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Form 8697: Interest Computation Under the Look-Back Method for Completed Long-Term Contracts
IRS Form 8697 is used for Interest Computation Under the Look-Back Method for Completed Long-Term Contracts. This form applies to those using the percentage of completion method; it must be filed by the date required to file your income tax return.
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IRS Form 8697 - Interest Computation Under the Look-Back Method for Completed Long-Term Contracts
IRS Form 8697 is used for Interest Computation Under the Look-Back Method for Completed Long-Term Contracts. This form applies to those using the percentage of completion method; it must be filed by the date required to file your income tax return.
Risk Radar
Scan points- 1If both original and corrected forms show interest owed, an amended income tax return MUST be filed.
- 2Filing without entering the correct filing year at the top of Form 8697.
- 3Using Part I when you should be using Part II (or vice versa) based on election status.
- 4Forgetting to sign Part II if interest is to be refunded, but not filing with a return.
- 5Entering adjusted taxable income from Part I, line 3 onto the corrected Form 8697's Part I, line 1.
Plain English
This form calculates the interest that is either owed or due back to you based on how long-term contracts were accounted for under a specific accounting method. It ensures the correct interest amount is reflected when using the look-back method of section 460(b)(2).
Submission Date
- Filing date: 2026-02-10 13:10:35
- Preparation window: collect IDs, supporting records, and signatures in advance.
- Final review: verify names, dates, and required fields before submission.
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What this form is for
- Use this form when you need to compute interest due or refunded under the look-back method of section 460(b)(2) on long-term contracts accounted for using either the percentage of completion method or the percentage of completion-capitalized cost method.
- Do not use Form 8697 if your contract was entered into before February 28, 1986 (unless you are adjusting costs/price in a subsequent year).
- Check Form 1065 instead when filing as a non-closely held partnership and need to include interest due on that form's line 24.
Form selector
Use this form or another form?
Partnership (non-closely held)
You must include any interest due from this contract computation on Line 24 of Form 1065.
✓ Check the instructions for Form 1065 regarding electronic payment options.
S Corporation (non-closely held)
You must include the interest due in the amount entered on Form 8697 when reporting additional taxes on this form.
✓ Write "From Form 8697" next to the entry space for clarity.
C Corporation (converting to S Corp)
If converting from a C corporation, you apply the look-back method at the entity level using the rates reflected in Table 2 and Table 3.
✓ Refer to Regulations section 1.460-6(g)(3)(iv) for details.
Pass-Through Entity (not closely held) electing SMIM
Part II of Form 8697 is used specifically by these entities when electing the Simplified Marginal Impact Method.
✓ Ensure you attach a statement to your timely filed income tax return for the first year of this election.
Deadline or filing window
The filing trigger is the completion or adjustment of contracts for the specified tax year. The deadline is the date you are required to file your income tax return (including extensions). If a refund is due, sign Part II if filing separately; otherwise, no signature is needed when filing with your tax return.
Checklist
What you need before filling it out
Purpose/Use
Long-term contracts accounted for under percentage of completion or percentage of completion-capitalized cost method · Instructions p.1
Filer Requirement (General)
You must file Form 8697 for each tax year a long-term contract was completed after February 28, 1986. · Instructions p.1
Pass-Through Entity Requirement (Non-closely held)
Must apply the look-back method at the entity level if at least 95% of gross income is from U.S. sources. · Instructions p.1
Corporate Taxpayer Rates
Table 2 (first $10,000) and Table 3 (in excess of $10,000) are used for C corporation years. · Instructions p.5
Direct Deposit Info
Part I lines 9b-9d or Part II lines 10b-10d · Form PDF/Instructions p.1
SMIM Election
Must attach a statement to the timely filed income tax return for the first year of election. · Instructions p.6
Before you submit
- 1Verify that you have correctly identified the beginning and ending years on Part I.
- 2Confirm the taxpayer type box (Corporation, Individual, etc.) is checked accurately.
- 3If applicable, enter the name and EIN of the pass-through entity holding the contract(s) in Part I.
- 4Ensure all required interest rates are pulled from the correct Table (1, 2, or 3) based on taxpayer type/amount.
- 5If using direct deposit, double-check that lines 9b-9d or 10b-10d contain complete banking information.
- 6For non-closely held S Corps, confirm the interest amount is ready to be entered onto Form 1120-S.
- 7Review Part II (SMIM) if applicable, ensuring you are using this method and have elected it.
How to file this form
- 1Complete all identifying information on Part I of Form 8697, including the filing year(s).
- 2Calculate the interest amount using the look-back method and record it in the appropriate line (Line 9a or Line 10a).
- 3If electing the Simplified Marginal Impact Method (SMIM), complete Part II of Form 8697.
- 4Enter your direct deposit information on Part I, lines 9b through 9d, OR Part II, lines 10b through 10d.
- 5Sign and date Form 8697 before mailing or electronically submitting it to the IRS.
- 6Keep a copy of the fully completed and signed Form 8697 for your records.
Known limitations
- 1The form applies to construction contracts entered into by a taxpayer who estimates the contract will be completed within 2 years from the date it begins, and whose average annual gross receipts for the 3 tax years preceding the year of entry do not exceed $31 million (adjusted for inflation) for contracts entered in tax years beginning in 2025.
- 2For closely held pass-through entities, look-back interest is applied at the owner level rather than the entity level.
- 3If Interest Is To Be Refunded to You, Form 8697 should be filed separately with the IRS instead of being attached to the income tax return.
Field map
Compact field-by-field guide
General Info
2 items
Full legal name and taxpayer identification number (SSN or EIN).
Current mailing address.
Details
2 items
Complete all applicable sections of this form according to the official IRS instructions.
Enter the relevant dollar amount if this form involves tax calculation.
Certification
1 items
Read and acknowledge any certifications required by this form.
Signatures
1 items
Sign and date. Unsigned forms cannot be processed.
Almost done reviewing the fields?
Fillable formOpen in Editor->The current revision date is December 2025, and users should visit IRS.gov/Form8697 for the latest information regarding developments related to Form 8697.
What changed or needs a fresh check
- Edition date — confirm the revision date reads December 2025.
- Filing Year — confirm the beginning and ending years are correctly entered on Part I, line blank field.
- Taxpayer Type — check the box corresponding to Corporation, Individual, Estate or trust, S corporation, or Partnership.
- Entity Information — if applicable, verify the name and EIN of the pass-through entity holding the contract(s).
- Interest Rate Tables — confirm that Table 1 (non-corporate) is used for accrual periods beginning after January 1, 2015.
Quick Facts
Downloads
After you file
- 1Keep a copy of Form 8697 and any attached schedules for personal records.
- 2If filing a joint return, both spouses must sign Form 8697.
- 3When correcting the form, if both original and corrected versions show interest you owe, file an amended income tax return.
- 4If both original and corrected versions show interest to be refunded, write 'Amended' in the top margin of the corrected Form 8697 before filing it separately.
Sources
- SRCInstructions p.1 — The form applies to construction contracts entered into by a taxpayer who meets specific criteria regarding completion time and gross receipts.
- SRCInstructions p.1 — Electronic payments are encouraged for refunds and payments using direct deposit fields added to Part I (lines 9b, 9c, 9d) and Part II (lines 10b, 10c, 10d).
- SRCInstructions p.2 — For corporations, look-back interest is included from the appropriate line of Form 1120, Schedule J, Part I.
- SRCInstructions p.3 — The form must be filed by the date required to file your income tax return (including extensions).
- SRCInstructions p.3 — If filing a joint return, both spouses' signatures are required on Form 8697.
- SRCInstructions p.4 — Additional Forms 8697 are needed for each prior tax year reported, and any other affected tax years.
- SRCInstructions p.1 — The form is titled Interest Computation Under the Look-Back Method for Completed Long-Term Contracts (Rev. December 2025).
- SRCInstructions p.3 — When correcting Form 8697, do not include the interest due from Part I, line 10 (or Part II, line 11) of the original on Part I, line 5 (or Part II, line 6) of the corrected form.
Common confusion points
Do I need to attach Form 8697 if interest is being refunded?
Confusion
If interest is to be refunded, file Form 8697 separately with the IRS instead of attaching it to your income tax return.
What happens when I correct a prior year's amount on Form 8697?
Confusion
You must file a corrected Form 8697 only if the amount on Part I, line 6, or Part II, line 7, changes due to an error, examination, or amended return filing.
Should I include the interest from my main tax form when correcting Form 8697?
Confusion
When completing a corrected Form 8697, do not enter the adjusted taxable income from Part I, line 3 of the original Form 8697 on Part I, line 1 of the corrected Form 8697.
If there are multiple prior years needing reporting, how many copies do I need?
Confusion
If more than 2 prior years exist, attach additional Forms 8697 as needed; only sign the first one.
Workflow map
Related forms and next steps
Before
Current
After
Often used with
⚠ If something goes wrong
- If both original and corrected Forms 8697 show an amount owed, file an amended income tax return.
Questions about IRS Form 8697
What is IRS Form 8697 used for?
This form calculates the interest that is either owed or due back to you based on how long-term contracts were accounted for under a specific accounting method. It ensures the correct interest amount is reflected when using the look-back method of section 460(b)(2).
Who must file IRS Form 8697?
Anyone who uses the percentage of completion method or the percentage of completion-capitalized cost method to account for completed long-term contracts must use Form 8697.
What information does IRS Form 8697 require?
The form collects identifying information (like SSN/EIN) and requires details in Part I (Regular Method) or Part II. Specifics include filing years, contract names, and the calculation of interest due or to be refunded on lines like Part I, line 10a.
When is IRS Form 8697 due?
Form 8697 must be filed by the date you are required to file your income tax return (including extensions).
Where do I file IRS Form 8697?
The form is completed for the Department of Treasury Internal Revenue Service located in Cincinnati, OH 45999-0001. Electronic payments can be made via direct deposit using fields on Part I (lines 9b-9d) or Part II (lines 10b-10d).
How do I complete IRS Form 8697?
First, fill out the identifying information (Name, Address, Item A) and select either Part I or Part II. Then, complete the relevant part with contract details, paying attention to when you must sign: a signature is only required if interest is to be refunded; otherwise, it is not required when filing with your tax return.
What happens if IRS Form 8697 is filed incorrectly?
If an error occurs and you file a corrected Form 8697, the consequence depends on whether both forms show interest owed or refunded; filing an amended return is required in those cases.
Confusion — what should I check?
If interest is to be refunded, file Form 8697 separately with the IRS instead of attaching it to your income tax return.
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