Instructions For Form 8697 - 2011 printable pdf download

Instructions for Form 8697

Department of the Treasury

Internal Revenue Service

(Rev. December 2011)

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

Contracts

Section references are to the Internal

long-term contract entered into after

Schedule K-1 the information you need

February 28, 1986, that you accounted

to complete this form.

Revenue Code unless otherwise noted.

for using either the percentage of

General Instructions

Mid-Contract Change in

completion method or the percentage of

Taxpayer

completion-capitalized cost method for

What’s New

Federal income tax purposes. You also

If prior to the completion of a long-term

must file Form 8697 for any tax year,

contract accounted for using the

•

Form 8697 has been revised to

subsequent to the year of completion,

percentage of completion method or the

provide a column for the filing year. The

in which the contract price or contract

percentage of completion capitalized

cumulative effect of applying the

costs are adjusted for one or more of

cost method, there is a transaction that

look-back method is taken into account

these long-term contracts from a prior

makes another taxpayer responsible for

beginning in the filing year even though

year.

accounting for income from the same

look-back interest is not computed for

contract, the taxpayer responsible for

that year. Income is hypothetically

Pass-Through Entities

computing look-back interest depends

reallocated to or from the filing year or

on whether the ownership change is

to or from the redetermination years.

A pass-through entity (partnership, S

due to a constructive completion

Look-back does not create or decrease

corporation, or trust) that is not closely

transaction or a step-in-the shoes

income, it only hypothetically changes

held must apply the look-back method

transaction. For guidance regarding

the tax year of recognition.

at the entity level to any contract for

these transactions, see Regulations

•

A second signature line has been

which at least 95% of the gross income

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

added for the spouse’s signature if a

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

completion transactions, the old

joint tax return was filed.

entity is considered closely held if, at

taxpayer treats the contract as

•

The tax rates used for the interest

any time during any tax year for which

completed in the transaction year and

computation have changed. See the

there is income under the contract,

applies the look-back method to the

instructions for line 2, later.

50% or more (by value) of the

pre-transaction years. The new

•

The IRS has created a page on

beneficial interests in the entity is held

taxpayer is treated as entering into a

IRS.gov for information about Form

(directly or indirectly) by or for five or

new contract and applies the look-back

fewer persons. For this purpose, rules

8697 and its instructions, at

method to the post-transaction years

gov/form8697. Information about any

similar to the constructive ownership

upon the contract’s completion. In the

future developments affecting Form

rules of section 1563(e) apply. For a

case of step-in-the-shoes transactions,

8697 (such as legislation enacted after

mid-contract change in taxpayer

the new taxpayer applies the look-back

we release it) will be posted on that

resulting in the conversion of a C

method to both the pre and post

page.

corporation into an S corporation, the

transaction years. See Regulations

look-back method is applied at the

section 1.460-6(g) for additional

Purpose of Form

entity level with respect to contracts

guidance.

entered into prior to the conversion

Use Form 8697 to figure the interest

Exception for Certain

regardless of whether the S corporation

due or to be refunded under the

is considered closely held. See the

look-back method of section 460(b)(2)

Construction Contracts

section discussing Mid-Contract

on certain long-term contracts that are

The look-back method does not apply

Change in Taxpayer.

accounted for under either the

to the regular taxable income from:

percentage of completion method or the

•

Any home construction contract (as

If you are an owner of an interest in

percentage of completion-capitalized

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

a pass-through entity for every year in

cost method. For guidance concerning

•

Any other construction contract

which a long-term contract was being

these methods, see Regulations

entered into by a taxpayer: (a) who

accounted for under the percentage of

section 1.460-4. For details and

estimates the contract will be

completion method or the percentage of

computational examples illustrating the

completed within 2 years from the date

completion-capitalized cost method and

use of the look-back method, see

the contract begins and (b) whose

the pass-through entity is not subject to

Regulations section 1.460-6.

average annual gross receipts for the 3

the look-back method at the entity level,

tax years preceding the tax year in

you must file this form for your tax year

Who Must File

which the contract is entered into do

that ends with or includes the end of

not exceed $10 million. See section

the entity’s tax year in which the

General Rule

460(e).

contract was completed or adjusted in a

You must file Form 8697 for each tax

post-completion tax year. The

However, the look-back method

year in which you completed a

pass-through entity will provide on

does apply to the alternative minimum

Feb 22, 2012

Cat. No. 10703K

Instructions For Form 8697 - 2011

Related Articles

Related forms

Related Categories