Instructions For Form 8697 (Rev. 2013) printable pdf download

Instructions for Form 8697

Department of the Treasury

Internal Revenue Service

(Rev. September 2013)

(Use with the December 2011 revision of Form 8697)

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

Contracts

Pass-Through Entities

transaction or a step-in-the shoes

Section references are to the Internal Revenue

Code unless otherwise noted.

transaction. For guidance regarding

A pass-through entity (partnership, S

these transactions, see Regulations

corporation, or trust) that is not closely

General Instructions

1.460-4(g). In the case of constructive

held must apply the look-back method

completion transactions, the old

at the entity level to any contract for

Future Developments

taxpayer treats the contract as

which at least 95% of the gross income

completed in the transaction year and

For the latest information about

is from U.S. sources. A pass-through

applies the look-back method to the

developments related to Form 8697 and

entity is considered closely held if, at

pre-transaction years. The new

its instructions, such as legislation

any time during any tax year for which

taxpayer is treated as entering into a

enacted after they were published, go to

there is income under the contract, 50%

new contract and applies the look-back

or more (by value) of the beneficial

method to the post-transaction years

interests in the entity is held (directly or

What's New

upon the contract's completion. In the

indirectly) by or for five or fewer

case of step-in-the-shoes transactions,

persons. For this purpose, rules similar

Form 8697 is not being revised at this

the new taxpayer applies the look-back

to the constructive ownership rules of

time. Continue to use the December

method to both the pre and post

section 1563(e) apply. For a

2011 revision of Form 8697 with these

transaction years. See Regulations

mid-contract change in taxpayer

updated instructions.

section 1.460-6(g) for additional

resulting in the conversion of a C

The tax rate used for the interest

guidance.

corporation into an S corporation, the

computation for individuals and certain

look-back method is applied at the entity

Exception for Certain

pass-through entities has changed. See

level with respect to contracts entered

the instructions for Part II, line 2, later.

Construction Contracts

into prior to the conversion regardless of

The look-back method does not apply to

Purpose of Form

whether the S corporation is considered

the regular taxable income from:

closely held. See the section discussing

Use Form 8697 to figure the interest due

Any home construction contract (as

Mid-Contract Change in Taxpayer.

or to be refunded under the look-back

defined in section 460(e)(6)(A)) or

method of section 460(b)(2) on certain

Any other construction contract

If you are an owner of an interest in a

long-term contracts that are accounted

entered into by a taxpayer: (a) who

pass-through entity in which a long-term

for under either the percentage of

estimates the contract will be completed

contract was being accounted for under

completion method or the percentage of

within 2 years from the date the contract

the percentage of completion method or

completion-capitalized cost method. For

begins and (b) whose average annual

the percentage of completion

guidance concerning these methods,

gross receipts for the 3 tax years

capitalized cost method and the

see Regulations section 1.460-4. For

preceding the tax year in which the

pass-through entity is not subject to the

details and computational examples

contract is entered into do not exceed

look-back method at the entity level, you

illustrating the use of the look-back

$10 million. See section 460(e).

must file this form for your tax year that

method, see Regulations section

ends with or includes the end of the

1.460-6.

entity's tax year in which the contract

However, the look-back method does

was completed or adjusted in a

apply to the alternative minimum taxable

Who Must File

post-completion tax year. The

income from any such contract that is

pass-through entity will provide on

General Rule

not a home construction contract and,

Schedule K-1 the information you need

therefore, must be accounted for using

You must file Form 8697 for each tax

to complete this form.

the percentage of completion method

year in which you completed a

for alternative minimum tax purposes.

Mid-Contract Change in

long-term contract entered into after

See section 56(a)(3) for details.

February 28, 1986, that you accounted

Taxpayer

for using either the percentage of

Small Contract Exception

If prior to the completion of a long-term

completion method or the percentage of

contract accounted for using the

The look-back method does not apply to

completion-capitalized cost method for

percentage of completion method or the

any contract completed within 2 years of

Federal income tax purposes. You also

percentage of completion capitalized

the contract start date if the gross price

must file Form 8697 for any tax year,

cost method, there is a transaction that

of the contract (as of contract

subsequent to the year of completion, in

makes another taxpayer responsible for

completion) does not exceed the

which the contract price or contract

accounting for income from the same

smaller of:

costs are adjusted for one or more of

contract, the taxpayer responsible for

$1 million or

these long-term contracts from a prior

computing look-back interest depends

1% of the taxpayer's average annual

year.

on whether the ownership change is

gross receipts for the 3 tax years before

due to a constructive completion

the tax year of contract completion.

Aug 29, 2013

Cat. No. 10703K

Instructions For Form 8697 (Rev. 2013)

Related Articles

Related forms

Related Categories