Instructions For Form 8697 (Rev. 2013) (Page 5 of 7) in pdf

operating loss, capital loss, net section

the rates in Table 3 for the amounts in

election applies to all applications of the

1256 contracts loss, or credit carryback

excess of $10,000.

look-back method in the year of the

to such year, and the amount of the

election and all later years, unless the

Line 9

refund exceeds the amount on line 4,

IRS consents to a revocation of the

See If Interest Is To Be Refunded to

interest is allowed on the amount of

election.

You, earlier, for where to file Form 8697.

such excess only until the due date (not

Columns (a), (b), and (c)

Additional interest to be refunded for

including extensions) of the return for

periods after the filing date of Form

Enter at the top of each column the

the year in which the carryback arose.

8697, if any, will be computed by the

ending month and year for each prior

Note. If a different method of interest

IRS and included in your refund. Report

tax year in which you were required to

computation must be used to produce

the amount on line 9 (or the amount

report income from the completed

the correct result in your case, use that

refunded by the IRS if different) as

long-term contract.

method and attach an explanation of

interest income on your income tax

Note. If there were more than 3 prior

how the interest was computed.

return for the tax year in which it is

tax years, attach additional Forms 8697

received or accrued.

as needed. On the additional Forms

Applicable Interest Rates

Line 10

8697, enter your name, identifying

The overpayment rate designated under

See If You Owe Interest under Filing

number, and tax year. Complete lines 1

section 6621 is used to calculate the

Instructions, earlier, for how to report

through 9 (as applicable), but do not

interest for both hypothetical

this amount on your tax return.

enter totals in column (d). Enter totals

overpayments and underpayments. The

Corporations (other than S

only in column (d) of the first Form 8697.

applicable interest rates are published

corporations) may deduct this amount

Line 1

quarterly in revenue rulings in the

(or the amount computed by the IRS if

Internal Revenue Bulletin available at

In each column, show a net increase to

different) as interest expense for the tax

income as a positive amount and a net

year in which it is paid or incurred. For

decrease to income as a negative

individuals and other taxpayers, this

However, for contracts completed in

amount.

interest is not deductible.

tax years ending after August 5, 1997,

On an attached schedule:

an interest rate is determined for each

Estimated Tax Penalty

Identify each completed long-term

interest accrual period. The interest

contract by contract number, job name,

Look-back interest owed is not subject

accrual period starts on the day after the

or any other reasonable method used in

to the estimated tax penalty. See

return due date (not including

your records to identify each contract;

Regulations section 1.460–6(f)(2)(i).

extensions) for each prior tax year and

and

See the instructions for the 2012 Form

ends on the return due date for the

For each contract, report in columns

2210, line 2 for individuals and 2012

following tax year. The interest rate in

for each prior year: (a) the amount of

Form 2220, line 2(b) for corporations.

effect for the entire interest accrual

income previously reported based on

period is the overpayment rate

Part II—Simplified

estimated contract price and costs and

determined under section 6621(a)(1)

(b) the amount of income allocable to

Marginal Impact Method

applicable on the first day of the interest

each prior year based on actual contract

accrual period.

Part II is used only by pass-through

price and costs. Total the columns for

entities required to apply the look-back

each prior year and show the net

Even though the interest rates

method at the entity level (see Who

adjustment to income from long-term

change quarterly, for look-back

Must File, earlier) and taxpayers

contracts.

purposes the interest rate stays the

electing (or with an election in effect) to

same for the accrual period which is

An owner of an interest in a

use the simplified marginal impact

generally one year. The applicable

pass-through entity is not required to

method. Under the simplified method,

interest rates for non-corporate

provide the detailed schedule listed

prior year hypothetical underpayments

taxpayers are shown in Table 1 (for

above for prior years. The entity should

or overpayments in tax are figured using

interest accrual periods beginning after

provide the line 1 amounts with

an assumed marginal tax rate, which is

Jan. 1, 2004).

Schedule K-1 or on a separate

generally the highest statutory rate in

statement for its tax year in which the

effect for the prior year under section 1

The applicable interest rates for

contracts are completed or adjusted.

(for an individual) or section 11 (for a

corporate taxpayers for the first $10,000

corporation). This method eliminates the

Note. Taxpayers reporting line 1

are shown in Table 2. The applicable

need to refigure your tax liability based

amounts from more than one

interest rates for corporate taxpayers for

on actual contract price and actual

Schedule K-1 (or a similar statement)

amounts in excess of $10,000 are

contract costs each time the look-back

must attach a schedule detailing by

shown in Table 3.

method is applied.

entity the net change to income from

long-term contracts.

To elect the simplified marginal

Following the conversion of a C

impact method, attach a statement to

corporation into an S corporation, the

Line 2

your timely filed income tax return

look-back method is applied at the entity

Multiply the amount on line 1 by the

(determined with extensions) for the first

level (1120S) with respect to contracts

applicable regular tax rate for each prior

tax year of the election. Indicate on the

entered into prior to the conversion. See

year shown in column (a), (b), or (c).

statement that you are making an

Regulations section 1.460-6(g)(3)(iv).

The applicable regular tax rate is as

election under Regulations section

For the C corporation years, the

follows:

1.460-6(d) to use the simplified marginal

taxpayer would apply the rates reflected

impact method. Once made, the

in Table 2 for the first $10,000 and apply

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Instructions For Form 8697 (Rev. 2013) Page 5

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