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Specific Line Instructions

line 7 for any prior year changes as a result of

For a contract

During a taxable or

an error, an income tax examination or the filing

entered

income year

of an amended income tax return. Follow the cor-

into after:

beginning before:

Part I — Regular Method

responding filing instructions for Part I, line 9 and

February 28, 1986

January 1, 1987

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

line 10.

October 13, 1987

January 1, 1990

have an election in effect, or are not required to

June 20, 1988

January 1, 1990

H Simplified Marginal Impact

use the simplified marginal impact method as

July 10, 1989

January 1, 1990

described in General Information H.

Method

For purposes of the look-back method, include

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

Treasury Regulation (Treas. Reg.) Section

this adjustment amount in the amount entered on

column, enter the ending month and year for

1.460-6(d) established the simplified marginal

line 2 for the taxable or income year from which

each prior taxable or income year in which you

impact method for figuring look-back interest.

the adjustment arose. Attach a schedule showing

were required to report income from the com-

Pass-through entities that are not closely held

your computation.

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

must use this simplified method. All other tax-

The schedule must be prepared in columns for

year affected.

payers may elect to use this method for domestic

the affected years so that the net adjustment

Line 2 – In each column, show a net increase to

contracts.

shown in each column on the attached schedule

income as a positive amount and a net decrease

A pass-through entity is considered closely held

agrees with the amounts shown on line 2.

to income as a negative amount. For apportion-

if, at any time during any taxable or income year

Line 4 and line 5 – The tax to be entered on

ing taxpayers, the net increase or net decrease

for which there is income under the contract,

line 4 and line 5 must be reduced by allowable

to income is after apportionment. For more infor-

50% or more (by value) of the beneficial interests

credits (other than refundable credits). Include

mation, see Title 18, California Code of Regula-

in the entity are held (directly or indirectly) by or

any taxes (such as AMT) required to be taken

tions Section 25137-2.

for five or fewer persons.

into account in the computation of your tax liabil-

In figuring the net adjustment to enter in each

Under the simplified method, hypothetical under-

ity determined as of the latest of the following:

column on line 2, be sure to take into account

•

payments or overpayments of tax in prior years

The original due date;

any other income and expense adjustments that

•

are figured using an assumed marginal tax rate

The date of an amended or adjusted return;

may result from the increase (or decrease) to

which is generally the highest statutory rate of

income from long-term contracts. For example, in

•

tax in effect for each prior year under R&TC

The last previous application of the look-back

the case of an individual, a change to adjusted

Sections 17041 and 23151. This method elimi-

method.

gross income may affect investment expenses

nates the need to refigure your tax liability based

and medical expenses under R&TC

See Treas. Reg. Section 1.460-6(c)(3)(iii) for

on actual contract price and actual contract costs

Section 17201; in the case of a corporation, the

exceptions and further explanation.

each time the look-back method is applied.

apportionment percentage may be affected by a

Note: Corporations cannot reduce their tax below

If you elect the simplified method, it must be

change in the gross receipts included in the

the minimum franchise tax.

used in the election year and all later years,

sales factor.

unless the FTB consents to a revocation of the

Line 7 and line 8 – For an increase (or

Attach separate schedules for regular taxable

election. Use Part II to figure the simplified mar-

decrease) in tax for each prior year, interest due

income or net income and AMTI that include:

ginal impact method.

or to be refunded must be compounded on a

•

Identification of each completed long-term

daily basis from the due date (not including

S Corporations

contract by contract number, job name or any

extensions) of the return for the prior year until

other reasonable method used in your

the earlier of the:

S corporations using Part II, the Simplified Mar-

records to identify each contract;

•

ginal Impact Method, must complete form

•

Due date (not including extensions) of the

The amount of income previously reported for

FTB 3834 for each completed long-term contract

return for the contract completion year; or

each contract based on estimated contract

to compute the interest due from or to be

•

Date the return for the contract completion

price and costs for each prior year;

refunded to the S corporation as a result of the

•

year is filed and any tax due for that year has

The amount of income for each contract allo-

franchise tax imposed on S corporations. An

been fully paid.

cable to each prior year based on actual con-

S corporation cannot file form FTB 3834 on

tract price and costs;

Contracts Completed in Taxable or Income

behalf of its shareholders. Shareholders of the

•

The net adjustment to income from long-term

Years Ending Before January 1, 1998

S corporation each must make separate elections

contracts for each prior year; and

and file form FTB 3834 using the applicable indi-

•

For contracts completed in taxable or income

Any other adjustments that result from the

vidual rates.

years ending before January 1, 1998, the interest

change to income from long-term contracts.

rates to be compounded daily are:

J Miscellaneous

An owner of an interest in a pass-through entity

PERIOD

RATE

is not required to provide the detail listed in the

If more than 3 prior years are involved, check the

first three items above with respect to prior years.

July 1, 1989, through December 31, 1989 . . .

12%

box above Part I, Side 1 of form FTB 3834.

The entity should provide the line 2 amounts on

January 1, 1990, through June 30, 1991 . . . .

11%

Attach additional form(s) FTB 3834 as needed.

a Schedule K-1 (100S, 541, 565 or 568) or on a

July 1, 1991 through June 30, 1992 . . . . . .

10%

Enter your name, identifying number and taxable

separate statement for its taxable or income year

July 1, 1992 through December 31, 1992 . . .

or income year. Complete Part I, line 1 through

in which the contracts are completed or adjusted.

January 1, 1993, through June 30, 1993 . . . .

line 8; or Part II, line 1 through line 9; but do not

July 1, 1993 through December 31, 1994 . . .

enter totals in column (d). Enter totals only in

If you are reporting line 2 amounts from more

January 1, 1995 through June 30, 1995 . . . .

column (d) of the form FTB 3834 that you sign.

than one Schedule K-1 (100S, 541, 565 or 568)

July 1, 1995 through December 31, 1998 . . .

or similar statement, you must attach a schedule

Follow the instructions in federal Form 8697

January 1, 1999 through June 30, 1999 . . . .

detailing by entity the net change to income from

when applying the look-back method under spe-

long-term contracts.

cial situations, such as:

•

Net Adjustment

Change orders;

•

Treatment of amounts properly taken into

California law requires you to make an adjust-

account after contract completion;

ment to income upon completion of a contract to

•

The delayed reapplication method; and

correct any underreporting or overreporting of

•

The 10% method.

income resulting from differences between state

and federal law for the taxable or income year in

which the contract began. This adjustment may

be necessary:

Page 2

FTB 3834 Instructions

(REV. 1998)

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

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