Special Rules for Long-Term Contracts Under Section 460

IRC section 460 generally provides rules that requires taxpayers to determine taxable income from a long-term contract using the percentage-of-completion (PCM) method and pay, or be entitled to receive, interest computed using the look-back method. Form 8697 is used by taxpayers to figure the interest due or to be refunded under the look-back method of IRC section 460(b)(2) on certain long-term contracts that are accounted for under either the PCM method or the percentage-of-completion capitalized cost method. TD 8775 added Treasury Regulations section 1.460-6(j), providing taxpayers with the requirements to make an election not to apply the look-back method to long-term contracts in de minimis cases. TD 8929 added Treasury Regulations section 1.460-1(e)(4), requiring taxpayers to attach a statement with specific information to their income tax return if they sever an agreement or aggregate two or more agreements during the taxable year. TD 8995, as amended by TD 9137, added Treasury Regulations section 1.460-6(g)(3)(ii)(D) providing rules concerning a mid-contract change in taxpayer of a contract accounted for under a long-term contract method of accounting. The regulation requires the previous taxpayer to provide specific information to the new taxpayer to help the new taxpayer apply the look-back method when the income from a long-term contract has been previously reported by another taxpayer.

The latest form for Special Rules for Long-Term Contracts Under Section 460 expires 2026-06-30 and can be found here.

TD 8995/TD 9137 - Mid-Contract Change in Taxpayer

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