Look-back Rule

Look-back Rule means:
a method for recomputing prior-year tax liability based on the actual contract price and actual contract costs when a long-term contract is completed. Taxpayers using the percentage of completion method for reporting revenue from long-term contracts are required to use the look-back rule. The taxpayer will pay interest on an underpaid tax liability and receive interest on an overpaid liability.

The look-back method is not required on any contracts completed within 2 years if the gross contract price does not exceed the lesser of $1 million or 1% of the taxpayer's average annual gross receipts for the 3 tax years preceding the year in which the contract was completed.