Instructions For Form 8697 - 2011 (Page 3 of 7) in pdf

the corrected Form 8697, and file it

entered into during the tax year for

Regulations section

separately.

which the election is made and all later

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

•

If your original Form 8697 shows an

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

contracts to which the election applies.

amount on the line for interest you owe

details.

Delayed Reapplication Method

and the corrected Form 8697 shows an

Change Orders

For purposes of reapplying the

amount on the line for interest to be

look-back method after the year of

refunded to you, you must:

A change order for a contract is not

contract completion, you may elect the

treated as a separate contract for

1. File an amended income tax

delayed reapplication method to

purposes of applying the look-back

return showing $0 interest from Form

minimize the number of required

method unless the change order would

8697 and

reapplications of the look-back method.

be treated as a separate contract under

2. File the corrected Form 8697

Under this method, the look-back

the rules for severing and aggregating

separately (but do not write “Amended”

method is reapplied after the contract

contracts provided in Regulations

at the top of the form because this is

completion year (or after a later

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

the first Form 8697 that you will file

reapplication of the look-back method)

change order is not treated as a

separately).

only when one of the following

•

separate contract, that portion of the

If the original Form 8697 shows an

conditions is met for that contract:

actual contract price and contract costs

amount on the line for interest to be

attributable to the change order must

1. The net undiscounted value of

refunded to you and the corrected Form

be taken into account in allocating

increases or decreases in the contract

8697 shows an amount on the line for

contract income to all tax years of the

price occurring from the time of the last

interest you owe, you must:

contract, including tax years before the

application of the look-back method

1. File the corrected Form 8697

change order was agreed to.

exceeds the smaller of $1 million or

separately (with “Amended” written at

10% of the total contract price at that

the top) showing $0 interest to be

Post-Completion

time,

refunded and

Adjustments

2. The net undiscounted value of

2. File an amended income tax

increases or decreases in contract

return and attach a copy of the

General Rule

costs occurring from the time of the last

corrected Form 8697.

application of the look-back method

If the contract price or costs are revised

exceeds the smaller of $1 million or

Attachments

to reflect amounts properly taken into

10% of the total actual contract costs at

account after the contract completion

If you need more space, attach

that time,

date for any reason, you must apply the

separate sheets to the back of Form

3. The taxpayer goes out of

look-back method in the year such

8697. Put your name and identifying

existence,

amounts are properly taken into

number on each sheet.

4. The taxpayer reasonably believes

account, even if no other contract is

the contract is finally settled and

completed in that year. Generally, the

Applying the Look-Back

closed, or

amount of each such post-completion

5. None of the above conditions

Method Under Special

adjustment to total contract price or

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

contract costs is discounted, solely for

Situations

year that begins after the last previous

look-back purposes, from its value at

application of the look-back method.

the time the amount is taken into

10% Method

account in computing taxable income to

To elect the delayed reapplication

its value at the time the contract was

For purposes of the percentage of

method, attach a statement to your

completed. The discount rate for this

completion method, a taxpayer may

timely filed income tax return

purpose is the Federal mid-term rate

elect to postpone recognition of income

(determined with extensions) for the

under section 1274(d) in effect at the

and expense under a long-term

first tax year of the election. Indicate on

time the amount is properly taken into

contract entered into after July 10,

the statement that you are making an

account.

1989, until the first tax year as of the

election under Regulations section

end of which at least 10% of the

However, you may elect not to

1.460-6(e) to use the delayed

estimated total contract costs have

discount post-completion adjustments

reapplication method. Once made, the

been incurred. For purposes of the

for any contract. The election not to

election is binding for all long-term

look-back method, the recognition of

discount is made on a

contracts for which you would reapply

income and expense must be

contract-by-contract basis and is

the look-back method in the absence of

postponed for such contracts until the

binding with respect to all

the election in the year of the election

first tax year as of the end of which at

post-completion adjustments that arise

and all later years, unless the IRS

least 10% of the actual total contract

with respect to that contract. To make

consents to a revocation of the election.

costs have been incurred. Therefore,

this election, attach a statement to your

See Regulations section 1.460-6(e) for

income and expense will be allocated

timely filed income tax return

more details.

to a different tax year if the first tax year

(determined with extensions) for the

that the 10% threshold is exceeded

first tax year after completion in which

based on actual costs differs from the

you take into account any adjustment to

Specific Instructions

first tax year that the 10% threshold is

the contract price or contract costs.

exceeded based on estimated costs.

Indicate on the statement that you are

All filers must complete the information

The election to use the 10% method

making an election not to discount

at the top of the form above Part I

applies to all long-term contracts

post-completion adjustments under

according to the following instructions.

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Instructions For Form 8697 - 2011 Page 3

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