The IRS has unveiled a new Excel-based calculator to help businesses working on large, multi-year construction or manufacturing projects calculate the interest related to those contracts.
The Percentage-of-Completion Method (PCM) Look-Back Interest Calculator supports calculations required for Form 8697, Interest Computation Under the Look-Back Method for Completed Long-Term Contracts.
The IRS says tax professionals, including CPAs, enrolled agents, and other tax preparers working with long-term construction and manufacturing contracts, could find the calculator helpful when computing look-back interest.
Practitioners should review the calculator output carefully, consider each taxpayer’s specific circumstances, and ensure compliance, the tax agency added.
“The IRS is focused on improving and enhancing how we serve taxpayers,” IRS CEO Frank Bisignano said in a statement on May 29. “We are transforming the IRS into a digital-first agency that provides the best possible experience for taxpayers, and tools like this calculator are an important step in that effort.”
The look-back interest is determined using a three-step process:
- Hypothetically reallocating income to prior years based on actual revenues and costs.
- Computing the hypothetical overpayment or underpayment of tax.
- Calculating interest on the underpayment or overpayment of tax.
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The calculator is designed to assist with the interest computation step by providing a structured framework to perform the computations, the IRS says.
However, the agency emphasizes that using the calculator doesn’t guarantee compliance with the law and doesn’t replace authoritative guidance, as the tool doesn’t address all fact patterns or complexities associated with look-back interest calculations.
Taxpayers should ensure the calculations agree with applicable authorities, including Internal Revenue Code Section 460 and Treasury Regulations Section 1.460-6.
Taxpayers and practitioners can provide feedback about the calculator by emailing Stakeholder Liaison and including “Look-Back Interest Workbook Feedback” in the subject line.
More information including detailed instructions for completing Form 8697 is available on IRS.gov.
Photo credit: Montauke/Flickr
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