Looking for a Form 8697 Templates? Download it for free!

from the due date (not including

However, for contracts completed in

corporations) may deduct this amount

extensions) of the return for the prior

tax years ending after August 5, 1997,

(or the amount computed by the IRS if

year until the earlier of:

an interest rate is determined for each

different) as interest expense for the tax

•

interest accrual period. The interest

year in which it is paid or incurred. For

The due date (not including

accrual period starts on the day after

individuals and other taxpayers, this

extensions) of the return for the filing

the return due date (not including

interest is not deductible.

year or

•

extensions) for each prior tax year and

The date the return for the filing year

Estimated Tax Penalty

ends on the return due date for the

is filed and any income tax due for that

Look-back interest owed is not subject

following tax year. The interest rate in

year has been fully paid.

to the estimated tax penalty. See

effect for the entire interest accrual

Exceptions:

Regulations section 1.460 – 6(f)(2)(i).

period is the overpayment rate

•

The time period for determining

See the instructions for the 2011 Form

determined under section 6621(a)(1)

interest may be different in cases

2210, line 2 for individuals and 2011

applicable on the first day of the

involving loss or credit carrybacks or

Form 2220, line 2(b) for corporations.

interest accrual period.

carryovers in order to properly reflect

Even though the interest rates

Part II—Simplified

the time period during which the

change quarterly, for look-back

taxpayer or IRS had use of the

purposes the interest rate stays the

Marginal Impact Method

hypothetical underpayment or

same for the accrual period which is

overpayment. See Regulations section

Part II is used only by pass-through

generally one year. The applicable

1.460-6(c)(4)(ii) and (iii) for additional

entities required to apply the look-back

interest rates for non-corporate

information.

method at the entity level (see Who

taxpayers are shown in Table 1 (for

•

If a net operating loss, capital loss,

Must File, earlier) and taxpayers

interest accrual periods beginning after

net section 1256 contracts loss, or

electing (or with an election in effect) to

Jan. 1, 2004).

credit carryback is being increased or

use the simplified marginal impact

The applicable interest rates for

decreased as a result of the adjustment

method. Under the simplified method,

corporate taxpayers for the first

made to net income from long-term

prior year hypothetical underpayments

$10,000 are shown in Table 2. The

contracts, the interest due or to be

or overpayments in tax are figured

applicable interest rates for corporate

refunded must be computed on the

using an assumed marginal tax rate,

taxpayers for amounts in excess of

increase or decrease in tax attributable

which is generally the highest statutory

$10,000 are shown in Table 3. For

to the change to the carryback only

rate in effect for the prior year under

1120S taxpayers, the amounts in Table

from the due date (not including

section 1 (for an individual) or section

2 are used. The reduced rates reflected

extensions) of the return for the prior

11 (for a corporation). This method

in Table 3, for amounts in excess of

year that generated the carryback and

eliminates the need to refigure your tax

$10,000, do not apply to 1120S

not from the due date of the return for

liability based on actual contract price

taxpayers.

the year in which the carryback was

and actual contract costs each time the

Following the conversion of a C

absorbed. See section 6611(f).

look-back method is applied.

•

corporation into an S corporation, the

In the case of a decrease in tax on

To elect the simplified marginal

look-back method is applied at the

line 6, if a refund has been allowed for

impact method, attach a statement to

entity level (1120S) with respect to

any part of the income tax liability

your timely filed income tax return

contracts entered into prior to the

shown on line 5 for any year as a result

(determined with extensions) for the

conversion. See Regulations section

of a net operating loss, capital loss, net

first tax year of the election. Indicate on

1.460-6(g)(3)(iv). For the C corporation

section 1256 contracts loss, or credit

the statement that you are making an

years, the taxpayer would apply the

carryback to such year, and the amount

election under Regulations section

rates reflected in Table 2 for the first

of the refund exceeds the amount on

1.460-6(d) to use the simplified

$10,000 and apply the rates in Table 3

line 4, interest is allowed on the amount

marginal impact method. Once made,

for the amounts in excess of $10,000.

of such excess only until the due date

the election applies to all applications of

(not including extensions) of the return

Line 9

the look-back method in the year of the

for the year in which the carryback

election and all later years, unless the

See If Interest Is To Be Refunded to

arose.

IRS consents to a revocation of the

You, earlier, for where to file Form

election.

Note. If a different method of interest

8697. Additional interest to be refunded

computation must be used to produce

for periods after the filing date of Form

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

the correct result in your case, use that

8697, if any, will be computed by the

Enter at the top of each column the

method and attach an explanation of

IRS and included in your refund. Report

ending month and year for each prior

how the interest was computed.

the amount on line 9 (or the amount

tax year in which you were required to

refunded by the IRS if different) as

Applicable Interest Rates

report income from the completed

interest income on your income tax

long-term contract.

The overpayment rate designated

return for the tax year in which it is

under section 6621 is used to calculate

received or accrued.

Note. If there were more than 3 prior

the interest for both hypothetical

tax years, attach additional Forms 8697

Line 10

overpayments and underpayments. The

as needed. On the additional Forms

applicable interest rates are published

See If You Owe Interest under Filing

8697, enter your name, identifying

quarterly in revenue rulings in the

Instructions, earlier, for how to report

number, and tax year. Complete lines 1

Internal Revenue Bulletin available at

this amount on your tax return.

through 9 (as applicable), but do not

Corporations (other than S

enter totals in column (d). Enter totals

-5-

Instructions For Form 8697 Draft (Rev. December 2011) - Interest Computation Under The Look-Back Method For Completed Long-Term Contracts Page 5

Related Articles

Related forms

Related Categories