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California Tax Board: 94 3834

California Tax Board: 94 3834

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YEARCALIFORNIA FORM
19
____ 
3834Interest Computation Under the Look-BackMethod for Completed Long-Term Contracts
FTB 3834
C1
(REV. 1994)
Side 1
MONTHDAYYEARMONTHDAYYEAR
For contracts completed or adjustedduring the taxable or income year beginning, and ending.
Name(s) as shown on returnAddress – number and street, including P.O. BoxCity, town or post office, state, and ZIP codeCheck applicable boxSocial security numberCalifornia corporation number
Federal employer identification number (F.E.I.N.)
Individual Estate Trust Corporation S Corporation Limited Liability CompanyExempt OrganizationOther
If you were an owner of an interest in a pass-through entity (such as a partnership, limited liability company or an S corporation) that holds one or more long-termcontracts to which this interest computation relates, enter the name and identification number of the entity. Attach a schedule if there is more than one such entity.Identification numberName of entity
Check this box if more than three prior years are involved. Attach additional form(s) FTB 3834 as needed. See General Instruction J.
Part IRegular Method
Enter date of each prior year to which interestcomputation relates
(a)
Year endedmo.yr.
(b)
Year endedmo.yr.
(c)
Year endedmo.yr.
(d)
Totals(add columns (a),(b), and (c))
1
Taxable income (loss) or net income (loss) for state purposes for theprior year(s) shown on tax return (or as previously adjusted) beforenet operating loss. If you were required to file form FTB 3834 foran earlier contract completion year, enter adjusted taxable incomeor net income for state purposes for the prior year(s) from formFTB 3834, line 3, for the most recent contract completion year thataffects the prior year(s). Attach a copy of the prior year(s) formFTB 3834 to this form.
2
Adjustment to income to reflect the difference between:
(a)
theamount of income required to be reported for post-February 1986contracts completed or adjusted during the taxable or income yearbased on the
actual
contract price and costs; and
(b)
the amount ofincome reported for such contracts based on
estimated
contractprice and costs. See instructions...................
3
Adjusted taxable or net income for look-back purposes. Combineline 1 and line 2............................
4
Tax on line 3 amount using tax rates in effect for the prior year(s).See instructions............................
5
Tax shown on return (or as previously adjusted) for the prior year(s).See instructions. If you were required to file form FTB 3834 for anearlier contract completion year, enter the amount required to bereported on form FTB 3834, line 4, for the most recent contractcompletion year that affects the prior year(s)............
6
Increase (or decrease) in tax for the prior year(s) on which interest isdue (or is to be refunded). Subtract line 5 from line 4......
7
Interest due on increase, if any, shown on line 6. See instructions forcomputation..............................
8
Interest to be refunded on decrease, if any, shown on line 6. Seeinstructions for computation.....................
9
Net amount of
INTEREST TO BE REFUNDED TO YOU —
If line 8, column (d) exceeds line 7, column (d), enter the excess.See instructions.................................................................
10
Net amount of
INTEREST YOU OWE —
If line 7, column (d) exceeds line 8, column (d), enter the excess.See instructions.................................................................For Privacy Act Notice, See Form FTB 1131.
Apt. no.
 
Side 2
FTB 3834
C1
(REV. 1994)
Part IISimplified Marginal Impact Method
Enter date of each prior year to which interestcomputation relates
(a)
Year endedmo.yr.
(b)
Year endedmo.yr.
(c)
Year endedmo.yr.
(d)
Totals(add columns (a),(b), and (c))
1
Adjustment to regular taxable income to reflect the differencebetween:
(a)
the amount of income required to be allocated for post-February 1986 contracts completed or adjusted during the taxable orincome year based on
actual
contract price and costs; and
(b)
theamount of income reported for such contracts based on
estimated
contract price and costs. See instructions..............
2
Increase (or decrease) in regular tax for prior year(s). Multiply line 1in each column by the applicable regular tax rate. See instructions
Note:
For prior years beginning before 1987, skip line 3 and line 4and enter the amount from line 2 on line 5.
3
Adjustment to alternative minimum taxable income to reflect the dif-ference between:
(a)
the amount of income required to be allocatedfor post-February 1986 contracts completed or adjusted during thetaxable or income year based on
actual
contract price and costs;and
(b)
the amount of income reported for such contracts based on
estimated
contract price and costs. See instructions.......
4
Increase (or decrease) in alternative minimum tax (AMT) for prioryear(s). Multiply line 3 in each column by the applicable AMT rate.See instructions............................
5
Enter the amount from line 2 or line 4, whichever is larger.See instructions if either amount is negative............
Pass-through entities (except S corporations):
Skip line 6 andenter the amount from line 5 on line 7.
S corporations:
SeeGeneral Instruction I.
6
Overpayment ceiling. For each column in which line 5 is a negativenumber, enter your total tax liability for the prior year, as adjusted forpast applications of the look-back method, and after net operatinglosses, capital losses, and credit carryovers to that year. For eachcolumn in which line 5 is a positive number, leave line 6 blank andenter the amount from line 5 on line 7...............
7
Increase (or decrease) in tax for the prior year(s) on which interest isdue (or is to be refunded). Enter the amount from line 5 or line 6,whichever is smaller. Treat both numbers as positive when makingthis comparison, but enter the amount as a negative number..
8
Interest due on increase, if any, shown on line 7. See the instruc-tions for Part I, line 7 and line 8...................
9
Interest to be refunded on decrease, if any, shown on line 7. Seethe instructions for Part I, line 7 and line 8.............
10
Net amount of
INTEREST TO BE REFUNDED TO YOU —
If line 9, column (d) exceeds line 8, column (d) enter the excess.See the instructions for Part I, line 9.....................................................
11
Net amount of
INTEREST YOU OWE —
If line 8, column (d) exceeds line 9, column (d) enter the excess.See the instructions for Part I, line 10....................................................
Sign Here
Only If You AreFiling This FormSeparately andNot With YourTax Return. SeeInstructions.
Under penalties of perjury, I declare that I have examined this return and to the best of my knowledge and belief, it is true, correct and complete.It is unlawful to forge a spouse’s signature.Your signatureSpouses signature (if filing jointly, both must sign)DateSignature of paid preparer (
declaration of preparer is based on all information of which preparer has any knowledge 
)DatePreparers SSN/FEINFirms name (or yours if self-employed)Firms address
XX
 
FTB 3834 Instructions
(REV. 1994)
Page 1
Instructions for Form FTB 3834
Interest Computation Under the Look-Back Method for Completed Long-Term Contracts
References in these instructions are to the Internal Revenue Code (IRC) as of
January 1, 1993,
and to the California Revenue and Taxation Code (R&TC).
General InstructionsAPurpose of Form
In the year a long-term contract is completed, thelook-back method described in IRC Section 460(b)(2)requires the taxpayer to ‘‘look back’’ to each of theprevious years during which the contract work was inprogress and compute interest in such years on thedifference between the tax that was actually paidand the tax that would have been paid if the tax-payer had known the actual contract price and coststhat would finally result.Use form FTB 3834 to figure the interest due or tobe refunded under the look-back method (IRC Sec-tion 460(b)(2)) on certain long-term contracts enteredinto after February 28, 1986, that are accounted forunder either the percentage of completion method orthe percentage of completion-capitalized costmethod.
BSimplified Marginal ImpactMethod
IRC Reg. Section 1.460-6(d) established the simpli-fied marginal impact method for figuring look-backinterest. Passthrough entities that are not closelyheld
must
use this simplified method. All other tax-payers may elect to use this method for domesticcontracts.A passthrough entity is considered closely held if, atany time during any tax year for which there isincome under the contract, 50% or more (by value)of the beneficial interests in the entity is held (di-rectly or indirectly) by or for five or fewer persons.Under the simplified method, hypothetical underpay-ments or overpayments of tax in prior years are fig-ured using an assumed marginal tax rate. Thisassumed marginal tax rate is generally the higheststatutory rate of tax in effect for each prior yearunder R&TC Sections 17041 and 23151. Thismethod eliminates the need to refigure your taxliability based on actual contract price and actualcontract costs each time the look-back methodis applied.If you elect the simplified method, it must be used inthe election year and all later years, unless FTB con-sents to a revocation of the election. Use Part II tofigure the simplified marginal impact method.
CWho Must File
File form FTB 3834 for each taxable or income yearin which a long-term contract, as described above, iscompleted. You also must file form FTB 3834 for anytax year in which the contract price or contract costsare adjusted for one or more long-term contractsfrom a prior year.See the instructions for federal Form 8697, InterestComputation Under the Look-Back Method forCompleted Long-Term Contracts, for more informa-tion about filing requirements such as how to deter-mine whether the look-back interest computation isrequired at the entity or ownership level in the caseof a passthrough entity (partnership, S corporation,or trust).
DExceptions
The look-back method does not apply to regular tax-able income from:
any home construction contract (as defined inIRC Section 460(e)(6)(A));
any construction contract entered into that:(a) you estimate the contract will be completedwithin 2 years from the contract commencementdate, and(b) average annual gross receipts for the 3 taxa-ble or income years before the taxable or incomeyear the contract is entered into do not exceed$10 million (see IRC Section 460(e)); or
any contract completed within 2 years from thecontract commencement date if the gross priceof the contract (as of contract completion) doesnot exceed the smaller of:(a) $1 million, or(b) 1% of average annual gross receipts for the3 tax years before the tax year of contract com-pletion (see IRC Section 460(b)(3)(B)).The contract commencement date is the first date onwhich any costs (other than bidding expenses orexpenses incurred in connection with negotiating thecontract) allocable to the contract are incurred. Formore information see IRC Section 460(g).
EWhen to File
File form FTB 3834 at the time you are required tofile your California tax return (including extensions)for your taxable or income year in which one ormore long-term contracts are completed (or at anyother time required by IRC Section 460 or the regu-lations thereunder).
Individuals, limited liability companies, partner-ships and estates and trusts must sign Side2and file form FTB3834 as a separate return (do
not
attach it to Form540, 540NR, 541, 565, or568).
Corporations and exempt organizations mustenter the interest due or to be refunded on theappropriate line of their return and attach formFTB 3834 to their Form 100, 100S or 109. Seeinstructions for Part I, line 9 and line 10.
Note:
Corporations, S corporations and exemptorganizations are not required to sign formFTB 3834.If you were an owner of an interest in a pass-through entity that has completed one or more long-term contracts, file form FTB 3834 for your taxableor income year that ends with or includes the end ofthe entity’s taxable or income year in which the con-tract was completed.
FPeriod Covered
Fill in the taxable or income year line at the top ofthe form to show the year of contract completion oradjustment for which the form is being filed.If you were an owner of an interest in a pass-through entity that has completed one or more long-term contracts, enter your taxable or income yearthat ends with or includes the end of the entity’s tax-able or income year in which the contract wascompleted.
GAlternative Minimum TaxableIncome
If you apply the percentage of completion method toincome from a long-term contract only for purposesof determining alternative minimum taxable income,you must apply the look-back method to the alterna-tive minimum taxable income in the year of contractcompletion. This rule applies whether or not you areliable for alternative minimum tax for the filing yearor for any prior taxable or income year.Interest is computed under the look-back method tothe extent your total tax liability (including the alter-native minimum tax liability) would have differed ifthe percentage of completion method had beenapplied using actual, rather than estimated, contractprice and contract costs.
HAmended Form FTB 3834
Individuals, limited liability companies, partnershipsand estates and trusts must file an amended formFTB3834 only if the amount shown on PartI, line6or PartII, line7 for any prior year changes as aresult of an error, an income tax examination or thefiling of an amended income tax return.
IS Corporations
S corporations using Part II, the Simplified MarginalImpact Method, must complete form FTB3834 foreach completed long-term contract to compute theinterest due from or to be refunded to theScorporation as a result of the franchise tax. AnScorporatiion cannot file form FTB3834 on behalfof its shareholders. Shareholders of theScorporation must make a separate election and fileform FTB3834 using the applicable individual rates.
JMiscellaneous
If more than three prior years are involved, checkthe box above PartI, Side1 of form FTB3834.Attach additional form(s) FTB3834 as needed. Donot sign the additional forms. Enter your name, iden-tifying number and taxable or income year. CompletePart1, line1 through line8; or PartII, line1 throughline9; but do not enter totals in column(d). Entertotals
only
in column(d) of the form FTB3834 thatyou sign.When applying the look-back method under specialsituations, such as:
change orders;
delayed reapplication method;
treatment of amounts properly taken into accountafter contract completion; and
ten percent method;follow the instructions in federal Form 8697.
Specific Line InstructionsPart I — Regular Method
Use Part I only if you are not electing, do not havean election in effect, or are not required to use thesimplified marginal impact method as described inGeneral Instruction B.
Columns (a), (b) and (c) –
Enter at the top of eachcolumn the ending month and year for each priortaxable or income year in which you were requiredto report income from the completed long-termcontract(s), and any other year affected.
Line 2 –
In each column, show a net increase toincome as a positive amount and a net decrease toincome as a negative amount.In figuring the net adjustment to enter in each col-umn on line 2, be sure to take into account anyother income and expense adjustments that mayresult from the increase (or decrease) to incomefrom long-term contracts (e.g., in the case of an indi-vidual, a change to adjusted gross income mayaffect investment expenses and medical expensesunder R&TC Section 17201; in the case of a corpo-ration, the apportionment percentage may beaffected by a change in the gross receipts includedin the sales factor).Attach separate schedules for regular taxableincome and alternative minimum taxable income thatinclude:
identification of each completed long-term con-tract by contract number, job name, or any otherreasonable method used in your records to iden-tify each contract;
the amount of income previously reported foreach contract based on estimated contract priceand costs for each prior year;
the amount of income for each contract allocableto each prior year based on actual contract priceand costs;
the net adjustment to income from long-termcontracts for each prior year; and

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