IRS Reviews Paperwork Burdens for Long-Term Contracts and Wagering

IRS Opens Comment Period on Tax Compliance Forms

The IRS is seeking public comment on the information collection requirements associated with two distinct tax areas: long-term construction contracts under Section 460 of the Internal Revenue Code, and wagering taxes reported on Form 11-C. This action, required by the Paperwork Reduction Act (PRA), allows the IRS to assess the burden of its information requests. Specifically, the IRS is updating burden estimates for long-term contracts and removing trusts and estates from the control number associated with those regulations. Section 460 governs the accounting methods for "long-term contracts," defined as any contract for the manufacture, building, installation, or construction of property if the contract is not completed within the same taxable year it was entered into.

Deep Dive: Construction Contracts and the 'Look-Back' Rule

As previously noted, Section 460 governs the accounting methods for "long-term contracts," defined as any contract for the manufacture, building, installation, or construction of property if the contract is not completed within the same taxable year it was entered into. Section 460 generally requires taxpayers to determine taxable income from a long-term contract using the percentage-of-completion method (PCM). Under PCM, taxpayers must recognize income and expenses throughout the duration of the contract, rather than waiting until completion. The income recognized in a given year is based on the ratio of costs incurred to date to the total estimated costs.

Furthermore, Section 460(b) requires the use of the "Look-Back Method." This method mandates an interest calculation upon the completion of a long-term contract. The Look-Back Method corrects for the inherent inaccuracy of the estimates used under PCM. Taxpayers must "look back" to each year the contract was in progress and re-calculate their tax liability using the actual final contract price and costs instead of the estimates, paying or receiving interest to reflect the difference.

The IRS is revising its information collection regarding Section 460. Specifically, the estimated burden for trusts and estates filing Form 8697, used to report and calculate interest under the Look-Back Method, has been removed from OMB control number 1545-1732. This burden is now accounted for under OMB control number 1545–0092. This change affects businesses and other for-profit organizations. The IRS estimates approximately 75,000 responses related to this information collection.

Deep Dive: Wagering Tax Registration (Form 11-C)

The previous notice concerned changes to information collection related to long-term construction contracts under Section 460 and the associated 'look-back' method interest calculations. This notice turns to the wagering excise tax.

The IRS is also seeking public comment on its information collection procedures related to Form 11-C, Occupational Tax and Registration Return for Wagering. Form 11-C serves a dual purpose related to taxes on wagering. First, it registers individuals or entities accepting wagers, as required under Section 4412 of the Internal Revenue Code. Second, it facilitates the collection of the annual stamp tax imposed by Section 4411 on those engaged in wagering activities. Section 4411 imposes a special tax of $500 per year on persons liable for the wagering excise tax (Section 4401). This is reduced to $50 if the wagers are authorized under state law.

The IRS estimates that approximately 3,900 respondents file Form 11-C annually. The estimated time burden for each response is roughly seven hours and two minutes.

Interested parties are encouraged to submit comments on this information collection. The deadline for submissions is March 30, 2026. Please direct your comments to Andres Garcia, following the instructions provided in the "Industry Impact and Comment Opportunities" section below.

Industry Impact and Comment Opportunities

As described above, the IRS is seeking comments on both Form 8697, used for the look-back method under Section 460(b) for long-term contracts, and Form 11-C, related to the wagering tax imposed by Section 4411.

• Construction Industry (Form 8697): Construction companies that engage in long-term contracts, particularly those that do not meet the exceptions for the look-back method, are directly affected. This includes developers, general contractors, and subcontractors involved in large-scale projects. Winners are those who accurately estimate costs, while losers potentially face interest payments if their actual profits exceed estimates, as they may owe interest to the IRS under the look-back method. Conversely, if costs are underestimated, they may be entitled to an interest refund.
• Gaming Industry (Form 11-C): This impacts individuals and entities involved in accepting wagers. This includes casinos, sports betting operators, and potentially Daily Fantasy Sports (DFS) companies, depending on how state and federal laws are interpreted. The distinction between the $50 (state-authorized) and $500 (unauthorized) tax rate under Section 4411 is a critical compliance matter.

While these are routine Paperwork Reduction Act (PRA) renewals, they present an opportunity for tax practitioners and affected industries to voice concerns regarding the time and cost burden associated with these forms. Specifically:

• Burden Reduction: Commenters can suggest ways to minimize the burden of information collection, potentially through automated techniques or other technological solutions.
• Clarity and Utility: Feedback on enhancing the quality and clarity of the information collected is also encouraged.

Remember that all comments submitted become part of the public record. The IRS specifically invites feedback on:

• Whether the collection of information is necessary.
• The accuracy of the agency's burden estimate.
• Ways to enhance the quality, utility, and clarity of the information collected.
• Ways to minimize the burden of collection.
• Estimates of capital or start-up costs.

The deadline for submitting comments is March 30, 2026. Please direct your comments to Andres Garcia, following the instructions provided previously.