To use the tax look back rule, use Form 8967, Interest Computation Under the Look-Back Method for Completed Long-Term contracts.
Use Form 8697 to figure the interest due or to be refunded under the look-back method on certain long-term contracts that are accounted for under either the percentage of completion method or the percentage of completion-capitalized cost method.
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.
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.
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Individuals:
Department of Treasury
Internal Revenue Service
Philadelphia, PA 19255-0001
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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.
Instructions for Form 8697 can be found here.
