Instructions For Form 8697 - 2011 (Page 5 of 7) in pdf

extensions) of the return for the prior

an interest rate is determined for each

individuals and other taxpayers, this

year until the earlier of:

interest accrual period. The interest

interest is not deductible.

•

The due date (not including

accrual period starts on the day after

Estimated Tax Penalty

extensions) of the return for the filing

the return due date (not including

year or

extensions) for each prior tax year and

Look-back interest owed is not subject

•

The date the return for the filing year

ends on the return due date for the

to the estimated tax penalty. See

is filed and any income tax due for that

following tax year. The interest rate in

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

year has been fully paid.

effect for the entire interest accrual

See the instructions for the 2011 Form

period is the overpayment rate

Exceptions:

2210, line 2 for individuals and 2011

determined under section 6621(a)(1)

•

The time period for determining

Form 2220, line 2(b) for corporations.

applicable on the first day of the

interest may be different in cases

interest accrual period.

involving loss or credit carrybacks or

Part II—Simplified

carryovers in order to properly reflect

Even though the interest rates

Marginal Impact Method

the time period during which the

change quarterly, for look-back

taxpayer or IRS had use of the

purposes the interest rate stays the

Part II is used only by pass-through

hypothetical underpayment or

same for the accrual period which is

entities required to apply the look-back

overpayment. See Regulations section

generally one year. The applicable

method at the entity level (see Who

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

interest rates for non-corporate

Must File, earlier) and taxpayers

information.

taxpayers are shown in Table 1 (for

electing (or with an election in effect) to

•

If a net operating loss, capital loss,

interest accrual periods beginning after

use the simplified marginal impact

net section 1256 contracts loss, or

Jan. 1, 2004).

method. Under the simplified method,

credit carryback is being increased or

prior year hypothetical underpayments

The applicable interest rates for

decreased as a result of the adjustment

or overpayments in tax are figured

corporate taxpayers for the first

made to net income from long-term

using an assumed marginal tax rate,

$10,000 are shown in Table 2. The

contracts, the interest due or to be

which is generally the highest statutory

applicable interest rates for corporate

refunded must be computed on the

rate in effect for the prior year under

taxpayers for amounts in excess of

increase or decrease in tax attributable

section 1 (for an individual) or section

$10,000 are shown in Table 3. For

to the change to the carryback only

11 (for a corporation). This method

1120S taxpayers, the amounts in Table

from the due date (not including

eliminates the need to refigure your tax

2 are used.

extensions) of the return for the prior

liability based on actual contract price

year that generated the carryback and

Following the conversion of a C

and actual contract costs each time the

not from the due date of the return for

corporation into an S corporation, the

look-back method is applied.

the year in which the carryback was

look-back method is applied at the

absorbed. See section 6611(f).

entity level (1120S) with respect to

To elect the simplified marginal

•

In the case of a decrease in tax on

contracts entered into prior to the

impact method, attach a statement to

line 6, if a refund has been allowed for

conversion. See Regulations section

your timely filed income tax return

any part of the income tax liability

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

(determined with extensions) for the

shown on line 5 for any year as a result

years, the taxpayer would apply the

first tax year of the election. Indicate on

of a net operating loss, capital loss, net

rates reflected in Table 2 for the first

the statement that you are making an

section 1256 contracts loss, or credit

$10,000 and apply the rates in Table 3

election under Regulations section

carryback to such year, and the amount

for the amounts in excess of $10,000.

1.460-6(d) to use the simplified

of the refund exceeds the amount on

marginal impact method. Once made,

Line 9

line 4, interest is allowed on the amount

the election applies to all applications of

of such excess only until the due date

See If Interest Is To Be Refunded to

the look-back method in the year of the

(not including extensions) of the return

election and all later years, unless the

You, earlier, for where to file Form

for the year in which the carryback

8697. Additional interest to be refunded

IRS consents to a revocation of the

arose.

election.

for periods after the filing date of Form

Note. If a different method of interest

8697, if any, will be computed by the

computation must be used to produce

IRS and included in your refund. Report

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

the correct result in your case, use that

the amount on line 9 (or the amount

Enter at the top of each column the

method and attach an explanation of

refunded by the IRS if different) as

ending month and year for each prior

how the interest was computed.

interest income on your income tax

tax year in which you were required to

return for the tax year in which it is

Applicable Interest Rates

report income from the completed

received or accrued.

long-term contract.

The overpayment rate designated

Line 10

under section 6621 is used to calculate

Note. If there were more than 3 prior

the interest for both hypothetical

See If You Owe Interest under Filing

tax years, attach additional Forms 8697

overpayments and underpayments. The

Instructions, earlier, for how to report

as needed. On the additional Forms

applicable interest rates are published

this amount on your tax return.

8697, enter your name, identifying

quarterly in revenue rulings in the

Corporations (other than S

number, and tax year. Complete lines 1

Internal Revenue Bulletin available at

corporations) may deduct this amount

through 9 (as applicable), but do not

(or the amount computed by the IRS if

enter totals in column (d). Enter totals

However, for contracts completed in

different) as interest expense for the tax

only in column (d) of the first Form

tax years ending after August 5, 1997,

year in which it is paid or incurred. For

8697.

-5-

Instructions For Form 8697 - 2011 Page 5

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