Instructions for Form 8697

(Rev. November 2018)

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

Contracts

Department of the Treasury

Internal Revenue Service

Section references are to the Internal Revenue 

Code unless otherwise noted.

General Instructions

Future Developments

For the latest information about 

developments related to Form 8697 and 

its instructions, such as legislation 

enacted after they were published, go to 

IRS.gov/Form8697.

What's New

• The tax rate used for the interest 

computation for individuals, 

corporations, and certain pass-through 

entities has changed. See the 

instructions for Part II, line 2, later.

• The 2-year carryback rule will 

generally not apply to net operating 

losses (NOLs) arising in tax years 

ending after 2017. Exceptions apply to 

NOLs for farmers and non-life insurance 

companies. See section 172(b) as 

amended by P.L. 115-97, section 

13302.

• For tax years beginning after 2017, 

the alternative minimum tax for 

corporations has been repealed.

Purpose of Form

Use Form 8697 to figure the interest due 

or to be refunded under the look-back 

method of section 460(b)(2) on certain 

long-term contracts that are accounted 

for under either the percentage of 

completion method or the percentage of 

completion-capitalized cost method. For 

guidance concerning these methods, 

see Regulations section 1.460-4. For 

details and computational examples 

illustrating the use of the look-back 

method, see Regulations section 

1.460-6.

Who Must File

General Rule

You must file Form 8697 for each tax 

year in which you completed a 

long-term contract entered into after 

February 28, 1986, that you accounted 

for using either the percentage of 

completion method or the percentage of 

completion-capitalized cost method for 

federal income tax purposes. You also 

must file Form 8697 for any tax year, 

subsequent to the year of completion, in 

which the contract price or contract 

costs are adjusted for one or more of 

these long-term contracts from a prior 

year.

Pass-Through Entities

A pass-through entity (partnership, S 

corporation, or trust) that is not closely 

held must apply the look-back method 

at the entity level to any contract for 

which at least 95% of the gross income 

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

entity is considered closely held if, at 

any time during any tax year for which 

there is income under the contract, 50% 

or more (by value) of the beneficial 

interests in the entity is held (directly or 

indirectly) by or for five or fewer 

persons. For this purpose, rules similar 

to the constructive ownership rules of 

section 1563(e) apply. For a 

mid-contract change in taxpayer 

resulting in the conversion of a C 

corporation into an S corporation, the 

look-back method is applied at the entity 

level with respect to contracts entered 

into prior to the conversion regardless of 

whether the S corporation is considered 

closely held. See the section discussing 

Mid-Contract Change in Taxpayer.

If you are an owner of an interest in a 

pass-through entity in which a long-term 

contract was being accounted for under 

the percentage of completion method or 

the percentage of completion 

capitalized cost method and the 

pass-through entity is not subject to the 

look-back method at the entity level, you 

must file this form for your tax year that 

ends with or includes the end of the 

entity's tax year in which the contract 

was completed or adjusted in a 

post-completion tax year. The 

pass-through entity will provide on 

Schedule K-1 the information you need 

to complete this form.

Mid-Contract Change in 

Taxpayer

If prior to the completion of a long-term 

contract accounted for using the 

percentage of completion method or the 

percentage of completion capitalized 

cost method, there is a transaction that 

makes another taxpayer responsible for 

accounting for income from the same 

contract, the taxpayer responsible for 

computing look-back interest depends 

on whether the ownership change is 

due to a constructive completion 

transaction or a step-in-the shoes 

transaction. For guidance regarding 

these transactions, see Regulations 

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

constructive completion transactions, 

the old taxpayer treats the contract as 

completed in the transaction year and 

applies the look-back method to the 

pre-transaction years. The new 

taxpayer is treated as entering into a 

new contract and applies the look-back 

method to the post-transaction years 

upon the contract's completion. In the 

case of step-in-the-shoes transactions, 

the new taxpayer applies the look-back 

method to both the pre- and posttransaction years. See Regulations 

section 1.460-6(g) for additional 

guidance.

Exception for Certain 

Construction Contracts

The look-back method does not apply to 

the regular taxable income from:

• Any home construction contract (as 

defined in section 460(e)(5)(A)) or

• Any other construction contract 

entered into by a taxpayer: (a) who 

estimates the contract will be completed 

within 2 years from the date the contract 

begins and (b) whose average annual 

gross receipts for the 3 tax years 

preceding the tax year in which the 

contract is entered into do not exceed 

$10 million. The annual gross receipts is 

increased to $25 million (adjusted for 

inflation) for contracts entered into after 

2017. See section 460(e).

However, the look-back method does 

apply to the alternative minimum taxable 

income from any such contract that is 

not a home construction contract and, 

therefore, must be accounted for using 

the percentage of completion method 

for alternative minimum tax purposes. 

See section 56(a)(3) for details.

Small Contract Exception

The look-back method does not apply to 

any contract completed within 2 years of 

the contract start date if the gross price 

of the contract (as of contract 

completion) does not exceed the 

smaller of:

Oct 22, 2018 Cat. No. 10703K
• $1 million or

• 1% of the taxpayer's average annual 

gross receipts for the 3 tax years before 

the tax year of contract completion.

See section 460(b)(3)(B) for details.

De Minimis Exception

You may elect not to apply the 

look-back method in certain de minimis 

cases for completed contracts. The 

look-back method does not apply in the 

following cases if the election is made.

1. In the completion year if, for each 

prior contract year, the cumulative 

taxable income (or loss) actually 

reported under the contract is within 

10% of the cumulative look-back 

income (or loss). Cumulative look-back 

income (or loss) is the amount of 

taxable income (or loss) that you would 

have reported if you had used actual 

contract price and costs instead of 

estimated contract price and costs.

2. In a post-completion year if, as of 

the close of the post-completion year, 

the cumulative taxable income (or loss) 

under the contract is within 10% of the 

cumulative look-back income (or loss) 

under the contract as of the close of the 

most recent year in which the look-back 

method was applied to the contract (or 

would have been applied if the election 

had not been made).

For purposes of item 2, discounting 

under section 460(b)(2) does not apply.

To make the election, attach a 

statement to your timely filed income tax 

return (determined with extensions) for 

the first tax year of the election. Write at 

the top of the statement 

“NOTIFICATION OF ELECTION 

UNDER SECTION 460(b)(6).” Include 

on the statement your name, identifying 

number, and the effective date of the 

election. Also identify the trades or 

businesses that involve long-term 

contracts. Once made, the election 

applies to all contracts completed 

during the election year and all later tax 

years, and may not be revoked without 

IRS consent. See Regulations section 

1.460-6(j) for more details. If you timely 

filed your return without making the 

election, you may make the election on 

an amended return filed no later than 6 

months after the due date of your tax 

return (excluding extensions). Write 

“Filed pursuant to section 301.9100” at 

the top of the amended return.

Filing Instructions

If You Owe Interest (or No 

Interest Is To Be Refunded to 

You)

Attach Form 8697 to your income tax 

return. The signature section of Form 

8697 does not have to be completed by 

you or the paid preparer.

For individuals, include any interest 

due in the amount to be entered for total 

tax (after credits and other taxes) on 

your return (for example, 2018 Form 

1040, line 15). Write on the dotted line 

to the left of the entry space “From Form 

8697” and the amount of interest due.

For partnerships (that are not closely 

held), write “From Form 8697” and 

include any interest due in the bottom 

margin of the tax return. Attach a check 

or money order for the full amount made 

payable to “United States Treasury.” 

Write the partnership's employer 

identification number (EIN), daytime 

phone number, and “Form 8697 

Interest” on the check or money order.

For S corporations that are not 

closely held, include any interest due in 

the amount to be entered for additional 

taxes (for example, 2018 Form 1120S, 

line 22c). Write on the dotted line to the 

left of the entry space “From Form 8697” 

and the amount of interest due. A 

closely held S corporation would also 

follow these procedures following a 

conversion from a C corporation for the 

contracts entered into prior to the 

conversion. See the rules related to 

Mid-Contract Change in Taxpayer, 

earlier.

For closely held pass-through 

entities, look-back interest is applied at 

the owner level and not the entity level.

For corporations, include the amount 

of interest due on the appropriate line of 

Form 1120, Schedule J, Part I (for 

example, 2018 Form 1120, Schedule J, 

line 9c).

Look-back interest owed is not 

subject to the estimated tax penalty. 

See Regulations section 1.460-6(f)(2).

If Interest Is To Be Refunded to 

You

Do not attach Form 8697 to your income 

tax return. Instead, file Form 8697 

separately with the IRS at the applicable 

address listed below.

• Individuals:

Department of Treasury

Internal Revenue Service

Philadelphia, PA 19255-0001

• All others:

Department of Treasury

Internal Revenue Service

Cincinnati, OH 45999-0001

Complete the signature section of 

Form 8697 following the instructions for 

the signature section of your income tax 

return. If you file a joint return, the 

signature of both spouses is required on 

Form 8697. If additional Forms 8697 are 

needed to show more than 2 

redetermination years, sign only the first 

Form 8697.

File Form 8697 by the date you are 

required to file your income tax return 

(including extensions). Keep a copy of 

Form 8697 and any attached schedules 

for your records.

Filing a Corrected Form 

8697

You must file a corrected Form 8697 

only if the amount shown on Part I, 

line 6, or Part II, line 7, for any prior year 

changes as a result of an error you 

made, an income tax examination, or 

the filing of an amended tax return.

When completing Part I, line 1, of the 

corrected Form 8697, follow the 

instructions on the form but do not enter 

the adjusted taxable income from Part I, 

line 3, of the original Form 8697. When 

completing Part I, line 5 (or Part II, 

line 6), of the corrected Form 8697, do 

not include the interest due, if any, from 

Part I, line 10 (or Part II, line 11), of the 

original Form 8697 that was included in 

your total tax when Form 8697 was filed 

with your tax return.

• If both the original and corrected 

Forms 8697 show an amount on the line 

for interest you owe, file an amended 

income tax return.

• If both the original and corrected 

Forms 8697 show an amount on the line 

for interest to be refunded to you, write 

“Amended” in the top margin of the 

corrected Form 8697, and file it 

separately.

• If your original Form 8697 shows an 

amount on the line for interest you owe 

and the corrected Form 8697 shows an 

amount on the line for interest to be 

refunded to you, you must:

1. File an amended income tax 

return showing $0 interest from Form 

8697 and

2. File the corrected Form 8697 

separately (but do not write “Amended” 

at the top of the form because this is the 

first Form 8697 that you will file 

separately).

• If the original Form 8697 shows an 

amount on the line for interest to be 

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refunded to you and the corrected Form 

8697 shows an amount on the line for 

interest you owe, you must:

1. File the corrected Form 8697 

separately (with “Amended” written at 

the top) showing $0 interest to be 

refunded and

2. File an amended income tax 

return and attach a copy of the 

corrected Form 8697.

Attachments

If you need more space, attach separate 

sheets to the back of Form 8697. Put 

your name and identifying number on 

each sheet.

Applying the Look-Back 

Method Under Special 

Situations

10% Method

For purposes of the percentage of 

completion method, a taxpayer may 

elect to postpone recognition of income 

and expense under a long-term contract 

entered into after July 10, 1989, until the 

first tax year as of the end of which at 

least 10% of the estimated total contract 

costs have been incurred. For purposes 

of the look-back method, the recognition 

of income and expense must be 

postponed for such contracts until the 

first tax year as of the end of which at 

least 10% of the actual total contract 

costs have been incurred. Therefore, 

income and expense will be allocated to 

a different tax year if the first tax year 

that the 10% threshold is exceeded 

based on actual costs differs from the 

first tax year that the 10% threshold is 

exceeded based on estimated costs. 

The election to use the 10% method 

applies to all long-term contracts 

entered into during the tax year for 

which the election is made and all later 

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

details.

Change Orders

A change order for a contract is not 

treated as a separate contract for 

purposes of applying the look-back 

method unless the change order would 

be treated as a separate contract under 

the rules for severing and aggregating 

contracts provided in Regulations 

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

change order is not treated as a 

separate contract, that portion of the 

actual contract price and contract costs 

attributable to the change order must be 

taken into account in allocating contract 

income to all tax years of the contract, 

including tax years before the change 

order was agreed to.

Post-Completion Adjustments

General Rule

If the contract price or costs are revised 

to reflect amounts properly taken into 

account after the contract completion 

date for any reason, you must apply the 

look-back method in the year such 

amounts are properly taken into 

account, even if no other contract is 

completed in that year. Generally, the 

amount of each such post-completion 

adjustment to total contract price or 

contract costs is discounted, solely for 

look-back purposes, from its value at 

the time the amount is taken into 

account in computing taxable income to 

its value at the time the contract was 

completed. The discount rate for this 

purpose is the federal midterm rate 

under section 1274(d) in effect at the 

time the amount is properly taken into 

account.

However, you may elect not to 

discount post-completion adjustments 

for any contract. The election not to 

discount is made on a 

contract-by-contract basis and is 

binding with respect to all 

post-completion adjustments that arise 

with respect to that contract. To make 

this election, attach a statement to your 

timely filed income tax return 

(determined with extensions) for the first 

tax year after completion in which you 

take into account any adjustment to the 

contract price or contract costs. Indicate 

on the statement that you are making an 

election not to discount post-completion 

adjustments under Regulations section 

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

contracts to which the election applies.

Delayed Reapplication Method

For purposes of reapplying the 

look-back method after the year of 

contract completion, you may elect the 

delayed reapplication method to 

minimize the number of required 

reapplications of the look-back method. 

Under this method, the look-back 

method is reapplied after the contract 

completion year (or after a later 

reapplication of the look-back method) 

only when one of the following 

conditions is met for that contract:

1. The net undiscounted value of 

increases or decreases in the contract 

price occurring from the time of the last 

application of the look-back method 

exceeds the smaller of $1 million or 

10% of the total contract price at that 

time,

2. The net undiscounted value of 

increases or decreases in contract costs 

occurring from the time of the last 

application of the look-back method 

exceeds the smaller of $1 million or 

10% of the total actual contract costs at 

that time,

3. The taxpayer goes out of 

existence,

4. The taxpayer reasonably believes 

the contract is finally settled and closed, 

or

5. None of the above conditions

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

year that begins after the last previous 

application of the look-back method.

To elect the delayed reapplication 

method, attach a statement to your 

timely filed income tax return 

(determined with extensions) for the first 

tax year of the election. Indicate on the 

statement that you are making an 

election under Regulations section 

1.460-6(e) to use the delayed 

reapplication method. Once made, the 

election is binding for all long-term 

contracts for which you would reapply 

the look-back method in the absence of 

the election in the year of the election 

and all later years, unless the IRS 

consents to a revocation of the election. 

See Regulations section 1.460-6(e) for 

more details.

Specific Instructions

All filers must complete the information 

at the top of the form above Part I 

according to the following instructions. 

Then, complete either Part I or Part II as 

appropriate. Also sign the form at the 

bottom of page 2 if interest is to be 

refunded to you. A signature is not 

required if you are filing the form with 

your tax return.

Filing Year

Fill in the filing year line at the top of the 

form to show the tax year in which the 

contracts for which this form is being 

filed were completed or adjusted in a 

post-completion year. If you were an 

owner of an interest in a pass-through 

entity that has completed or adjusted 

one or more contracts, enter your tax 

year that ends with or includes the end 

of the entity's tax year in which the 

contracts were completed or adjusted.

Name

Enter the name shown on your federal 

income tax return for the filing year. If 

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you are an individual filing a joint return, 

also enter your spouse's name as 

shown on Form 1040.

Address

Enter your address only if you are filing 

this form separately. Include the 

apartment, suite, room, or other unit 

number after the street address. If the 

Post Office does not deliver mail to the 

street address and you have a P.O. box, 

show the box number instead.

Item A—Identifying 

Number

If you are an individual, enter your social 

security number. Other filers must use 

their EIN.

Part I—Regular Method

Use Part I only if you are not electing, do 

not have an election in effect, or are not 

required to use the simplified marginal 

impact method as described in the 

instructions for Part II, later.

Filing year column

Enter the filing year listed at the top of 

this form.

Columns (a) and (b)

Enter at the top of each column the 

ending month and year for:

• Each prior tax year in which you were 

required to report income from the 

completed long-term contract(s) and

• Any other tax year affected by such 

years.

Note. If there were more than 2 prior 

years, attach additional Forms 8697 as 

needed. On the additional Forms 8697, 

enter your name, identifying number, 

and tax year. Complete lines 1 through 

8 (as applicable), but do not enter totals 

in column (c). Enter totals only in 

column (c) of the first Form 8697.

Line 1

Do not reduce taxable income or 

increase a loss on line 1 by any 

carryback of a net operating loss, capital 

loss, or net section 1256 contracts loss, 

except to the extent that carrybacks 

must be taken into account to properly 

compute interest under section 460.

Note. The 2-year carryback rule does 

not apply to net operating losses arising 

in tax years ending after 2017. An 

exception applies to farmers and 

non-life insurance companies. See 

section 172(b) as amended by P.L. 

115-97, section 13302.

Line 2

In each column, show a net increase to 

income as a positive amount and a net 

decrease to income as a negative 

amount.

In figuring the net adjustment to be 

entered in each column on line 2, be 

sure to take into account any other 

income and expense adjustments that 

may result from the increase (or 

decrease) to income from long-term 

contracts (for example, a change to 

adjusted gross income affecting medical 

expenses under section 213). If there 

are no adjustments besides the 

look-back adjustments, the sum of all 

line 2 amounts should be zero and 

reflected in column 2(c). If there are 

additional adjustments that result from 

the application of the look-back, leave 

column 2(c) blank and reflect the 

amounts in the schedule below as 

described in item 3.

Include the following on an attached 

schedule.

1. Identify each completed 

long-term contract by contract number, 

job name, or any other reasonable 

method used in your records to identify 

each contract.

2. For each contract, report in 

columns for each prior year: (a) the 

amount of income previously reported 

based on estimated contract price and 

costs and (b) the amount of income 

allocable to each prior year based on 

actual contract price and costs. Total 

the columns for each prior year and 

show the net adjustment to income from 

long-term contracts.

3. Identify any other adjustments 

that result from a change in income from 

long-term contracts and show the 

amounts in the columns for the affected 

years so that the net adjustment shown 

in each column on the attached 

schedule agrees with the amounts 

shown on line 2.

An owner of an interest in a 

pass-through entity is not required to 

provide the detail listed in 1 and 2 above 

with respect to prior years. The entity 

should provide the line 2 amounts with 

Schedule K-1 or on a separate 

statement for its tax year in which the 

contracts are completed or adjusted.

Note. Taxpayers reporting line 2 

amounts from more than one 

Schedule K-1 (or a similar statement) 

must attach a schedule detailing by 

entity the net change to income from 

long-term contracts.

Line 3

If line 3 results in a negative amount, it 

represents a look-back net operating 

loss (NOL). The adjustment in line 2 

either created, increased, or decreased 

the net operating loss. The change in 

the amount of the net operating loss 

would be carried back or forward to the 

appropriate tax year and the 

hypothetical tax would be recomputed 

in the carryback/forward year. See 

Regulations section 1.460-6(c)(3)(v). 

However, the computation period for 

computing interest on NOLs is different. 

See the exceptions listed on lines 7 and 

8 below.

Note. The 2-year carryback rule does 

not apply to net operating losses arising 

in tax years ending after 2017. An 

exception applies to farmers and 

non-life insurance companies. See 

section 172(b) as amended by P.L. 

115-97, section 13302.

Lines 4 and 5

Reduce the tax liability to be entered on 

lines 4 and 5 by allowable credits (other 

than refundable credits, for example, 

the credit for taxes withheld on wages, 

the earned income credit, the credit for 

federal tax on fuels, etc.), but do not 

take into account any credit carrybacks 

to the prior year in computing the 

amount to enter on lines 4 and 5 (other 

than carrybacks that resulted from or 

were adjusted by the redetermination of 

your income from a long-term contract 

for look-back purposes). Include on 

lines 4 and 5 any taxes (such as 

alternative minimum tax for individuals) 

required to be taken into account in the 

computation of your tax liability (as 

originally reported or as redetermined).

Lines 7 and 8

For the increase or decrease in tax for 

each prior year, interest due or to be 

refunded must be computed at the 

applicable interest rate and 

compounded on a daily basis, generally 

from the due date (not including 

extensions) of the return for the prior 

year until the earlier of:

• The due date (not including 

extensions) of the return for the filing 

year or

• The date the return for the filing year 

is filed and any income tax due for that 

year has been fully paid.

Exceptions: 

• The time period for determining 

interest may be different in cases 

involving loss or credit carrybacks or 

carryovers in order to properly reflect 

the time period during which the 

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taxpayer or IRS had use of the 

hypothetical underpayment or 

overpayment. See Regulations section 

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

information.

• If a net operating loss, capital loss, 

net section 1256 contracts loss, or 

credit carryback is being increased or 

decreased as a result of the adjustment 

made to net income from long-term 

contracts, the interest due or to be 

refunded must be computed on the 

increase or decrease in tax attributable 

to the change to the carryback only from 

the due date (not including extensions) 

of the return for the prior year that 

generated the carryback and not from 

the due date of the return for the year in 

which the carryback was absorbed. See 

section 6611(f).

• In the case of a decrease in tax on 

line 6, if a refund has been allowed for 

any part of the income tax liability shown 

on line 5 for any year as a result of a net 

operating loss, capital loss, net section 

1256 contracts loss, or credit carryback 

to such year, and the amount of the 

refund exceeds the amount on line 4, 

interest is allowed on the amount of 

such excess only until the due date (not 

including extensions) of the return for 

the year in which the carryback arose.

Note. If a different method of interest 

computation must be used to produce 

the correct result in your case, use that 

method and attach an explanation of 

how the interest was computed.

Applicable Interest Rates

The overpayment rate designated under 

section 6621 is used to calculate the 

interest for both hypothetical 

overpayments and underpayments. The 

applicable interest rates are published 

quarterly in revenue rulings in the 

Internal Revenue Bulletin available at 

IRS.gov.

However, for contracts completed in 

tax years ending after August 5, 1997, 

an interest rate is determined for each 

interest accrual period. The interest 

accrual period starts on the day after the 

return due date (not including 

extensions) for each prior tax year and 

ends on the return due date for the 

following tax year. The interest rate in 

effect for the entire interest accrual 

period is the overpayment rate 

determined under section 6621(a)(1) 

applicable on the first day of the interest 

accrual period.

Even though the interest rates 

change quarterly, for look-back 

purposes the interest rate stays the 

same for the accrual period which is 

generally one year. The applicable 

interest rates for non-corporate 

taxpayers are shown in Table 1 (for 

interest accrual periods beginning after 

Jan. 1, 2008).

The applicable interest rates for 

corporate taxpayers for the first $10,000 

are shown in Table 2. The applicable 

interest rates for corporate taxpayers for 

amounts in excess of $10,000 are 

shown in Table 3.

Following the conversion of a C 

corporation into an S corporation, the 

look-back method is applied at the entity 

level (1120S) with respect to contracts 

entered into prior to the conversion. See 

Regulations section 1.460-6(g)(3)(iv). 

For the C corporation years, the 

taxpayer would apply the rates reflected 

in Table 2 for the first $10,000 and apply 

the rates in Table 3 for the amounts in 

excess of $10,000.

Line 9

See If Interest Is To Be Refunded to 

You, earlier, for where to file Form 8697. 

Additional interest to be refunded for 

periods after the filing date of Form 

8697, if any, will be computed by the 

IRS and included in your refund. Report 

the amount on line 9 (or the amount 

refunded by the IRS if different) as 

interest income on your income tax 

return for the tax year in which it is 

received or accrued.

Line 10

See If You Owe Interest under Filing 

Instructions, earlier, for how to report 

this amount on your tax return. 

Corporations (other than S 

corporations) may deduct this amount 

(or the amount computed by the IRS if 

different) as interest expense for the tax 

year in which it is paid or incurred. For 

individuals and other taxpayers, this 

interest is not deductible.

Estimated Tax Penalty

Look-back interest owed is not subject 

to the estimated tax penalty. See 

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

See the instructions for the 2018 Form 

2210, line 2, for individuals and 2018 

Form 2220, line 2(b), for corporations.

Part II—Simplified 

Marginal Impact Method

Part II is used only by pass-through 

entities required to apply the look-back 

method at the entity level (see Who 

Must File, earlier) and taxpayers 

electing (or with an election in effect) to 

use the simplified marginal impact 

method. Under the simplified method, 

prior year hypothetical underpayments 

or overpayments in tax are figured using 

an assumed marginal tax rate, which is 

generally the highest statutory rate in 

effect for the prior year under section 1 

(for an individual) or section 11 (for a 

corporation). This method eliminates the 

need to refigure your tax liability based 

on actual contract price and actual 

contract costs each time the look-back 

method is applied.

To elect the simplified marginal 

impact method, attach a statement to 

your timely filed income tax return 

(determined with extensions) for the first 

tax year of the election. Indicate on the 

statement that you are making an 

election under Regulations section 

1.460-6(d) to use the simplified marginal 

impact method. Once made, the 

election applies to all applications of the 

look-back method in the year of the 

election and all later years, unless the 

IRS consents to a revocation of the 

election.

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

Enter at the top of each column the 

ending month and year for each prior 

tax year in which you were required to 

report income from the completed 

long-term contract.

Note. If there were more than 3 prior 

tax years, attach additional Forms 8697 

as needed. On the additional Forms 

8697, enter your name, identifying 

number, and tax year. Complete lines 1 

through 9 (as applicable), but do not 

enter totals in column (d). Enter totals 

only in column (d) of the first Form 8697.

Line 1

In each column, show a net increase to 

income as a positive amount and a net 

decrease to income as a negative 

amount.

On an attached schedule:

• Identify each completed long-term 

contract by contract number, job name, 

or any other reasonable method used in 

your records to identify each contract; 

and

• For each contract, report in columns 

for each prior year: (a) the amount of 

income previously reported based on 

estimated contract price and costs and 

(b) the amount of income allocable to 

each prior year based on actual contract 

price and costs. Total the columns for 

each prior year and show the net 

adjustment to income from long-term 

contracts.

-5-
An owner of an interest in a 

pass-through entity is not required to 

provide the detailed schedule listed 

above for prior years. The entity should 

provide the line 1 amounts with 

Schedule K-1 or on a separate 

statement for its tax year in which the 

contracts are completed or adjusted.

Note. Taxpayers reporting line 1 

amounts from more than one 

Schedule K-1 (or a similar statement) 

must attach a schedule detailing by 

entity the net change to income from 

long-term contracts.

Line 2

Multiply the amount on line 1 by the 

applicable regular tax rate for each prior 

year shown in column (a), (b), or (c). 

The applicable regular tax rate is as 

follows:

1. Individuals and pass-through entities 

in which, at all times during the year, 

more than 50% of the interests in the 

entity are held by individuals directly or 

through other pass-through entities:

a. Tax years beginning 

before 1987 ......... 50%

b. Tax years beginning in 

1987 .............. 38.5%

c. Tax years beginning in 

1988, 1989, or 1990 ... 28%

d. Tax years beginning in 

1991 or 1992 ........ 31%

e. Tax years beginning in 

1993 through 2000 .... 39.6%

f. Tax years beginning in 

2001 .............. 39.1%

g. Tax years beginning in 

2002 .............. 38.6%

h. Tax years beginning in 

2003 through 2012 .... 35%

i. Tax years beginning in 

2013 through 2017 .... 39.6%

j. Tax years beginning in 

2018 or later ......... 37%

2. Corporations (other than S 

corporations) and pass-through entities 

not included in 1 above:

a. Tax years ending before July 

1, 1987 .............. 46%

b. For tax years beginning 

before July 1, 1987, that include 

July 1, 1987, the rate is 34% 

plus the following:

Number of days in tax year before 7/1/87

Number of days in tax year  12%

c. Tax years beginning after 

June 30, 1987, and ending 

before 1993 ........... 34%

d. For tax years beginning 

before 1993 that include 

January 1, 1993, the rate is 

34% plus the following:

Number of days in tax year after 12/31/92

Number of days in tax year  1%

e. Tax years beginning after 

1992, and ending before 

2018 ................ 35%

f. Tax years beginning after 

2017 ................ 21%

Line 3

See the instructions for Part II, line 1, 

earlier, and complete line 3 in the same 

manner, using only income and 

deductions allowed for alternative 

minimum tax (AMT) purposes.

Note. For tax years beginning after 

2017, the alternative minimum tax for 

corporations has been repealed.

Line 4

Multiply the amount on line 3 by the 

applicable AMT rate, which is as 

follows:

1. Individuals and pass-through entities 

in which, at all times during the year, 

more than 50% of the interests in the 

entity are held by individuals directly or 

through other pass-through entities:

a. Tax years beginning in 

1987 through 1990 .... 21%

b. Tax years beginning in 

1991 or 1992 ........ 24%

c. Tax years beginning in 

1993 or later ......... 28%

2. Corporations (other than S 

corporations) and pass-through entities 

not included in 1 above:

a. Tax years ending before 

2018 ................ 20%

b. Tax years beginning after 

2017 ................ 0%

Line 5

If both lines 2 and 4 are negative, enter 

whichever amount is greater. Treat both 

numbers as positive when making this 

comparison, but enter the amount as a 

negative number. (If the amount on one 

line is negative, but the amount on the 

other line is positive, enter the positive 

amount.)

Lines 8 and 9

For the increase (or decrease) in tax for 

each prior year, interest due or to be 

refunded must be computed at the 

applicable interest rate and 

compounded on a daily basis from the 

due date (not including extensions) of 

the return for the prior year until the 

earlier of:

• The due date (not including 

extensions) of the return for the filing 

year or

• The date the return for the filing year 

is filed and any income tax due for that 

year has been fully paid.

See Applicable Interest Rates in the 

instructions for Part I, lines 7 and 8, 

earlier.

Line 10

See the instructions for Part I, line 9, 

earlier.

Line 11

See the instructions for Part I, line 10, 

earlier.

Table 1

Interest Rates for Non-corporate 

Taxpayers 

 From Through Rate Table Page

1/1/08 3/31/08 7% 67 621

4/1/08 6/30/08 6% 65 619

7/1/08 9/30/08 5% 63 617

10/1/08 12/31/08 6% 65 619

1/1/09 3/31/09 5% 15 569

4/1/09 12/31/10 4% 13 567

1/1/11 3/31/11 3% 11 565

4/1/11 9/30/11 4% 13 567

10/1/11 12/31/11 3% 11 565

1/1/12 12/31/12 3% 59 613

1/1/13 12/31/15 3% 11 565

1/1/16 3/31/16 3% 59 613

4/1/16 12/31/16 4% 61 615

1/1/17 3/31/18 4% 13 567

4/1/18 9/30/18 5% 15 569

-6-
Table 2

Interest Rates for Corporate

Increases or Decreases in Tax

of $10,000 or Less

 From Through Rate Table Page

1/1/08 3/31/08 6% 65 619

4/1/08 6/30/08 5% 63 617

7/1/08 9/30/08 4% 61 615

10/1/08 12/31/08 5% 63 617

1/1/09 3/31/09 4% 13 567

4/1/09 12/31/10 3% 11 565

1/1/11 3/31/11 2% 9 563

4/1/11 9/30/11 3% 11 565

10/1/11 12/31/11 2% 9 563

1/1/12 12/31/12 2% 57 611

1/1/13 12/31/15 2% 9 563

1/1/16 3/31/16 2% 57 611

4/1/16 12/31/16 3% 59 613

1/1/17 3/31/18 3% 11 565

4/1/18 9/30/18 4% 13 567

Table 3

Interest Rates for Corporate

Increases or Decreases in Tax

Exceeding $10,000

 From Through Rate Table Page

1/1/08 3/31/08 4.5% 62 616

4/1/08 6/30/08 3.5% 60 614

7/1/08 9/30/08 2.5% 58 612

10/1/08 12/31/08 3.5% 60 614

1/1/09 3/31/09 2.5% 10 564

4/1/09 12/31/10 1.5% 8 562

1/1/11 3/31/11 .5% – –

4/1/11 9/30/11 1.5% 8 562

10/1/11 3/31/16 .5% – –

4/1/16 12/31/16 1.5% 56 610

1/1/17 3/31/18 1.5% 8 562

4/1/18 9/30/18 2.5% 10 564

Example of Applicable Interest 

Rates for Look-back Interest. 

A C corporation taxpayer completed 

contracts subject to look-back interest 

during the 2017 calendar year. The 

contracts were started in 2015, so 2015 

and 2016 are redetermination years. 

The corporate tax return due date, 

without extensions, for all years is April 

15.

For computing look-back interest, the 

interest rates and accrual period for the 

2015 redetermination year would be:

• 4/16/2016 – 4/15/2017: 3% for the 1st 

$10,000 (1.5% for any amount 

exceeding $10,000).

• 4/16/2017 – 4/15/2018: 3% for the 1st 

$10,000 (1.5% for any amount 

exceeding $10,000).

The interest rate and accrual period 

for the 2016 redetermination year would 

be:

• 4/16/2017 – 4/15/2018: 3% for the 1st 

$10,000 (1.5% for any amount 

exceeding $10,000).

Privacy Act and Paperwork Reduction Act Notice. We ask for the 

information on this form to carry out the 

Internal Revenue laws of the United 

States. We need this information to 

ensure that you are complying with 

these laws and to figure and collect or 

refund the correct amount of interest.

Section 460 provides special rules 

for computing interest under the 

look-back method for completed 

long-term contracts. Section 6001 and 

its regulations require you to file a return 

or statement with us for any tax you are 

liable for. Section 6109 and its 

regulations require you to put your 

identifying number on what you file. If 

you do not provide the information we 

ask for, or provide fraudulent 

information, you may forfeit any refund 

of interest otherwise owed to you and/or 

be subject to penalties.

You are not required to provide the 

information requested on a form that is 

subject to the Paperwork Reduction Act 

unless the form displays a valid OMB 

control number. Books or records 

relating to a form or its instructions must 

be retained as long as their contents 

may become material in the 

administration of any Internal Revenue 

law. Generally, tax returns and return 

information are confidential, as required 

by section 6103.

We may give this information to the 

Department of Justice for civil or 

criminal litigation, and to other federal 

agencies as authorized by law. We may 

give it to cities, states, the District of 

Columbia, and U.S. commonwealths or 

possessions to carry out their tax laws. 

We may give it to foreign governments 

because of tax treaties they have with 

the United States. We also may disclose 

this information to federal and state 

agencies to enforce federal nontax 

criminal laws and to combat terrorism.

The time needed to complete and file 

this form will vary depending on 

individual circumstances. The estimated 

burden for individual taxpayers filing this 

form is approved under OMB control 

number 1545-0074 and is included in 

the estimates shown in the instructions 

for their individual income tax return. 

The estimated burden for all other 

taxpayers who file this form is shown 

below.

Recordkeeping

Part I ............ 8 hr., 36 min.

Part II ............ 9 hr., 19 min.

Learning about the 

law or the form

Part I ............ 2 hr., 22 min.

Part II ............ 2 hr., 5 min.

Preparing, copying, 

assembling, and 

sending the form to 

the IRS

Part I ............ 2 hr., 37 min.

Part II ............ 2 hr., 19 min.

If you have comments concerning the 

accuracy of these time estimates or 

suggestions for making this form 

simpler, we would be happy to hear 

from you. You can send us comments 

from IRS.gov/FormComments. Or you 

can send your comments to Internal 

Revenue Service, Tax Forms and 

Publications Division, 1111 Constitution 

Ave. NW, IR-6526, Washington, DC 

20224. Don't send the tax form to this 

office. Instead, see Filing Instructions, 

earlier.

-7-