Specific Instructions

Recomputation Year

Fill in the recomputation year line at the top of the form to show the tax year for which this form is being filed. If you were an owner of an interest in a pass-through entity that has depreciated one or more properties under the income forecast method, enter your tax year that ends with or includes the end of the entity's recomputation year.

Name

Enter the name shown on your Federal income tax return for the recomputation 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.

P.O. Box

Enter your box number instead of your street address only if your post office does not deliver mail to your home.

Foreign Address

Enter the information in the following order: city, province or state, and country. Follow the country's practice for entering the postal code. Please do not abbreviate the country name.

Identifying Number

If you are an individual, enter your social security number. Other filers must use their EIN.

Recomputation year column

Enter the month and year for the recomputation 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 tax year prior to the recomputation year in which you depreciated property under the income forecast method to which this form applies and

  • Any other tax year affected by such years.

Note.

If there are more than 2 prior tax years, attach additional Forms 8866 as needed. On the additional Forms 8866, 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 8866.

Line 1

Do not reduce taxable income or increase a loss on line 1 by any carryback of a net operating loss, net section 1256 contracts loss, or capital loss, except to the extent that carryback resulted from or was adjusted by the redetermination of depreciation under the income forecast method for look-back purposes.

Line 2

In each column, show a net increase to taxable income as a positive amount and a net decrease 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 depreciation under the income forecast method (for example, for an individual, a change to adjusted gross income may affect medical expenses).

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 property depreciated under the income forecast method to which this form applies.

  2. For each property, report in columns for each prior year: (a) the amount of depreciation previously deducted based on estimated future income and (b) the amount of depreciation allowable for each prior year based on actual income earned before the end of the recomputation year and estimated future income to be earned after the recomputation year. Total the columns for each prior year and show the net adjustment to depreciation.

  3. Identify any other adjustments that result from a change in depreciation under the income forecast method and show the amounts in the columns for the affected years so that the net 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 with respect to prior years. The entity should provide the line 2 amounts with Schedule K-1 or on a separate statement for its recomputation year.

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 depreciation under the income forecast method.

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. However, the computation period for computing interest on NOLs is different. See the exceptions listed on lines 7 and 8 below.

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 additional child tax credit, the credit for Federal tax paid 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 (except to the extent of carrybacks that resulted from or were adjusted by the redetermination of depreciation for look-back purposes). Include on lines 4 and 5 any taxes (such as alternative minimum tax) required to be taken into account in the computation of your tax liability (as originally reported or as redetermined).

Line 6

Pass-through entities. Multiply the amount on line 2 by the applicable regular tax rate for each prior year shown in column (a) or (b). The applicable regular tax rate is as follows.

1.   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. The rates for tax years beginning:
a. In 2000 or earlier 39.6%
b. In 2001 39.1%
c. In 2002 38.6%
d. In 2003 through 2012 35.0%
e. In 2013 or later 39.6%

2.   All other pass-through entities not included in 1 above: 35%.

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 recomputation year, or

  • The date the return for the recomputation year is filed and any income tax due for that year has been fully paid.

Exceptions

  • 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 due to refiguring depreciation under the income forecast method, 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 depreciation deducted 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 Jan. 1, 2004).

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.

Line 9

Additional interest to be refunded for periods after the due date of the return, if any, will be computed by the IRS and included in your refund. Report the amount on line 9 (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.

Line 10

Corporations (other than S corporations) may deduct this amount (or the amount computed by the IRS if different) as interest expense for the tax year in which it is paid or incurred. For individuals and other taxpayers, this interest is not deductible.

Table 1  
Interest Rates for Non-corporate Taxpayers

From Through Rate Table Page
1/1/04 3/31/04 4% 61 615
4/1/04 6/30/04 5% 63 617
7/1/04 9/30/04 4% 61 615
10/1/04 12/31/04 5% 63 617
1/1/05 3/31/05 5% 15 569
4/1/05 9/30/05 6% 17 571
10/1/05 6/30/06 7% 19 573
7/1/06 12/31/07 8% 21 575
1/1/08 3/31/08 7% 67 621
4/1/08 6/30/08 6% 65 619
7/1/08 9/30/08 5% 63 617
10/1/08 12/31/08 6% 65 619
1/1/09 3/31/09 5% 15 569
4/1/09 12/31/10 4% 13 567
1/11/11 3/31/11 3% 11 565
4/1/11 9/30/11 4% 13 567
10/1/11 12/31/11 3% 11 565
1/1/12 12/31/12 3% 59 613
1/1/13 9/30/13 3% 11 565

Table 2 
Interest Rates for Corporate Increases or Decreases in Tax of $10,000 or Less

From Through Rate Table Page    
1/1/04 3/31/04 3% 59 613    
4/1/04 6/30/04 4% 61 615    
7/1/04 9/30/04 3% 59 613    
10/1/04 12/31/04 4% 61 615    
1/1/05 3/31/05 4% 13 567    
4/1/05 9/30/05 5% 15 569    
10/1/05 6/30/06 6% 17 571    
7/1/06 12/31/07 7% 19 573    
1/1/08 3/31/08 6% 65 619    
4/1/08 6/30/08 5% 63 617    
7/1/08 9/30/08 4% 61 615    
10/1/08 12/31/08 5% 63 617    
1/1/09 3/31/09 4% 13 567    
4/1/09 12/31/10 3% 11 565    
1/1/11 3/31/11 2% 9 563    
4/1/11 9/30/11 3% 11 565    
10/1/11 12/31/11 2% 9 563    
1/1/12 12/31/12 2% 57 611    
1/1/13 9/30/13 2% 9 563    

Table 3  
Interest Rates for Corporate Increases or Decreases in Tax Exceeding $10,000

From Through Rate Table Page  
1/1/04 3/31/04 1.5% 56 610  
4/1/04 6/30/04 2.5% 58 612  
7/1/04 9/30/04 1.5% 56 610  
10/1/04 12/31/04 2.5% 58 612  
1/1/05 3/31/05 2.5% 10 564  
4/1/05 9/30/05 3.5% 12 566  
10/1/05 6/30/06 4.5% 14 568  
7/1/06 12/31/07 5.5% 16 570  
1/1/08 3/31/08 4.5% 62 616  
4/1/08 6/30/08 3.5% 60 614  
7/1/08 9/30/08 2.5% 58 612  
10/1/08 12/31/08 3.5% 60 614  
1/1/09 3/31/09 2.5% 10 564  
4/1/09 12/31/10 1.5% 8 562  
1/1/11 3/31/11 0.5%  
4/1/11 9/30/11 1.5% 8 562  
10/1/11 9/30/13 0.5%  


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