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Specific Line Instructions

Simplified Marginal Impact

y Corporations, S corporations, exempt

organizations, partnerships, and LLCs,

Method

enter on the appropriate line of their return

Part I — Regular Method

Treasury Regulation (Treas. Reg.)

the interest due or to be refunded and

Section 1.460-6(d) established the simplified

Use Part I only if you are not electing, do not

attach form FTB 3834 to their Form 100,

marginal impact method for figuring look-back

have an election in effect, or are not required to

California Corporation Franchise or

interest. Pass-through entities, as defined

use the simplified marginal impact method as

Income Tax Return; Form 100W, California

in IRC Section 460(b)(4)(C)(ii), that are not

described in General Information H, Simplified

Corporation Franchise or Income Tax

closely held must use this simplified method.

Marginal Impact Method.

Return - Water’s-Edge Filers; Form 100S,

All other taxpayers may elect to use this

California S Corporation Franchise or

Columns (a) and (b) – At the top of each

method for domestic contracts.

Income Tax Return; Form 109, California

column, enter the ending month and year for

Exempt Organization Business Income

A pass-through entity is considered closely

each prior taxable year in which you were

Tax Return; Form 565, Partnership Return

held if, at any time during any taxable year for

required to report income from the completed

of Income; or Form 568, Limited Liability

which there is income under the contract, 50%

long-term contract(s) and for any other year

Company Return of Income. See Specific

or more (by value) of the beneficial interests in

affected.

Line Instructions for Part I, line 9 and

the entity are held (directly or indirectly) by or

Line 2 – In each column, show a net increase

line 10. Corporations, S corporations,

for five or fewer persons.

to income as a positive amount and a net

exempt organizations, partnerships,

Under the simplified method, hypothetical

decrease to income as a negative amount. For

and LLCs are not required to sign

underpayments or overpayments of tax in prior

apportioning taxpayers, the net increase or net

form FTB 3834.

years are figured using an assumed marginal

decrease to income is after apportionment. For

If you owned an interest in a pass-through

tax rate which is generally the highest statutory

more information, see Cal. Code Regs., tit. 18

entity that has completed one or more

rate of tax in effect for each prior year under

section 25137-2.

long-term contracts, file form FTB 3834 for

R&TC Sections 17041 and 23151. This method

In figuring the net adjustment to enter in each

your taxable year that ends with or includes

eliminates the need to refigure your tax liability

column on line 2, be sure to take into account

the end of the entity’s taxable year in which the

based on actual contract price and actual

any other income and expense adjustments

contract was completed.

contract costs each time the look-back method

that may result from the increase (or decrease)

is applied.

to income from long-term contracts. For

Period Covered

If you elect the simplified method, use the

example, in the case of an individual, a

Fill in the taxable year line at the top of the

same method in the election year and all later

change to adjusted gross income may affect

form to show the year the contract was

years, unless the FTB consents to a revocation

investment expenses and medical expenses

completed or adjusted.

of the election. Use Part II to figure the

under R&TC Section 17201; in the case of a

simplified marginal impact method.

If you were an owner of an interest in a

corporation, the apportionment percentage

pass-through entity that has completed one or

may be affected by a change in the gross

S Corporations

more long-term contracts, enter your taxable

receipts included in the sales factor.

year ending with or including the end of the

S corporations using Part II, the Simplified

Attach separate schedules for regular taxable

entity’s taxable year in which the contract was

Marginal Impact Method, must complete

income or net income and AMTI that include

completed.

form FTB 3834 for each completed long-term

the following:

contract to compute the interest due or to be

Alternative Minimum Taxable

y Identification of each completed long-term

refunded to the S corporation as a result of the

contract by contract number, job name, or

Income (AMTI)

franchise tax imposed on S corporations. An

any other reasonable method used in your

S corporation cannot file form FTB 3834 on

If you apply the percentage of completion

records to identify each contract.

behalf of its shareholders. Shareholders of the

method to income from a long-term contract

y The amount of income previously reported

S corporation make separate elections and file

only for purposes of determining AMTI, apply

for each contract based on estimated

form FTB 3834 using the applicable individual

the look-back method to AMTI in the year of

contract price and costs for each prior year.

rates.

contract completion. This rule applies whether

y The amount of income for each contract

or not you are liable for alternative minimum

allocable to each prior year based on actual

Miscellaneous

tax (AMT) for the filing year or for any prior

contract price and costs.

If more than three prior years are involved,

taxable year.

y The net adjustment to income from

check the box above Part I, Side 1 of form

long-term contracts for each prior year.

Interest is computed under the look-back

FTB 3834. Attach additional form(s) FTB 3834

y Any other adjustments that result from

method to the extent your total tax liability

as needed. Enter your name, identification

the change to income from long-term

(including the AMT liability) would have

number, and taxable year. Complete Part I,

contracts.

differed if the percentage of completion method

line 1 through line 8; or Part II, line 1 through

had been applied using actual, rather than

An owner of an interest in a pass-through

line 9; but do not enter totals in Part I,

estimated, contract price and contract costs.

entity is not required to provide the detail listed

column (c) or Part II, column (d). Enter totals

in the first three items above with respect to

only in Part I, column (c) or Part II, column (d)

Amended Form FTB 3834

prior years. The entity should provide the line 2

of the form FTB 3834 that you sign.

amounts on Schedule K-1 (100S, 541, 565,

Individuals, estates, or trusts, file an amended

Follow the instructions for federal Form 8697,

or 568), Share of Income, Deductions, Credits,

form FTB 3834 only if the amount shown on

when applying the look-back method under

etc., or on a separate statement for its taxable

Part I, line 6 or Part II, line 7 for any prior year

these special situations:

year in which the contracts are completed or

changes as a result of an error, an income

y Change orders.

adjusted.

tax examination, or the filing of an amended

y Treatment of amounts properly taken into

income tax return. Follow the corresponding

If you are reporting line 2 amounts from more

account after contract completion.

filing instructions for Part I, line 9 and line 10.

than one Schedule K-1 (100S, 541, 565,

y The delayed reapplication method.

or 568) or similar statement, you must attach

y The 10% method.

a schedule detailing by entity the net change to

income from long-term contracts.

Page 2 FTB 3834 Instructions 2016

Instructions For Form Ftb 3834 - Interest Computation Under The Look-Back Method For Completed Long-Term Contracts - 2016 Page 2

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