books or records
relating to a form or its instructions
must be retained as long as their
contents may become material in the
administration of any Internal Revenue

-4-

law. Generally, tax returns and return
information are confidential, as required
by section 6103.
We ask for the information on this
form to carry out the Internal Revenue
laws of the United States. We need it to
ensure that you are complying with
these laws and to figure and collect or
refund the correct amount of interest.
We may give the information to the
Department of Justice and to other
Federal agencies, as provided by law.
We may give it to cities, states, the
District of Columbia, and U.S.
commonwealths or possessions to
carry out their tax laws. We may give it
to foreign governments because of tax
treaties they have with the United
States. We may also disclose this
information to Federal and state
agencies to enforce Federal nontax
criminal laws and to combat terrorism.
If you do not file Form 8866, do not
provide the information we ask for, or
provide fraudulent information, you may
forfeit any refund of interest otherwise
owed to you, be charged penalties, or
be subject to criminal prosecution.
The time needed to complete and
file this form will vary depending on
individual circumstances. The
estimated burden for individual
taxpayers filing this form is approved
under OMB control number 1545-0074
and is included in the estimates shown
in the instructions for their individual
income tax return. The estimated
burden for all other taxpayers who file
this form is shown below.
Recordkeeping . . . . . . . . 9 hr., 34 min.
Learning about the law
or the form . . . . . . . . . . . 1 hr., 5 min.
Preparing, copying,
assembling, and sending
the form to the IRS . . . . . 1 hr., 18 min.

If you have comments concerning
the accuracy of these time estimates or
suggestions for making this form
simpler, we would be happy to hear
from you. You can write to the Internal
Revenue Service, Tax Products
Coordinating Committee,
SE:W:CAR:MP:T:T:SP, 1111
Constitution Ave., NW, IR-6406,
Washington, DC 20224. Do not send
your tax forms to this address. Instead,
see Filing Instructions on page 1.