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Contracts Completed in Taxable or Income

Treas. Reg. Section 1.460-6(d) to use the simpli-

(b) S corporations:

Years Beginning On or After January 1, 1998

fied marginal impact method. Once made, the

Income years beginning after 1986

election applies to all applications of the look-

For contracts completed in taxable or income

and before 1994 . . . . . . . . . . .

2.5%

back method in the year of the election and all

years beginning on or after January 1, 1998, the

Income years beginning after 1993 . .

1.5%

later years, unless FTB consents to a revocation

interest rate is determined for each interest

of the election.

accrual period. The interest accrual period starts

not included in (a) or (b) above:

on the day after the return due date (not includ-

Columns (a), (b) and (c) – Enter at the top of

Income years ending before 1987 . .

9.6%

ing extensions) for each prior taxable or income

each column the ending month and year for each

Income years ending after 1986 and

year and ends on the return due date for the fol-

prior taxable or income year in which you were

beginning before 1997 . . . . . . . .

9.3%

lowing taxable or income year. Using the chart

required to report income from the completed

Income years ending after 1996. . .

8.84%

on page 2, the interest rate in effect for the entire

long-term contract.

interest accrual period is the rate for the period in

Line 1 – In each column, show a net increase to

Note: Corporations cannot reduce their tax below

which the interest accrual period begins.

income as a positive amount and a net decrease

the minimum franchise tax.

Line 9 and line 10 – Individuals, estates or

to income as a negative amount. For apportion-

Line 3 – See the instructions for Part II, line 1,

trusts, partnerships and LLCs must sign Side 2

ing taxpayers, the net increase or net decrease

and complete line 3 in the same manner, using

and file form FTB 3834 as a separate return (do

to income is after apportionment. For more infor-

only income and deductions allowed for AMT

not attach it to Form 540, 540NR, 541, 565 or

mation, see Title 18, California Code of Regula-

purposes.

568). Mail the form in an envelope separate from

tions Section 25137-2.

Line 4 – Multiply the amount on line 3 by the

that of your California tax return.

Attach separate schedules for regular taxable

applicable AMT rate as follows:

Corporations (other than S corporations) may

income and AMTI that include:

•

deduct this amount as an interest expense for

Identification of each completed long-term

Entity

AMT rate

the income year in which it is paid or incurred.

contract by contract number, job name or any

This interest is not deductible for individuals and

(a) Individuals and pass-through entities in

other reasonable method used in your

other noncorporate taxpayers.

which, at all times during the year, more

records to identify each contract;

•

than 50% of the interests in the entity are

If you have an amount to be refunded to you

The amount of income previously reported for

held by individuals directly or through

(line 9), mail form FTB 3834 to:

each contract based on estimated contract

other pass-through entities:

price and costs for each prior year;

FRANCHISE TAX BOARD

•

The amount of income for each contract allo-

Tax years beginning after 1986 and

PO BOX 942840

cable to each prior year based on actual con-

before 1991 . . . . . . . . . . . . . .

SACRAMENTO CA 94240-0000

tract price and costs;

•

Tax years beginning after 1990

•

If you have an amount due (line 10), prepare

The net adjustment to income from long-term

and before 1997 . . . . . . . . . . .

8.5%

a check or money order payable to ‘‘Fran-

contracts for each prior year; and

Tax years beginning after 1996 . . . .

•

chise Tax Board’’ for the full amount. Write

Any other adjustments that result in a change

(b) Corporations and pass-through entities

your social security number or California cor-

to income due to long-term contracts.

not included in (a) above:

poration number, the taxable or income year

An owner of an interest in a pass-through entity

and ‘‘FTB 3834’’ on the check or money

Income years ending after 1986 and

is not required to provide the detail listed in the

order. Attach it to form FTB 3834 and mail to:

beginning before 1997 . . . . . . . .

first 3 items above with respect to prior years.

Income years ending after 1996. . .

6.65%

FRANCHISE TAX BOARD

The entity should provide the line 1 amounts on

PO BOX 942867

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

Line 5 – If both line 2 and line 4 are negative,

SACRAMENTO CA 94267-0001

separate statement for its taxable or income year

enter whichever amount is larger. Treat both

Corporations, S corporations and exempt organi-

in which the contracts are completed or adjusted.

numbers as positive when making this compari-

zations with unrelated business income must

son, but enter the amount as a negative number.

If you are reporting line 1 amounts from more

attach form FTB 3834 to their California return

If the amount on one line is negative, but the

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

and enter the amount due or the amount to be

amount on the other line is positive, enter the

or similar statement, you must attach a schedule

refunded on the appropriate schedule of their tax

positive amount on line 5.

detailing by entity, the net change to income from

return as follows:

long-term contracts.

•

Corporations must enter an amount due or a

Note: See the Net Adjustment section on

refund due on Form 100, Schedule J;

page 2.

•

S corporations must enter an amount due or

Line 2 – Multiply the amount on line 1 by the

a refund due on Form 100S, Schedule J; and

•

applicable regular tax rate for each prior year

Exempt corporations or other organizations

shown in column (a), (b) or (c). The applicable

with unrelated business income must enter an

regular tax rate is as follows:

amount due or a refund due on Form 109,

Schedule K.

Entity

Regular rate

Note: Corporations, S corporations and exempt

organizations are not required to sign form

(a) Individuals and pass-through entities in

FTB 3834.

which, at all times during the year, more

than 50% of the interests in the entity are

Part II — Simplified Marginal

held by individuals directly or through

Impact Method

other pass-through entities:

Part II is used only by pass-through entities

Tax years beginning before 1987 . . .

11%

required to apply the look-back method at the

Tax years beginning after 1986 and

entity level and taxpayers electing (or with an

before 1991 . . . . . . . . . . . . . .

9.3%

election in effect) to use the simplified marginal

Tax years beginning after 1990 and

impact method. See General Information H.

before 1996 . . . . . . . . . . . . . .

11%

Tax years beginning after 1995 . . . .

9.3%

To elect the simplified marginal impact method,

attach a statement to form FTB 3834 for the first

tax year of the election. The statement must indi-

cate that you are making an election under

FTB 3834 Instructions

Page 3

(REV. 1998)

Instructions For Form Ftb 3834 - Interest Computation Under The Look-Back Method For Completed Long-Term Contracts Page 3

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