8697 Instructions for Form 8697

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Instructions for Form 8697

Department of the Treasury
Internal Revenue Service

(Rev. November 2018)

Interest Computation Under the Look-Back Method for Completed Long-Term
Contracts

DRAFT AS OF
August 30, 2018

Section references are to the Internal Revenue
Code unless otherwise noted.

General Instructions
Future Developments

For the latest information about
developments related to Form 8697 and
its instructions, such as legislation
enacted after they were published, go to
IRS.gov/Form8697.

What's New

The tax rate used for the interest
computation for individuals,
corporations, and certain pass-through
entities has changed. See the
instructions for line 2, later.
The 2-year carryback rule will
generally not apply to net operating
losses (NOLs) arising in tax years
ending after December 31, 2017.
Exceptions apply to NOLs for farmers
and non-life insurance companies. See
section 172(b) as amended by P.L.
115-97, section 13302.
For tax years beginning after
December 31, 2017, the alternative
minimum tax for corporations has been
repealed.

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
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

Aug 27, 2018

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 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
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
Cat. No. 10703K

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. The annual gross receipts is
increased to $25 million (adjusted for
inflation) for contracts entered into after
December 31, 2017. 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.

Filing Instructions
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.

All others:
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.

DRAFT AS OF
August 30, 2018

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.

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, 2018 Form
1040, line 15). 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, 2018 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, 2018 Form 1120, Schedule J,
line 9c).
Look-back interest owed is not
subject to the estimated tax penalty.
See Regulations section 1.460-6(f)(2).

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
Philadelphia, PA 19255-0001
-2-

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.

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.

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.

DRAFT AS OF
August 30, 2018

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.

Change Orders

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,

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

Delayed Reapplication Method
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
-3-

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

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.

Name

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.

Line 2

Line 3

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.

Note. The 2-year carryback rule does
not apply to net operating losses arising
in tax years ending after December 31,
2017. An exception applies to farmers
and non-life insurance companies. See
section 172(b) as amended by P.L.
115-97, section 13302.

In each column, show a net increase to
income as a positive amount and a net
decrease to income as a negative
amount.

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.

DRAFT AS OF
August 30, 2018

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.
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.

Line 1

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.
Note. The 2-year carryback rule does
not apply to net operating losses arising
in tax years ending after December 31,
2017. An exception applies to farmers
and non-life insurance companies. See
section 172(b) as amended by P.L.
115-97, section 13302.

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
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.
-4-

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 for individuals)
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.

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, 2008).
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.

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.

DRAFT AS OF
August 30, 2018
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

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.

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.

Applicable Interest Rates

Line 10

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
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

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
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 2018 Form
2210, line 2 for individuals and 2018
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
-5-

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.

Number of days in tax year

⫻ 12%

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:

34%

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

DRAFT AS OF
August 30, 2018

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.

Line 2

Line 5
Number of days in tax year before 7/1/87

Number of days in tax year

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:

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
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 through 2012 . . . .
i. Tax years beginning in
2013 through 2017 . . . .
j.Tax years beginning in
2018 or later . . . . . . . . .

50%
38.5%
28%
31%
39.6%
39.1%
38.6%
35%
39.6%
37%

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 after 12/31/92

46%

e. Tax years beginning after
1992, and ending before
2018 . . . . . . . . . . . . . . . .
f. Tax years beginning after
2017 . . . . . . . . . . . . . . . .

Lines 8 and 9

⫻

1%

35%
21%

Line 3

See the instructions for Part II, line 1,
earlier and complete line 3 in the same
manner, using only income and
deductions allowed for alternative
minimum tax (AMT) purposes.
Note. For tax years beginning after
December 31, 2017, the alternative
minimum tax for corporations has been
repealed.

Line 4

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:
21%
24%
28%

2. Corporations (other than S
corporations) and pass-through entities
not included in 1 above:
a. Tax years ending before
2018 . . . . . . . . . . . . . . . .
b. Tax years beginning after
2017 . . . . . . . . . . . . . . . .

-6-

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

Multiply the amount on line 3 by the
applicable AMT rate, which is as
follows:

a. Tax years beginning in
1987 through 1990 . . . .
b. Tax years beginning in
1991 or 1992 . . . . . . . .
c. Tax years beginning in
1993 or later . . . . . . . . .

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.

20%
0%

From
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
1/1/12
1/1/13
1/1/16
4/1/16
1/1/17
4/1/18

Through
3/31/08
6/30/08
9/30/08
12/31/08
3/31/09
12/31/10
3/31/11
9/30/11
12/31/11
12/31/12
12/31/15
3/31/16
12/31/16
3/31/18
9/30/18

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

Table
67
65
63
65
15
13
11
13
11
59
11
59
61
13
15

Page
621
619
617
619
569
567
565
567
565
613
565
613
615
567
569

Table 2
Interest Rates for Corporate
Increases or Decreases in Tax
of $10,000 or Less
From
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
1/1/12
1/1/13
1/1/16
4/1/16
1/1/17
4/1/18

Through
3/31/08
6/30/08
9/30/08
12/31/08
3/31/09
12/31/10
3/31/11
9/30/11
12/31/11
12/31/12
12/31/15
3/31/16
12/31/16
3/31/18
9/30/18

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

Table
65
63
61
63
13
11
9
11
9
57
9
57
59
11
13

Page
619
617
615
617
567
565
563
565
563
611
563
611
613
565
567

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.
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.

DRAFT AS OF
August 30, 2018

Table 3
Interest Rates for Corporate
Increases or Decreases in Tax
Exceeding $10,000
From
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
4/1/16
1/1/17
4/1/18

4/16/2017 – 4/15/2018: 4% for the 1st
$10,000 (1.5% for any amount
exceeding $10,000).
The interest rate and accrual period
for the 2016 redetermination year would
be:
4/16/2017 – 4/15/2018: 4% for the 1st
$10,000 (1.5% for any amount
exceeding $10,000).

Through
3/31/08
6/30/08
9/30/08
12/31/08
3/31/09
12/31/10
3/31/11
9/30/11
3/31/16
12/31/16
3/31/18
9/30/18

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

Table
62
60
58
60
10
8
–
8
–
56
8
10

Page
616
614
612
614
564
562
–
562
–
610
562
564

Example of Applicable Interest
Rates for Look-back Interest.
A C Corporation taxpayer completed
contracts subject to look-back interest
during the 2017 calendar year. The
contracts were started in 2015, so 2015
and 2016 are redetermination years.
The corporate tax return due date,
without extensions, for all years is April
15.
For computing look-back interest, the
interest rates and accrual period for the
2015 redetermination year would be:
4/16/2016 – 4/15/2017: 3% for the 1st
$10,000 (1.5% for any amount
exceeding $10,000).

Privacy Act and Paperwork Reduction Act Notice. 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.

Section 460 provides special rules
for computing interest under the
look-back method for completed
long-term contracts. Section 6001 and
its regulations require you to file a return
or statement with us for any tax you are
liable for. Section 6109 and its
regulations require you to put your
identifying number on what you file. If
you do not provide the information we
ask for, or provide fraudulent
information, you may forfeit any refund
of interest otherwise owed to you and/or
be subject to penalties.
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 may give this information to the
Department of Justice for civil or
criminal litigation, and to other Federal
agencies as authorized 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

-7-

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 send us comments
from IRS.gov/FormComments. Or you
can send your comments to Internal
Revenue Service, Tax Forms and
Publications Division, 1111 Constitution
Ave. NW, IR-6526, Washington, DC
20224. Don't send the tax form to this
office. Instead, see Filing Instructions,
earlier.