The Internal Revenue Service has created a new Excel-based calculator to help companies working on large, multi-year construction or manufacturing projects compute the interest related to those long-term contracts.
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CPAs, enrolled agents, and other tax preparers who work with long-term construction and manufacturing contracts may find the calculator useful when computing look-back interest, the IRS noted. However, tax practitioners should review the calculator output carefully, consider each taxpayer's specific circumstances, and ensure compliance.
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; and
- Calculating interest on the underpayment or overpayment of tax.
The calculator is designed to help with the interest computation step by providing a structured framework to do the computations.
Nevertheless, the IRS stressed that using the calculator doesn't guarantee compliance with the law, nor does it replace authoritative guidance, as the tool doesn't address all fact patterns or complexities associated with look-back interest calculations. That means taxpayers should ensure the calculations agree with applicable authorities, including Section 460 of the Internal Revenue Code and Treasury Regulations Section 1.460-6.
Taxpayers and practitioners can submit feedback about the calculator, by emailing Stakeholder Liaison and including "Look-Back Interest Workbook Feedback" in the subject line.
"The IRS is focused on improving and enhancing how we serve taxpayers," said IRS CEO Frank Bisignano in a statement Friday. "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."
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