Instructions for Form 8697

Instructions for Form 8697

(Rev. December 2025)

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

Contracts

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

Electronic payments. If you have access to U.S. banking

services or electronic payment systems, you should use

direct deposit for any refunds and pay electronically for any

payments, whenever possible.

Direct deposit. Direct deposit fields have been added to

the form on Part I, lines 9b, 9c, and 9d; and Part II, lines 10b,

10c, and 10d. If there is net interest to be refunded to you on

Part l, line 9a, or Part ll, line 10a, enter your direct deposit

information on Part l, lines 9b through 9d; or Part ll, lines 10b

through 10d. See the instructions for line 9a, later, for more

information.

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

Feb 9, 2026

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 Mid-Contract Change in

Taxpayer, later.

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 post- transaction 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) for tax years beginning before July 5, 2025. For

tax years beginning after July 4, 2025, as defined in section

460(e)(4)(A) after redesignation by section 70340(a) of P.L.

119–21, commonly known as the One Big Beautiful Bill Act);

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 $31 million (adjusted for inflation) for contracts

entered into in tax years beginning in 2025. See section

460(e).

Instructions for Form 8697 (Rev. 12-2025) Catalog Number 10703K

Department of the Treasury Internal Revenue Service www.irs.gov

Note: The average annual gross receipts test threshold

amount may be adjusted for inflation. The Instructions for

Form 8697 may not be revised to reflect this amount. For tax

years beginning after 2025, see the instructions for your

applicable income tax return for the average annual gross

receipts test threshold amount for the current tax year. The

average annual gross receipts test threshold amount is also

available at IRS.gov/InflationAdjustment. Select the

applicable tax year news release, then click the “Revenue

Procedure” link to see the threshold amount under Limitation

on Use of Cash Method of Accounting.

However, the look-back method does apply to the

alternative minimum taxable income (AMTI) 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 (AMT)

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

Note: For long-term contracts entered into after July 4, 2025,

the look-back method does not apply to regular taxable

income from residential contracts, which includes home

construction contracts. Additionally, the small contractor

exception referenced in bullet two is expanded into

construction contracts that are estimated to be completed

within 2 years from the date the contract begins.

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:

• $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.

Note: For long-term contracts entered into after July 4, 2025,

the look back method does not apply to any contract

completed within 3 years of the contract start date.

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.

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, your

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.

Individuals. For individuals, include any interest due on the

appropriate line of Schedule 2 (Form 1040), Part ll (for

example, 2025 Schedule 2 (Form 1040), Part ll, line 17n).

Partnerships. For partnerships (that are not closely held),

include any interest due on Form 1065, line 24. If paying by

check, make it 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. See the Instructions for Form 1065 for

electronic payment options.

S corporations. For S corporations that are not closely

held, include any interest due in the amount to be entered for

additional taxes (for example, 2025 Form 1120-S, line 23c).

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.

C Corporations. For corporations, include the amount of

interest due on the appropriate line of Form 1120,

Schedule J, Part I (for example, 2025 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

To make the election, attach a statement to your timely

filed income tax return (determined with extensions) for the

2

Instructions for Form 8697 (Rev. 12-2025)

• 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 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

Instructions for Form 8697 (Rev. 12-2025)

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,

3

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 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.

4

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 (SMIM) 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

Instructions for Form 8697 (Rev. 12-2025)

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 AMT) 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

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

Instructions for Form 8697 (Rev. 12-2025)

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 January

1, 2015).

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 (1120-S) 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 9a

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 9a (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.

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Direct deposit. If you have access to U.S. banking services,

you should use direct deposit for any refunds, whenever

possible. The benefits of a direct deposit include a faster

refund, the added security of a paperless payment, and the

savings of tax dollars associated with the reduced processing

costs.

If you want your refund directly deposited into your

checking or savings account at any U.S. bank or other

financial institution, complete lines 9b through 9d. See the

instructions for lines 9b, 9c, and 9d, later.

You are not eligible to request a direct deposit if:

• The receiving financial institution is a foreign bank or a

foreign branch of a U.S. bank, or

• You have a applied for an EIN but are filing your tax return

before receiving one.

Line 9b. Routing Number

The routing number must be nine digits. The first two digits

must be 01 through 12 or 21 through 32. Ask your financial

institution for the correct routing number to enter on line 9b if:

• The routing number on a deposit slip is different from the

routing number on your checks,

• Your deposit is to a savings account that does not allow

you to write checks, or

• Your checks state they’re payable through a financial

institution different from the one at which you have your

checking account.

Line 9c. Type of Account

Check the appropriate box for the type of account. Do not

check more than one box. You must check the correct box to

ensure your deposit is accepted. If you are unsure which box

to check for the account you wish the deposit to be applied

to, consult your financial institution.

Line 9d. Account Number

The account number can be up to 17 characters (both

numbers and letters). Include hyphens but omit spaces and

special symbols. Enter the number from left to right and leave

any unused boxes blank. If the direct deposit to your account

is different from the amount you expected, you’ll receive an

explanation in the mail about 2 weeks after your refund is

deposited.

Conditions Resulting in a Refund by Check

If the IRS is unable to process the request for a direct

deposit, a refund by check will be generated instead.

Reasons for not processing a request include the following.

• The name on the tax return does not match the name on

the account.

• The financial institution rejects the direct deposit because

of an incorrect routing or account number.

• You fail to indicate the type of account the deposit is to be

made to (that is, checking or savings).

Note: The IRS is not responsible for a lost refund if you enter

the wrong account information. Check with your financial

institution to get the correct routing and account numbers and

to make sure the direct deposit will be accepted.

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

6

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 2025 Form 2210, line 2, for individuals.

For corporations, see the 2025 Form 2220, line 2b.

Part II—Simplified Marginal Impact

Method (SMIM)

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 SMIM. 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 SMIM, 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 SMIM. 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.

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

Instructions for Form 8697 (Rev. 12-2025)

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 . . . . . .

b. Tax years beginning in 1987 . . . . . . . . .

c. Tax years beginning in 1988, 1989, or

1990 . . . . . . . . . . . . . . . . . . . . . . . . . . .

d. Tax years beginning in 1991 or 1992 . . .

e. Tax years beginning in 1993 through

2000 . . . . . . . . . . . . . . . . . . . . . . . . . . .

f. Tax years beginning in 2001 . . . . . . . . .

g. Tax years beginning in 2002 . . . . . . . . .

h. Tax years beginning in 2003 through

2012 . . . . . . . . . . . . . . . . . . . . . . . . . . .

i. Tax years beginning in 2013 through

2017 . . . . . . . . . . . . . . . . . . . . . . . . . . .

j. Tax years beginning in 2018 or later . . . .

50%

38.5%

28%

31%

39.6%

39.1%

38.6%

35%

39.6%

37%

2. Corporations (other than S corporations) and

pass-through entities not included in 1 above:

a. Tax years ending before July 1, 1987 . . . . . . .

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

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

Number of days in tax year

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 . . . . . . . . . . . . . . . . . . . . . . . . . .

b. Tax years beginning in 1991 or 1992 . .

c. Tax years beginning in 1993 or later . . .

21%

24%

28%

2. Corporations (other than S corporations) and

pass-through entities not included in 1 above:

a. Tax years ending before 2018 . . . . . . . . .

b. Tax years beginning after 2017 . . . . . . . .

20%

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

46%

⫻ 12%

c. Tax years beginning after June 30, 1987, and

ending before 1993 . . . . . . . . . . . . . . . . . . .

d. For tax years beginning before 1993 that

include January 1, 1993, the rate is 34% plus the

following.

Line 4

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.

34%

Line 10a

See the instructions for Part I, line 9a, earlier.

Lines 10b Through 10d

See the instructions for Part l, lines 9b through 9d, earlier.

Line 11

⫻

See the instructions for Part I, line 10, earlier.

1%

e. Tax years beginning after 1992, and ending

before 2018 . . . . . . . . . . . . . . . . . . . . . . . .

f. Tax years beginning after 2017 . . . . . . . . .

35%

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 AMT purposes.

Instructions for Form 8697 (Rev. 12-2025)

7

Table 1

Interest Rates for Non-corporate Taxpayers

From

1/1/15

1/1/16

4/1/16

1/1/17

4/1/18

1/1/19

7/1/19

1/1/20

7/1/20

1/1/21

7/1/22

10/1/22

1/1/23

10/1/23

1/1/24

1/1/25

Through

12/31/15

3/31/16

12/31/16

3/31/18

12/31/18

6/30/19

12/31/19

6/30/20

12/31/20

3/31/22

9/30/22

12/31/22

9/30/23

12/31/23

12/31/24

3/31/26

Rate

3%

3%

4%

4%

5%

5%

5%

5%

3%

3%

5%

6%

7%

8%

8%

7%

Table

11

59

61

13

15

15

15

63

59

11

15

17

19

21

21

19

Page

565

613

615

567

569

571

569

565

565

567

569

571

573

575

575

573

Table 2

Interest Rates for Corporate

Increases or Decreases in Tax

of $10,000 or Less

From

1/1/15

1/1/16

4/1/16

1/1/17

4/1/18

1/1/19

7/1/19

1/1/20

7/1/20

1/1/21

4/1/22

7/1/22

10/1/22

1/1/23

10/1/23

1/1/24

1/1/25

Through

12/31/15

3/31/16

12/31/16

3/31/18

12/31/18

6/30/19

12/31/19

6/30/20

12/31/20

3/31/22

6/30/22

9/30/22

12/31/22

9/30/23

12/31/23

12/31/24

3/31/26

Rate

2%

2%

3%

3%

4%

5%

4%

4%

2%

2%

3%

4%

5%

6%

7%

7%

6%

Table

9

57

59

11

13

15

13

61

57

9

11

13

15

17

19

67

17

Page

563

611

613

565

567

569

567

615

611

563

565

567

569

571

573

621

571

Table 3

Interest Rates for Corporate

Increases or Decreases in Tax

Exceeding $10,000

From

1/1/15

4/1/16

1/1/17

4/1/18

1/1/19

7/1/19

7/1/20

4/1/22

7/1/22

10/1/22

1/1/23

10/1/23

1/1/24

1/1/25

Through

3/31/16

12/31/16

3/31/18

12/31/18

6/30/19

12/31/19

3/31/22

6/30/22

9/30/22

12/31/22

9/30/23

12/31/23

12/31/24

3/31/26

Rate

.5%

1.5%

1.5%

2.5%

3.5%

2.5%

.5%

1.5%

2.5%

3.5%

4.5%

5.5%

5.5%

4.5%

Table

–

56

8

10

12

10

—

8

10

12

14

16

64

14

Page

–

610

562

564

566

564

—

562

564

566

568

570

618

568

Example of Applicable Interest Rates for Look-back Interest.

A C corporation taxpayer completed contracts subject to

look-back interest during the 2024 calendar year. The

contracts were started in 2022, so 2022 and 2023 are

redetermination years. The corporate tax return due date,

without extensions, for all years is April 15.

8

For computing look-back interest, the interest rates and

accrual period for the 2022 redetermination year would be:

• 4/16/2023 – 4/15/2024: 6% for the 1st $10,000 (4.5% for

any amount exceeding $10,000).

• 4/16/2024 – 4/15/2025. 7% for the 1st $10,000 (5.5% for

any amount exceeding $10,000).

The interest rate and accrual period for the 2023

redetermination year would be:

• 4/16/2024 – 4/15/2025: 7% for the 1st $10,000 (5.5% 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 . . . . . . . . . . . . . . . . . . . . . .

Part II . . . . . . . . . . . . . . . . . . . . . .

8 hr., 36 min.

9 hr., 19 min.

Learning about the law or the form

Part I . . . . . . . . . . . . . . . . . . . . . .

Part II . . . . . . . . . . . . . . . . . . . . . .

2 hr., 22 min.

2 hr., 5 min.

Preparing, copying, assembling,

and sending the form to the IRS

Part I . . . . . . . . . . . . . . . . . . . . . .

Part II . . . . . . . . . . . . . . . . . . . . . .

2 hr., 37 min.

2 hr., 19 min.

Instructions for Form 8697 (Rev. 12-2025)

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 through IRS.gov/FormComments. Or you can

send your comments to Internal Revenue Service, Tax Forms

Instructions for Form 8697 (Rev. 12-2025)

and Publications, 1111 Constitution Ave. NW, IR-6526,

Washington, DC 20224. Don’t send the tax form to this office.

Instead, see Filing Instructions, earlier.

9