Instructions For Form 8697 (Rev. 2013) (Page 3 of 7) in pdf

2. File an amended income tax

account after the contract completion

10% of the total actual contract costs at

return and attach a copy of the

date for any reason, you must apply the

that time,

corrected Form 8697.

look-back method in the year such

3. The taxpayer goes out of

amounts are properly taken into

existence,

Attachments

account, even if no other contract is

4. The taxpayer reasonably believes

completed in that year. Generally, the

If you need more space, attach separate

the contract is finally settled and closed,

amount of each such post-completion

sheets to the back of Form 8697. Put

adjustment to total contract price or

your name and identifying number on

5. None of the above conditions

contract costs is discounted, solely for

each sheet.

(1–4) are met by the end of the 5th tax

look-back purposes, from its value at

year that begins after the last previous

Applying the Look-Back

the time the amount is taken into

application of the look-back method.

account in computing taxable income to

Method Under Special

its value at the time the contract was

Situations

To elect the delayed reapplication

completed. The discount rate for this

method, attach a statement to your

purpose is the Federal mid-term rate

10% Method

timely filed income tax return

under section 1274(d) in effect at the

(determined with extensions) for the first

For purposes of the percentage of

time the amount is properly taken into

tax year of the election. Indicate on the

completion method, a taxpayer may

account.

statement that you are making an

elect to postpone recognition of income

election under Regulations section

and expense under a long-term contract

However, you may elect not to

1.460-6(e) to use the delayed

entered into after July 10, 1989, until the

discount post-completion adjustments

reapplication method. Once made, the

first tax year as of the end of which at

for any contract. The election not to

election is binding for all long-term

least 10% of the estimated total contract

discount is made on a

contracts for which you would reapply

costs have been incurred. For purposes

contract-by-contract basis and is

the look-back method in the absence of

of the look-back method, the recognition

binding with respect to all

the election in the year of the election

of income and expense must be

post-completion adjustments that arise

and all later years, unless the IRS

postponed for such contracts until the

with respect to that contract. To make

consents to a revocation of the election.

first tax year as of the end of which at

this election, attach a statement to your

See Regulations section 1.460-6(e) for

least 10% of the actual total contract

timely filed income tax return

more details.

costs have been incurred. Therefore,

(determined with extensions) for the first

tax year after completion in which you

income and expense will be allocated to

take into account any adjustment to the

a different tax year if the first tax year

Specific Instructions

contract price or contract costs. Indicate

that the 10% threshold is exceeded

on the statement that you are making an

based on actual costs differs from the

All filers must complete the information

first tax year that the 10% threshold is

election not to discount post-completion

at the top of the form above Part I

exceeded based on estimated costs.

adjustments under Regulations section

according to the following instructions.

The election to use the 10% method

1.460-6(c)(1)(ii)(C)(2) and identify the

Then, complete either Part I or Part II as

applies to all long-term contracts

contracts to which the election applies.

appropriate. Also sign the form at the

entered into during the tax year for

bottom of page 2 if interest is to be

which the election is made and all later

Delayed Reapplication Method

refunded to you. A signature is not

years. See section 460(b)(5) for more

required if you are filing the form with

For purposes of reapplying the

details.

your tax return.

look-back method after the year of

Change Orders

contract completion, you may elect the

Filing Year

delayed reapplication method to

A change order for a contract is not

Fill in the filing year line at the top of the

minimize the number of required

treated as a separate contract for

form to show the tax year in which the

reapplications of the look-back method.

purposes of applying the look-back

contracts for which this form is being

Under this method, the look-back

method unless the change order would

filed were completed or adjusted in a

method is reapplied after the contract

be treated as a separate contract under

post-completion year. If you were an

completion year (or after a later

the rules for severing and aggregating

owner of an interest in a pass-through

reapplication of the look-back method)

contracts provided in Regulations

entity that has completed or adjusted

only when one of the following

section 1.460-1(e). Therefore, if a

one or more contracts, enter your tax

conditions is met for that contract:

change order is not treated as a

year that ends with or includes the end

separate contract, that portion of the

1. The net undiscounted value of

of the entity's tax year in which the

actual contract price and contract costs

increases or decreases in the contract

contracts were completed or adjusted.

attributable to the change order must be

price occurring from the time of the last

taken into account in allocating contract

application of the look-back method

Name

income to all tax years of the contract,

exceeds the smaller of $1 million or

Enter the name shown on your Federal

including tax years before the change

10% of the total contract price at that

income tax return for the filing year. If

order was agreed to.

time,

you are an individual filing a joint return,

2. The net undiscounted value of

Post-Completion Adjustments

also enter your spouse's name as

increases or decreases in contract costs

shown on Form 1040.

occurring from the time of the last

General Rule

application of the look-back method

Address

If the contract price or costs are revised

exceeds the smaller of $1 million or

Enter your address only if you are filing

to reflect amounts properly taken into

this form separately. Include the

-3-

Instructions For Form 8697 (Rev. 2013) Page 3

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