U.S. Individual Income Tax Return

Instructions for Form 8697

Department of the Treasury
Internal Revenue Service

(Rev. December 2011)

Interest Computation Under the Look-Back Method for Completed Long-Term
Contracts
Section references are to the Internal
Revenue Code unless otherwise noted.

General Instructions
What’s New

• Form 8697 has been revised to

provide a column for the filing year. The
cumulative effect of applying the
look-back method is taken into account
beginning in the filing year even though
look-back interest is not computed for
that year. Income is hypothetically
reallocated to or from the filing year or
to or from the redetermination years.
Look-back does not create or decrease
income, it only hypothetically changes
the tax year of recognition.
• A second signature line has been
added for the spouse’s signature if a
joint tax return was filed.
• The tax rates used for the interest
computation have changed. See the
instructions for line 2, later.
• The IRS has created a page on
IRS.gov for information about Form
8697 and its instructions, at www.IRS.
gov/form8697. Information about any
future developments affecting Form
8697 (such as legislation enacted after
we release it) will be posted on that
page.

Purpose of Form
Use Form 8697 to figure the interest
due or to be refunded under the
look-back method of section 460(b)(2)
on certain long-term contracts that are
accounted for under either the
percentage of completion method or the
percentage of completion-capitalized
cost method. For guidance concerning
these methods, see Regulations
section 1.460-4. For details and
computational examples illustrating the
use of the look-back method, see
Regulations section 1.460-6.

Who Must File
General Rule
You must file Form 8697 for each tax
year in which you completed a
Feb 22, 2012

long-term contract entered into after
February 28, 1986, that you accounted
for using either the percentage of
completion method or the percentage of
completion-capitalized cost method for
Federal income tax purposes. You also
must file Form 8697 for any tax year,
subsequent to the year of completion,
in which the contract price or contract
costs are adjusted for one or more of
these long-term contracts from a prior
year.

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 contract for
which at least 95% 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 under the contract,
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. For a
mid-contract change in taxpayer
resulting in the conversion of a C
corporation into an S corporation, the
look-back method is applied at the
entity level with respect to contracts
entered into prior to the conversion
regardless of whether the S corporation
is considered closely held. See the
section discussing Mid-Contract
Change in Taxpayer.
If you are an owner of an interest in
a pass-through entity for every year in
which a long-term contract was being
accounted for under the percentage of
completion method or the percentage of
completion-capitalized cost method and
the pass-through entity is not subject to
the look-back method at the entity level,
you must file this form for your tax year
that ends with or includes the end of
the entity’s tax year in which the
contract was completed or adjusted in a
post-completion tax year. The
pass-through entity will provide on
Cat. No. 10703K

Schedule K-1 the information you need
to complete this form.

Mid-Contract Change in
Taxpayer
If prior to the completion of a long-term
contract accounted for using the
percentage of completion method or the
percentage of completion capitalized
cost method, there is a transaction that
makes another taxpayer responsible for
accounting for income from the same
contract, the taxpayer responsible for
computing look-back interest depends
on whether the ownership change is
due to a constructive completion
transaction or a step-in-the shoes
transaction. For guidance regarding
these transactions, see Regulations
1.460-4(g). In the case of constructive
completion transactions, the old
taxpayer treats the contract as
completed in the transaction year and
applies the look-back method to the
pre-transaction years. The new
taxpayer is treated as entering into a
new contract and applies the look-back
method to the post-transaction years
upon the contract’s completion. In the
case of step-in-the-shoes transactions,
the new taxpayer applies the look-back
method to both the pre and post
transaction years. See Regulations
section 1.460-6(g) for additional
guidance.

Exception for Certain
Construction Contracts
The look-back method does not apply
to the regular taxable income from:
• Any home construction contract (as
defined in section 460(e)(6)(A)) or
• Any other construction contract
entered into by a taxpayer: (a) who
estimates the contract will be
completed within 2 years from the date
the contract begins and (b) whose
average annual gross receipts for the 3
tax years preceding the tax year in
which the contract is entered into do
not exceed $10 million. See section
460(e).
However, the look-back method
does apply to the alternative minimum

taxable income from any such contract
that is not a home construction contract
and, therefore, must be accounted for
using the percentage of completion
method for alternative minimum tax
purposes. See section 56(a)(3) for
details.

Small Contract Exception
The look-back method does not apply
to any contract completed within 2
years of the contract start date if the
gross price of the contract (as of
contract completion) does not exceed
the smaller of:
• $1 million or
• 1% of the taxpayer’s average annual
gross receipts for the 3 tax years before
the tax year of contract completion.
See section 460(b)(3)(B) for details.

De Minimis Exception
You may elect not to apply the
look-back method in certain de minimis
cases for completed contracts. The
look-back method does not apply in the
following cases if the election is made.
1. In the completion year if, for each
prior contract year, the cumulative
taxable income (or loss) actually
reported under the contract is within
10% of the cumulative look-back
income (or loss). Cumulative look-back
income (or loss) is the amount of
taxable income (or loss) that you would
have reported if you had used actual
contract price and costs instead of
estimated contract price and costs.
2. In a post-completion year if, as of
the close of the post-completion year,
the cumulative taxable income (or loss)
under the contract is within 10% of the
cumulative look-back income (or loss)
under the contract as of the close of the
most recent year in which the look-back
method was applied to the contract (or
would have been applied if the election
had not been made).
For purposes of item 2, discounting
under section 460(b)(2) does not apply.
To make the election, attach a
statement to your timely filed income
tax return (determined with extensions)
for the first tax year of the election.
Write at the top of the statement
“NOTIFICATION OF ELECTION
UNDER SECTION 460(b)(6).” Include
on the statement your name, identifying
number, and the effective date of the
election. Also identify the trades or
businesses that involve long-term
contracts. Once made, the election
applies to all contracts completed

during the election year and all later tax
years, and may not be revoked without
IRS consent. See Regulations section
1.460-6(j) for more details. If you timely
filed your return without making the
election, you may make the election on
an amended return filed no later than 6
months after the due date of your tax
return (excluding extensions). Write
“Filed pursuant to section 301.9100” at
the top of the amended return.

Look-back interest owed is not
subject to the estimated tax penalty.
See Regulations section 1.460-6(f)(2).

Filing Instructions

Department of Treasury
Internal Revenue Service
Philadelphia, PA 19255-0001
• All others:

If You Owe Interest (or No
Interest Is To Be Refunded to
You)
Attach Form 8697 to your income tax
return. The signature section of Form
8697 does not have to be completed by
you or the paid preparer.
For individuals, include any interest
due in the amount to be entered for
total tax (after credits and other taxes)
on your return (for example, 2011 Form
1040, line 61). Write on the dotted line
to the left of the entry space “From
Form 8697” and the amount of interest
due.
For partnerships (that are not closely
held), write “From Form 8697” and
include any interest due in the bottom
margin of the tax return. Attach a check
or money order for the full amount
made payable to “United States
Treasury.” Write the partnership’s
employer identification number (EIN),
daytime phone number, and “Form
8697 Interest” on the check or money
order.
For S corporations that are not
closely held, include any interest due in
the amount to be entered for additional
taxes (for example, 2011 Form 1120S,
line 22c). Write on the dotted line to the
left of the entry space “From Form
8697” and the amount of interest due. A
closely held S corporation would also
follow these procedures following a
conversion from a C corporation for the
contracts entered into prior to the
conversion. See the rules related to
Mid-Contract Change in Taxpayer,
earlier.
For closely held pass-through
entities, look-back interest is applied at
the owner level and not the entity level.
For corporations, include the amount
of interest due on the appropriate line
of Form 1120, Schedule J, Part I (for
example, 2011 Form 1120, Schedule J,
line 9c).

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If Interest Is To Be Refunded
to You
Do not attach Form 8697 to your
income tax return. Instead, file Form
8697 separately with the IRS at the
applicable address listed below.
• Individuals:

Department of Treasury
Internal Revenue Service
Cincinnati, OH 45999-0001
Complete the signature section of
Form 8697 following the instructions for
the signature section of your income
tax return. If you file a joint return, the
signature of both spouses is required
on Form 8697. If additional Forms 8697
are needed to show more than 2
redetermination years, sign only the
first Form 8697.
File Form 8697 by the date you are
required to file your income tax return
(including extensions). Keep a copy of
Form 8697 and any attached schedules
for your records.

Filing a Corrected Form
8697
You must file a corrected Form 8697
only if the amount shown on Part I, line
6, or Part II, line 7, 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 Part I, line 1, of the
corrected Form 8697, follow the
instructions on the form but do not
enter the adjusted taxable income from
Part I, line 3, of the original Form 8697.
When completing Part I, line 5 (or Part
II, line 6), of the corrected Form 8697,
do not include the interest due, if any,
from Part I, line 10 (or Part II, line 11),
of the original Form 8697 that was
included in your total tax when Form
8697 was filed with your tax return.
• If both the original and corrected
Forms 8697 show an amount on the
line for interest you owe, file an
amended income tax return.
• If both the original and corrected
Forms 8697 show an amount on the
line for interest to be refunded to you,
write “Amended” in the top margin of

the corrected Form 8697, and file it
separately.
• If your original Form 8697 shows an
amount on the line for interest you owe
and the corrected Form 8697 shows an
amount on the line for interest to be
refunded to you, you must:
1. File an amended income tax
return showing $0 interest from Form
8697 and
2. File the corrected Form 8697
separately (but do not write “Amended”
at the top of the form because this is
the first Form 8697 that you will file
separately).
• If the original Form 8697 shows an
amount on the line for interest to be
refunded to you and the corrected Form
8697 shows an amount on the line for
interest you owe, you must:
1. File the corrected Form 8697
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 8697.

Attachments
If you need more space, attach
separate sheets to the back of Form
8697. Put your name and identifying
number on each sheet.

Applying the Look-Back
Method Under Special
Situations
10% Method
For purposes of the percentage of
completion method, a taxpayer may
elect to postpone recognition of income
and expense under a long-term
contract entered into after July 10,
1989, until the first tax year as of the
end of which at least 10% of the
estimated total contract costs have
been incurred. For purposes of the
look-back method, the recognition of
income and expense must be
postponed for such contracts until the
first tax year as of the end of which at
least 10% of the actual total contract
costs have been incurred. Therefore,
income and expense will be allocated
to a different tax year if the first tax year
that the 10% threshold is exceeded
based on actual costs differs from the
first tax year that the 10% threshold is
exceeded based on estimated costs.
The election to use the 10% method
applies to all long-term contracts

entered into during the tax year for
which the election is made and all later
years. See section 460(b)(5) for more
details.

Regulations section
1.460-6(c)(1)(ii)(C)(2) and identify the
contracts to which the election applies.

Change Orders

For purposes of reapplying the
look-back method after the year of
contract completion, you may elect the
delayed reapplication method to
minimize the number of required
reapplications of the look-back method.
Under this method, the look-back
method is reapplied after the contract
completion year (or after a later
reapplication of the look-back method)
only when one of the following
conditions is met for that contract:
1. The net undiscounted value of
increases or decreases in the contract
price occurring from the time of the last
application of the look-back method
exceeds the smaller of $1 million or
10% of the total contract price at that
time,
2. The net undiscounted value of
increases or decreases in contract
costs occurring from the time of the last
application of the look-back method
exceeds the smaller of $1 million or
10% of the total actual contract costs at
that time,
3. The taxpayer goes out of
existence,
4. The taxpayer reasonably believes
the contract is finally settled and
closed, or
5. None of the above conditions
(1 – 4) are met by the end of the 5th tax
year that begins after the last previous
application of the look-back method.

A change order for a contract is not
treated as a separate contract for
purposes of applying the look-back
method unless the change order would
be treated as a separate contract under
the rules for severing and aggregating
contracts provided in Regulations
section 1.460-1(e). Therefore, if a
change order is not treated as a
separate contract, that portion of the
actual contract price and contract costs
attributable to the change order must
be taken into account in allocating
contract income to all tax years of the
contract, including tax years before the
change order was agreed to.

Post-Completion
Adjustments
General Rule
If the contract price or costs are revised
to reflect amounts properly taken into
account after the contract completion
date for any reason, you must apply the
look-back method in the year such
amounts are properly taken into
account, even if no other contract is
completed in that year. Generally, the
amount of each such post-completion
adjustment to total contract price or
contract costs is discounted, solely for
look-back purposes, from its value at
the time the amount is taken into
account in computing taxable income to
its value at the time the contract was
completed. The discount rate for this
purpose is the Federal mid-term rate
under section 1274(d) in effect at the
time the amount is properly taken into
account.
However, you may elect not to
discount post-completion adjustments
for any contract. The election not to
discount is made on a
contract-by-contract basis and is
binding with respect to all
post-completion adjustments that arise
with respect to that contract. To make
this election, attach a statement to your
timely filed income tax return
(determined with extensions) for the
first tax year after completion in which
you take into account any adjustment to
the contract price or contract costs.
Indicate on the statement that you are
making an election not to discount
post-completion adjustments under

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Delayed Reapplication Method

To elect the delayed reapplication
method, attach a statement to your
timely filed income tax return
(determined with extensions) for the
first tax year of the election. Indicate on
the statement that you are making an
election under Regulations section
1.460-6(e) to use the delayed
reapplication method. Once made, the
election is binding for all long-term
contracts for which you would reapply
the look-back method in the absence of
the election in the year of the election
and all later years, unless the IRS
consents to a revocation of the election.
See Regulations section 1.460-6(e) for
more details.

Specific Instructions
All filers must complete the information
at the top of the form above Part I
according to the following instructions.

Then, complete either Part I or Part II
as appropriate. Also sign the form at
the bottom of page 2 if interest is to be
refunded to you. A signature is not
required if you are filing the form with
your tax return.

Filing Year

Note. If there were more than 2 prior
years, attach additional Forms 8697 as
needed. On the additional Forms 8697,
enter your name, identifying number,
and tax year. Complete lines 1 through
8 (as applicable), but do not enter totals
in column (c). Enter totals only in
column (c) of the first Form 8697.

Fill in the filing year line at the top of the
form to show the tax year in which the
contracts for which this form is being
filed were completed or adjusted in a
post-completion year. If you were an
owner of an interest in a pass-through
entity that has completed or adjusted
one or more contracts, enter your tax
year that ends with or includes the end
of the entity’s tax year in which the
contracts were completed or adjusted.

Line 1

Name

In each column, show a net increase to
income as a positive amount and a net
decrease to income 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 income from long-term
contracts (for example, a change to
adjusted gross income affecting
medical expenses under section 213). If
there are no adjustments besides the
look-back adjustments, the sum of all
line 2 amounts should be zero and
reflected in column 2(c). If there are
additional adjustments that result from
the application of the look-back, leave
column 2(c) blank and reflect the
amounts in the schedule below as
described in item 3.
Include the following on an attached
schedule.
1. Identify each completed
long-term contract by contract number,
job name, or any other reasonable
method used in your records to identify
each contract.
2. For each contract, report in
columns for each prior year: (a) the
amount of income previously reported
based on estimated contract price and
costs and (b) the amount of income
allocable to each prior year based on
actual contract price and costs. Total
the columns for each prior year and
show the net adjustment to income
from long-term contracts.
3. Identify any other adjustments
that result from a change in income
from long-term contracts and show the
amounts in the columns for the affected
years so that the net adjustment shown

Enter the name shown on your Federal
income tax return for the filing 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. If the
Post Office does not deliver mail to the
street address and you have a P.O.
box, show the box number instead.

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

Part I—Regular Method
Use Part I only if you are not electing,
do not have an election in effect, or are
not required to use the simplified
marginal impact method as described in
the instructions for Part II, later.

Filing year column
Enter the filing year listed at the top of
this form.

Columns (a) and (b)
Enter at the top of each column the
ending month and year for:
• Each prior tax year in which you were
required to report income from the
completed long-term contract(s) and
• Any other tax year affected by such
years.

Do not reduce taxable income or
increase a loss on line 1 by any
carryback of a net operating loss,
capital loss, or net section 1256
contracts loss, except to the extent that
carrybacks must be taken into account
to properly compute interest under
section 460.

Line 2

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in each column on the attached
schedule agrees with the amounts
shown on line 2.
An owner of an interest in a
pass-through entity is not required to
provide the detail listed in 1 and 2
above with respect to prior years. The
entity should provide the line 2 amounts
with Schedule K-1 or on a separate
statement for its tax year in which the
contracts are completed or adjusted.
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 income from long-term
contracts.

Line 3
If line 3 results in a negative amount, it
represents a look-back net operating
loss (NOL). The adjustment in line 2
either created, increased, or decreased
the net operating loss. The change in
the amount of the net operating loss
would be carried back or forward to the
appropriate tax year and the
hypothetical tax would be recomputed
in the carryback/forward year. See
Regulations section 1.460-6(c)(3)(v).
However, the computation period for
computing interest on NOLs is different.
See the exceptions listed on lines 7 and
8 below.

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 credit for
federal tax 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 (other
than carrybacks that resulted from or
were adjusted by the redetermination of
your income from a long-term contract
for look-back purposes). 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).

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
applicable interest rate 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 filing
year or
• The date the return for the filing year
is filed and any income tax due for that
year has been fully paid.
Exceptions:
• The time period for determining
interest may be different in cases
involving loss or credit carrybacks or
carryovers in order to properly reflect
the time period during which the
taxpayer or IRS had use of the
hypothetical underpayment or
overpayment. See Regulations section
1.460-6(c)(4)(ii) and (iii) for additional
information.
• 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 from long-term
contracts, 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.

Applicable Interest Rates
The overpayment rate designated
under section 6621 is used to calculate
the interest for both hypothetical
overpayments and underpayments. The
applicable interest rates are published
quarterly in revenue rulings in the
Internal Revenue Bulletin available at
www.irs.gov.
However, for contracts completed in
tax years ending after August 5, 1997,

an interest rate is determined 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 interest rate in
effect for the entire interest accrual
period is the overpayment rate
determined under section 6621(a)(1)
applicable on the first day of the
interest accrual period.
Even though the interest rates
change quarterly, for look-back
purposes the interest rate stays the
same for the accrual period which is
generally one year. The applicable
interest rates for non-corporate
taxpayers are shown in Table 1 (for
interest accrual periods beginning after
Jan. 1, 2004).
The applicable interest rates for
corporate taxpayers for the first
$10,000 are shown in Table 2. The
applicable interest rates for corporate
taxpayers for amounts in excess of
$10,000 are shown in Table 3. For
1120S taxpayers, the amounts in Table
2 are used.
Following the conversion of a C
corporation into an S corporation, the
look-back method is applied at the
entity level (1120S) with respect to
contracts entered into prior to the
conversion. See Regulations section
1.460-6(g)(3)(iv). For the C corporation
years, the taxpayer would apply the
rates reflected in Table 2 for the first
$10,000 and apply the rates in Table 3
for the amounts in excess of $10,000.

Line 9
See If Interest Is To Be Refunded to
You, earlier, for where to file Form
8697. Additional interest to be refunded
for periods after the filing date of Form
8697, 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
See If You Owe Interest under Filing
Instructions, earlier, for how to report
this amount on your tax return.
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

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individuals and other taxpayers, this
interest is not deductible.

Estimated Tax Penalty
Look-back interest owed is not subject
to the estimated tax penalty. See
Regulations section 1.460 – 6(f)(2)(i).
See the instructions for the 2011 Form
2210, line 2 for individuals and 2011
Form 2220, line 2(b) for corporations.

Part II—Simplified
Marginal Impact Method
Part II is used only by pass-through
entities required to apply the look-back
method at the entity level (see Who
Must File, earlier) and taxpayers
electing (or with an election in effect) to
use the simplified marginal impact
method. Under the simplified method,
prior year hypothetical underpayments
or overpayments in tax are figured
using an assumed marginal tax rate,
which is generally the highest statutory
rate in effect for the prior year under
section 1 (for an individual) or section
11 (for a corporation). This method
eliminates the need to refigure your tax
liability based on actual contract price
and actual contract costs each time the
look-back method is applied.
To elect the simplified marginal
impact method, attach a statement to
your timely filed income tax return
(determined with extensions) for the
first tax year of the election. Indicate on
the statement that you are making an
election under Regulations section
1.460-6(d) to use the simplified
marginal impact method. Once made,
the election applies to all applications of
the look-back method in the year of the
election and all later years, unless the
IRS consents to a revocation of the
election.

Columns (a), (b), and (c)
Enter at the top of each column the
ending month and year for each prior
tax year in which you were required to
report income from the completed
long-term contract.
Note. If there were more than 3 prior
tax years, attach additional Forms 8697
as needed. On the additional Forms
8697, enter your name, identifying
number, and tax year. Complete lines 1
through 9 (as applicable), but do not
enter totals in column (d). Enter totals
only in column (d) of the first Form
8697.

Line 1
In each column, show a net increase to
income as a positive amount and a net
decrease to income as a negative
amount.
On an attached schedule:
• Identify each completed long-term
contract by contract number, job name,
or any other reasonable method used
in your records to identify each
contract; and
• For each contract, report in columns
for each prior year: (a) the amount of
income previously reported based on
estimated contract price and costs and
(b) the amount of income allocable to
each prior year based on actual
contract price and costs. Total the
columns for each prior year and show
the net adjustment to income from
long-term contracts.
An owner of an interest in a
pass-through entity is not required to
provide the detailed schedule listed
above for prior years. The entity should
provide the line 1 amounts with
Schedule K-1 or on a separate
statement for its tax year in which the
contracts are completed or adjusted.

2. Corporations (other than S
corporations) and pass-through entities
not included in 1 above:

a. Tax years ending before July 1,
1987 . . . . . . . . . . . . . . . . . . . .
b. For tax years beginning before
July 1, 1987, that include July 1,
1987, the rate is 34% plus the
following:
Number of days in tax year before 7/1/87
Number of days in tax year

Number of days in tax year after 12/31/92
Number of days in tax year

Line 2

Line 4

a. Tax years beginning before
1987 . . . . . . . . . . . . . . . . . . .
b. Tax years beginning in 1987
c. Tax years beginning in 1988,
1989, or 1990 . . . . . . . . . . . . .
d. Tax years beginning in 1991
or 1992 . . . . . . . . . . . . . . . . .
e. Tax years beginning in 1993
through 2000 . . . . . . . . . . . . .
f. Tax years beginning in 2001
g. Tax years beginning in 2002
h. Tax years beginning in 2003
or later . . . . . . . . . . . . . . . . . .

50%
38.5%
28%
31%
39.6%
39.1%
38.6%
35%

⫻

e. Tax years beginning after
1992 . . . . . . . . . . . . . . . . . . .

Line 3

1. Individuals and 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:

⫻

c. Tax years beginning after
June 30, 1987, and ending
before 1993 . . . . . . . . . . . . . .
d. For tax years beginning
before 1993 that include January
1, 1993, the rate is 34% plus the
following:

Note. Taxpayers reporting line 1
amounts from more than one Schedule
K-1 (or a similar statement) must attach
a schedule detailing by entity the net
change to income from long-term
contracts.

Multiply the amount on line 1 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:

46%

12%

34%

1%

35%

See the instructions for Part II, line 1,
on this page and complete line 3 in the
same manner, using only income and
deductions allowed for alternative
minimum tax (AMT) purposes.

Multiply the amount on line 3 by the
applicable AMT rate, which is as
follows:
1. Individuals and 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:
a. Tax years beginning in
1987 through 1990 . . . . . . .
b. Tax years beginning in
1991 or 1992 . . . . . . . . . . .
c. Tax years beginning in
1993 or later . . . . . . . . . . . .
2. Corporations (other than S
corporations) and pass-through
entities not included in 1 above

21%
24%
28%

20%

Line 5
If both lines 2 and 4 are negative, enter
whichever amount is greater. Treat both

-6-

numbers as positive when making this
comparison, but enter the amount as a
negative number. (If the amount on one
line is negative, but the amount on the
other line is positive, enter the positive
amount.)

Lines 8 and 9
For the increase (or decrease) in tax for
each prior year, interest due or to be
refunded must be computed at the
applicable interest rate and
compounded on a daily basis 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 filing
year or
• The date the return for the filing year
is filed and any income tax due for that
year has been fully paid.
See Applicable Interest Rates in the
instructions for Part I, lines 7 and 8,
earlier.

Line 10
See the instructions for Part I, line 9,
earlier.

Line 11
See the instructions for Part I, line 10,
earlier.
Table 1
Interest Rates for Non-corporate
Taxpayers
From
1/1/04
4/1/04
7/1/04
10/1/04
1/1/05
4/1/05
10/1/05
7/1/06
1/1/08
4/1/08
7/1/08
10/1/08
1/1/09
4/1/09
1/1/11
4/1/11
10/1/11

Through
3/31/04
6/30/04
9/30/04
12/31/04
3/31/05
9/30/05
6/30/06
12/31/07
3/31/08
6/30/08
9/30/08
12/31/08
3/31/09
12/31/10
3/31/11
9/30/11
3/31/12

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

Table
61
63
61
63
15
17
19
21
67
65
63
65
15
13
11
13
11

Page
615
617
615
617
569
571
573
575
621
619
617
619
569
567
565
567
565

Table 2
Interest Rates for Corporate
Increases or Decreases in Tax
of $10,000 or Less
From
1/1/04
4/1/04
7/1/04
10/1/04
1/1/05
4/1/05
10/1/05
7/1/06
1/1/08
4/1/08
7/1/08
10/1/08
1/1/09
4/1/09
1/1/11
4/1/11
10/1/11

Through
3/31/04
6/30/04
9/30/04
12/31/04
3/31/05
9/30/05
6/30/06
12/31/07
3/31/08
6/30/08
9/30/08
12/31/08
3/31/09
12/31/10
3/31/11
9/30/11
3/31/12

Rate
3%
4%
3%
4%
4%
5%
6%
7%
6%
5%
4%
5%
4%
3%
2%
3%
2%

Table
59
61
59
61
13
15
17
19
65
63
61
63
13
11
9
11
9

Page
613
615
613
615
567
569
571
573
619
617
615
617
567
565
563
565
563

Table 3
Interest Rates for Corporate
Increases or Decreases in Tax
Exceeding $10,000
From
1/1/04
4/1/04
7/1/04
10/1/04
4/1/05
10/1/05
7/1/06
1/1/08
4/1/08
7/1/08
10/1/08
1/1/09
4/1/09
1/1/11
4/1/11
10/1/11

Through
3/31/04
6/30/04
9/30/04
3/31/05
9/30/05
6/30/06
12/31/07
3/31/08
6/30/08
9/30/08
12/31/08
3/31/09
12/31/10
3/31/11
9/30/11
3/31/12

Rate
1.5%
2.5%
1.5%
2.5%
3.5%
4.5%
5.5%
4.5%
3.5%
2.5%
3.5%
2.5%
1.5%
.5%
1.5%
.5%

Table
56
58
56
58
12
14
16
62
60
58
60
10
8
–
8
–

Page
610
612
610
612
566
568
570
616
614
612
614
564
562
–
562
–

Example of Applicable Interest Rates
for Look-back Interest.
A C Corporation taxpayer completed
contracts subject to look-back interest
during the 2010 calendar year. The
contracts were started in 2008, so 2008
and 2009 are redetermination years.
The corporate tax return due date,
without extensions, for all years is
March 15.
For computing look-back interest,
the interest rates and accrual period for
the 2008 redetermination year would
be:
• 3/16/2009 – 3/15/2010: 4% for the
1st $10,000 (2.5% for any amount
exceeding $10,000).

• 3/16/2010 – 3/15/2011: 3% for the

1st $10,000 (1.5% for any amount
exceeding $10,000).
The interest rate and accrual period
for the 2009 redetermination year would
be:
• 3/16/2010 – 3/15/2011: 3% for the
1st $10,000 (1.5% for any amount
exceeding $10,000).
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 460 provides special rules
for computing interest under the
look-back method for completed
long-term contracts. Section 6001 and
its regulations say that you must file a
return or statement with us for any tax
you are liable for. 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
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 this
information 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.

-7-

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 8697, 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
Part I . . . . . . . . . . . . . . .
Part II . . . . . . . . . . . . . .

8 hr., 36 min.
9 hr., 19 min.

Learning about the law
or the form
Part I . . . . . . . . . . . . . . .
Part II . . . . . . . . . . . . . .

2 hr., 22 min.
2 hr., 5 min.

Preparing, copying,
assembling, and
sending the form to the
IRS
Part I . . . . . . . . . . . . . . .
Part II . . . . . . . . . . . . . .

2 hr., 37 min.
2 hr., 19 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:M:S, 1111
Constitution Ave., NW, IR-6526,
Washington, DC 20224. Do not send
the tax form to this address. Instead,
see Filing Instructions, earlier.