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Part 4. Examining Process

Chapter 31. Pass-Through Entity Handbook

Section 9. Centralized Partnership Audit Regime (BBA) Field Examination Procedures

4.31.9 Centralized Partnership Audit Regime (BBA) Field Examination Procedures

Manual Transmittal

May 08, 2026

Purpose

(1) This transmits revised IRM 4.31.9, Pass-Through Entities, Centralized Partnership Audit Regime (BBA) Field Examination Procedures.

Material Changes

(1) The chapter title of the IRM was changed from Pass-Through Entity Handbook to Pass-Through Entities.

(2) Reorganized paragraphs with new references within this IRM. See table below for summary:

Prior IRM Reference: New IRM Reference:
4.31.9.1.3(1) 4.31.9.1.3(7)
4.31.9.1.3(4) 4.31.9.1.3(8)
4.31.9.3(1)(b) 4.31.9.3(1)(c)
4.31.9.6.5(4) 4.31.9.6.5(3)
4.31.9.6.5(5) 4.31.9.6.5(2)
4.31.9.6.5(6) 4.31.9.6.5.(2)
4.31.9.6.5(10) 4.31.9.6.5(4)
4.31.9.6.5(11) 4.31.9.6.5(5)
4.31.9.6.5(12) 4.31.9.6.5(6)
4.31.9.6.8(1) 4.31.9.6.8(2)
4.31.9.6.8(2) 4.31.9.6.8(3)
4.31.9.6.9(4)(c) 4.31.9.6.9(4)(d)
4.31.9.6.9(4)(d) 4.31.9.6.9(4)(e)
4.31.9.7.2(1)(a) 4.31.9.7.2(2)
4.31.9.7.2(1)(b) 4.31.9.7.2(3)
4.31.9.7.2(1)(c) 4.31.9.7.2(4)
4.31.9.7.2(1)(d) 4.31.9.7.2(5)
4.31.9.7.2(1)(e) 4.31.9.7.2(6)(a)
4.31.9.7.2(1)(f) 4.31.9.7.2(6)(b)
4.31.9.7.2(1)(g) 4.31.9.7.2(7)
4.31.9.7.2(1)(h) 4.31.9.7.2(8)
4.31.9.7.2(2) 4.31.9.7.2(11)
4.31.9.7.4.1(3) 4.31.9.7.4.1(4)
4.31.9.7.4.3(1)(a) – (c) 4.31.9.7.4.3(2)
4.31.9.7.4.3(2) 4.31.9.7.4.3(3)
4.31.9.7.4.3(3) 4.31.9.7.4.3(4)
4.31.9.7.5(3) 4.31.9.7.5(4)
4.31.9.7.5(3)(a) through (c) 4.31.9.7.5(4)(a) through (c)
4.31.9.7.5(4) 4.31.9.7.5(5)
4.31.9.7.6.3(3) 4.31.9.7.6.3(4)
4.31.9.7.6.4(3) 4.31.9.7.6.4(4)
4.31.9.7.6.4(4) 4.31.9.7.6.4(5)
4.31.9.7.6.4(7) 4.31.9.7.6.4(6)
4.31.9.7.6.6(2) 4.31.9.7.6.6(1) - Merged
4.31.9.7.6.6(2)(a)-(c) 4.31.9.7.6.6(3)
4.31.9.7.6.6(3) 4.31.9.7.6.6(2)
4.31.9.7.6.6(4)(a) 4.31.9.7.6.6(5) and (7)
4.31.9.7.6.8(5) 4.31.9.7.6.8(6)
4.31.9.7.6.8(6) 4.31.9.7.6.8(7)
4.31.9.7.7(6) 4.31.9.7.7.1(17)
4.31.9.7.8(5)(a)-(b) 4.31.9.7.8(4)(a)-(b)
4.31.9.7.8(5)(c) 4.31.9.7.8(6) and (6)(a)
4.31.9.7.8(6) 4.31.9.7.8(8)
4.31.9.7.8(7) 4.31.9.7.8(10)
4.31.9.7.8(8) 4.31.9.7.8(11)
4.31.9.7.8(9) 4.31.9.7.8(12)
4.31.9.8.1.2(1)(c) 4.31.9.8.1.2(1)(b)
4.31.9.8.1.2(1)(d) 4.31.9.8.1.2(1)(c)
4.31.9.8.4.3(12) 4.31.9.8.4.3(13)
4.31.9.8.4.3(12)(a)-(b) 4.31.9.8.4.3(13)(a)-(b)
4.31.9.8.4.3(13) 4.31.9.8.4.3(14)
4.31.9.8.4.3(14) 4.31.9.8.4.3(15)
4.31.9.8.4.3(15) 4.31.9.8.4.3(16)
4.31.9.8.4.3(16) 4.31.9.8.4.3(17)
4.31.9.8.4.3(17) 4.31.9.8.4.3(18)
4.31.9.9.1(3) 4.31.9.9.1(4)
4.31.9.9.1(4) 4.31.9.9.1(5)
4.31.9.9.2.9 4.31.9.9.2.10
4.31.9.9.2.9(2)(a) 4.31.9.9.2.10(2)(b)
4.31.9.9.2.9(2)(b) 4.31.9.9.2.10(2)(c)
4.31.9.9.2.9(2)(c) 4.31.9.9.2.10(2)(d)
4.31.9.9.3.3(3)(b) 4.31.9.9.3.3(3)(c)
4.31.9.11.1(3) 4.31.9.11.1(4)
4.31.9.11.1(4) 4.31.9.11.1(5)
4.31.9.11.5 4.31.9.11.6
4.31.9.12(1)-(8) 4.31.9.13(1)-(8)
4.31.9.12.1(1) 4.31.9.13.1(1)
4.31.9.12.2(1)-(3) 4.31.9.13.2(1)-(3)
4.31.9.12.3(1)-(11) 4.31.9.13.3(1)-(11)

(3) Renumbered figure numbers to accommodate for new figures added to the IRM. See table below for summary:

Prior Figure Reference: New Figure Reference:
None - New figure Figure 4.31.9-1
None - New figure Figure 4.31.9-2
None - New figure Figure 4.31.9-3
Figure 4.31.9-1 Figure 4.31.9-4
Figure 4.31.9-2 Figure 4.31.9-5
Figure 4.31.9-3 Figure 4.31.9-6
Figure 4.31.9-4 Figure 4.31.9-7
Figure 4.31.9-5 Figure 4.31.9-8
Figure 4.31.9-6 Figure 4.31.9-9
Figure 4.31.9-7 Figure 4.31.9-10
Figure 4.31.9-8 Figure 4.31.9-11
Figure 4.31.9-9 Figure 4.31.9-12
Figure 4.31.9-10 Figure 4.31.9-13
Figure 4.31.9-11 Figure 4.31.9-14
Figure 4.31.9-12 Figure 4.31.9-15
Figure 4.31.9-13 Figure 4.31.9-16
Figure 4.31.9-14 Figure 4.31.9-17
Figure 4.31.9-15 Figure 4.31.9-18
Figure 4.31.9-16 Figure 4.31.9-19
None - New figure Figure 4.31.9-20
None - New figure Figure 4.31.9-21

(4) Reorganized and renamed subsection titles, and introduced new subsections as listed below:

Prior IRM Cite and Title New IRM Cite and Title
None - New IRM procedures IRM 4.31.9.9.2.7.1, Special IU Recalculation Rules
None - New IRM procedures IRM 4.31.9.9.2.9, Consistent Application of IRS Discretion to Treat an Adjustment as Zero for Computing an IU
IRM 4.31.9.9.2.9, Partnership Treatment and Allocation of Adjustments that do not Result in an Imputed Underpayment IRM 4.31.9.9.2.10, Partnership Treatment and Allocation of Adjustments that do not Result in an Imputed Underpayment
None - New IRM procedures IRM 4.31.9.9.5, Available Alternative Dispute Resolutions (ADRs) for BBA Partnerships
None - New IRM procedures IRM 4.31.9.12, Special Enforcement Matters for Partnership-Related Items
None - New IRM procedures IRM 4.31.9.12.1, Applicable Dates of Special Enforcement Matters
None - New IRM procedures IRM 4.31.9.12.2, Conditions for Special Enforcement Activities
None - New IRM procedures IRM 4.31.9.12.3, Notification Requirements When BBA Does Not Apply Due to Special Enforcement Matters
None - New IRM procedures IRM 4.31.9.11.5, LB&I Paperless Case Closing to Technical Services
IRM 4.31.9.11.5, BBA Imminent Statute Procedures IRM 4.31.9.11.6, BBA Imminent Statute Procedures
IRM 4.31.9.12, Early Elections IRM 4.31.9.13, Early Elections
IRM 4.31.9.12.1, Information to be Included in the Election Statement IRM 4.31.9.13.1, Information to be Included in the Election Statement
IRM 4.31.9.12.2, Examiner Procedures IRM 4.31.9.13.2, Examiner Procedures
IRM 4.31.9.12.3, Early Elections Made with Administrative Adjustment Requests (AARs) IRM 4.31.9.13.3, Early Elections Made with Administrative Adjustment Requests (AARs)

(5) IRM 4.31.9.1, Program Scope and Objectives:

  1. Paragraph (3) - Added Director, Pass-Through Entities Practice Area.

  2. Paragraph (6) - Added contact information.

(6) IRM 4.31.9.1.3, Roles and Responsibilities:

  1. Paragraph (1) - Moved prior content to new paragraph (7).

  2. Paragraph (3) - Added roles and responsibilities for Director of Field Operations (DFO), Pass-Throughs and DFO, Global High Wealth and High Income Compliance Strategy.

  3. Paragraph (4) - Moved prior content to new paragraph (8); Replaced with roles and responsibilities for PTE territory managers.

  4. Paragraph (5) - Added roles and responsibilities for PTE team managers.

  5. Paragraph (6) - Added roles and responsibilities for field exam revenue agents conducting BBA examinations.

  6. Paragraph (7) - Contains content from prior paragraph (7).

  7. Paragraph (8) - Contains content from prior paragraph (4); Added Publication 1 reference.

(7) IRM 4.31.9.1.5, Program Controls:

  1. Paragraph (1) - Removed Technical Services monitoring the reporting of BBA return identification and replaced with Audit Information Management System (AIMS) and Integrated Data Retrieval System (IDRS) to monitor inventory, input status changes, adjustments, and case closing actions.

  2. Paragraph (2) - Added Examination Returns Control System (ERCS) to request, update and close returns under examination.

(8) IRM 4.31.9.1.6(1), Terms/Definitions/Acronyms:

  1. Reordered terms in alphabetical order.

  2. Added terms and definitions for: Authorized person, Modification, and Terminal partner.

  3. Updated definition for Push Out to clarify push out adjustments to reviewed year partners.

  4. Added acronyms: AC, ADR, AIMS, ASED, BMF, CFD, CFR, DC, EIN, ERCS, EUP, FIRPTA, FTS, GP, IDRS, IIC, IMD, IMS, IRC, ITC, LB&I, LLC, LP, MSNC, NESE, PAP, PMAR, QBI, RGS, SAIN, SB/SE, SOL, SPDER, TMP, TWS, UBIA and UIL.

  5. Added acronym, TDC, from Internal Revenue Procedural Update (IPU) 24U0896.

(9) IRM 4.31.9.2, General Guidelines:

  1. Paragraph (1) - Clarified partnership must designate a partnership representative (PR) for each tax year.

  2. Paragraph (3) - Clarified that adjustments to partnership related items (PRIs) are generally determined and assessed at the partnership level.

  3. Paragraph (4) - Clarified no-change cases (no PCS linkage) are closed directly from the field to Centralized Case Processing (CCP).

(10) IRM 4.31.9.3, Delinquent Return and Substitute for Return (SFR):

  1. Paragraph (1) - Clarified delinquent returns and SFRs are not timely returns; Clarified election out of BBA can only be made on the eligible partnership’s timely filed return rather than the original timely filed return in situations where the partnership files a superseded return over the initial originally filed return prior to the original due date of the return.

  2. Paragraph (1)(b) - Moved prior content to new paragraph (1)(c). Added clarification for situations when a partnership files a superseding return prior to the due date of the return regarding election out of BBA.

  3. Paragraph (1)(c) - Contained content from prior paragraph (1)(b).

  4. Paragraph (4) - Clarified SFRs having tax adjustments must have a completed Form 13496 including those with failure to pay penalty under IRC 6651(g) and BBA imputed underpayment.

  5. Paragraph (5) - Clarified language that relevant partners must be linked if a Ch 2/2A adjustment is pursued when there is a material adjustment to self-employment earnings or NIIT.

(11) IRM 4.31.9.3.1, Processing a Delinquent Partnership Return:

  1. Title - Renamed subsection title from “Delinquent Returns Are Processed in Accordance With IRM 4.4.9, AIMS Procedures and Processing Instructions, Delinquent and Substitute for Return Processing:” to “Processing a Delinquent Partnership Return”.

  2. Paragraph (1)(first bullet) - Clarified BBA does not allow linking and other campus checks unless it involves a Ch 2/2A examination and assessments at the partner level; Clarified language that BBA SFR must include all amounts in a BBA report by default but agent has discretion to not include if partners included it with their Schedule K-1s with their respective returns.

  3. Paragraph (1)(second bullet) - Added reminder if the return is received after SFR TC 150 has posted, the amounts on the secured return must be incorporated into an examination report and assessed as a TC 300; Added IRM reference.

  4. Paragraph (2) - Moved prior bullet sentence in regards to updating the IRC 6235(a)(1) date underneath paragraph (2) into the paragraph (2).

(12) IRM 4.31.9.3.2, Determining a Partnership Representative (PR) When the Partnership is a Non-Filer:

  1. Title - Renamed title from “Steps for Determining a Partnership Representative (PR) When the Partnership is a Non-Filer” to “Determining a Partnership Representative (PR) When the Partnership is a Non-Filer”.

  2. Paragraph (3) - Corrected IRM reference from Internal Revenue Procedural Update (IPU) 24U0896; Subsequent to IPU, updated IRM reference and subsection title.

  3. Paragraph (4) - Removed duplicate notice of administrative proceeding (NAP) letter instructions and referenced the source IRM 4.31.9.8.1, Notice of Administrative Proceeding (NAP); Changed note to reminder.

(13) IRM 4.31.9.4, Compliance Assurance Process for LB&I:

  1. Paragraph (2) - Added bullet list to include relevant IRM references for Compliance Assurance Process (CAP) post-filing instructions.

(14) IRM 4.31.9.6, BBA Scope - Adjustments at the BBA Level:

  1. Paragraph (2) - Added new Treas. Reg. 301.6241-1(a)(6) reference.

  2. Paragraph (3)(b) - Clarified note that the item described within the note is not a PRI.

  3. Paragraph (5)(e) - Added Chapter 2 Self-Employment Contributions Act (SECA) as an example that is not a PRI.

  4. Paragraph (5)(f) - Added Chapter 2A Net Investment Income Tax (NIIT) as an example that is not a PRI.

  5. Paragraph (6) - Clarified two types of partnership-related items and their description.

  6. Paragraph (7) - Introduced examples of how partnership-related and non partnership-related items are adjusted or reported.

(15) IRM 4.31.9.6.2, Auditing Chapters 2 & 2A (Ch 2/2A) - BBA Partnership is the Key Case:

  1. Paragraph (1) - Updated applicable years for the Schedule K and K-1 line references

  2. Paragraph (1)(first bullet) - Instructed to see Form 15263 to determine relevant partners.

  3. Paragraph (4) - Clarified field examiner instructions when to link or control relevant partners for NIIT-SECA issues; Added instructions for examiners to issue Form 4549 for agreed case or Form 4549-A for unagreed case that will reflect SECA or NIIT adjustments; Moved BBA key case scenarios table to new paragraph (5).

  4. Paragraph (5) - Contained BBA key case scenarios tables from prior paragraph (4); Clarified BBA key case scenarios and exam procedures for auditing Chapter 2/2A issues.

(16) IRM 4.31.9.6.3, Auditing Chapters 2 & 2A (Ch 2/2A) – Form 1040 is the Key Case:

  1. Paragraph (3) - Removed the specific step about examiners adjusting PRIs themselves and instead says more generally that any relevant adjustments can be used to figure and assess the extra Chapter 2/2A taxes under Treas. Reg. 301.6241-6.

  2. Paragraph (4) - Replaced investor with partner; Clarified which examination letters to issue if the partner is or is not under audit regarding Ch 2/2A issues.

(17) IRM 4.31.9.6.4, BBA Linkage Procedures:

  1. Paragraph (1) - Removed instructions related to the “possibility” of linkage since linkage is now the default process to assess Ch2/2A taxes at the partner level.

  2. Paragraph (5) - Removed instructions regarding the transfer of cases to Technical Services when audit of non-pass-through issues is complete and NIIT and/or SECA coverage issues; Clarified to secure partner statute extension using the version of Form 872 appropriate for each partner; Simplified instructions to refer to procedures within IRM 4.31.9.6.2 and IRM 4.31.9.6.5 for examiner controlling a partner’s return.

  3. Paragraph (6) - Clarified instructions to update ERCS first via Form 5348 with Ch 2/2A code before submitting linkage package; Updated the terms used on Form 15264 and definitions for value 1, 2, and 3 when updating Form 5348.

(18) IRM 4.31.9.6.5, Processing Partner Non-Pass-Through Adjustments:

  1. Paragraph (2) - Removed procedures from prior alpha list and clarified available options and required actions into a table format for processing a partner no-change or survey case.

  2. Paragraph (3) - Replaced prior paragraph with new table showing Scenario 2- Agreed and its 2 options with respect to Ch 2/2A tax from prior paragraph (5) through (6); Clarified required actions for scenarios when the partner has less or more than 210 days on their ASED.

  3. Paragraph (4) - Replaced content from prior paragraph (10); Clarified partner IRC 6501(a) statute must be protected even if the sole partner-level issue is the NIIT or SECA coverage issue; Removed instructions regarding Appeals and Appeals and Processing Support (APS) for processing an agreement.

  4. Paragraph (5) - Replaced content from prior paragraph (11); Clarified if individual does not agree with their non-pass-through adjustments (requiring statutory notice of deficiency (SND)), the examiner must close Form 1040 to Technical Service pass-through coordinator (TSPC) due to linkage instead of the local Technical Services; TSPC will route the case to local Technical Services to issue SND.

  5. Paragraph (6) - Replaced content from prior paragraph (12); Replaced “investor audit” with “partner audit.”

(19) IRM 4.31.9.6.6, Non-PRI Report Writing:

  1. Paragraph (3) - Removed reference to Form 1065 for tax year 2018-2021.

  2. Paragraph (5) - Clarified the examiner must prepare Form 886-A for each partner and Form 886-S that includes all partners receiving an allocable share of the non-PRI adjustments.

(20) IRM 4.31.9.6.8, Examples of Partnership-level Audits:

  1. Paragraph (1) - Moved prior content to new paragraph (2); Instructed examiner to contact BBA point of contact (POC) if partnership exam year involves adjustments impacting Chapters 2, 2A, 3 and 4.

  2. Paragraph (2) - Contained content from prior paragraph (1); Clarified example related to net earnings from self-employment (NESE) adjustments and the examiner does not challenge the taxpayer’s position.

  3. Paragraph (3) - Contained content from prior paragraph (2); Clarified example related to NIIT adjustments and the examiner does not challenge the taxpayer’s position.

(21) IRM 4.31.9.6.9, Auditing Chapters 3 & 4:

  1. Paragraph (1)(a) - Removed Repatriation Book link.

  2. Paragraph (1)(b) - Added hyperlink to Withholding Practice Network.

  3. Paragraph (3)(b) - Added effectively connected income (ECI) along with existing fixed, determinable, annual or periodical (FDAP) income; Clarified third parties to foreign persons.

  4. Paragraph (4)(c) - Moved prior content to new paragraph (4)(d); Replaced prior content with another example regarding determination that income paid to foreign partners is not ECI, but FDAP that is taxed on a gross basis.

  5. Paragraph (4)(d) - Moved prior content to new paragraph (4)(e); Contained content from prior paragraph (4)(c); Clarified determination that a partnership has U.S. rather than foreign source income.

  6. Paragraph (4)(e) - Contained content from prior paragraph (4)(d).

(22) IRM 4.31.9.7, Planning the Examination:

  1. Paragraph (2) - Added to consider statutory rules under IRC 6235(c) that extend the SOL when deciding whether to open a case with less than 12 months remaining on the SOL.

  2. Paragraph (3) - Clarified tax computation specialist (TCS) is responsible for Form 14791 and Form 14792 towards the end of the examination process.

  3. Paragraph (3)(b) - Clarified SB/SE field exam can request TCS when either Form 886-A or lead sheets have been finalized.

(23) IRM 4.31.9.7.1, Risk Analysis:

  1. Paragraph (1)(a) - Removed instructions regarding subsequent filing would constitute the starting point for any risk analysis and issue consideration despite that all filings will be considered during the risk analysis.

  2. Paragraph (1)(b) - Added condition code “G” to TC 976.

  3. Paragraph (1)(c) - Added BBA POC is required when there is a subsequent filing and BBA POC will help determine starting point of an examination if there is a subsequent filing.

  4. Paragraph (1)(d) - Removed sentence regarding the examiner should consider all adjustments reported on the subsequent filings in addition to Form 1065.

  5. Paragraph (2)(a) - Added IRM 4.31.9.6(7) reference as additional guidance for making adjustments to nondeductible expenses.

(24) IRM 4.31.9.7.2, Mandatory Referral to the BBA Point of Contact (POC):

  1. Paragraph (1) - Rephrased to list all the situations from alpha list to paragraph form.

  2. Paragraph (2) - Moved prior content to new paragraph (11); Contained content from prior paragraph (1)(a).

  3. Paragraph (3) - Contained content from prior paragraph (1)(b) and converted content into a new alpha list; Clarified three automatic denials for election out under IRC 6221(b) that do not require a BBA POC.

  4. Paragraph (4) - Contained content from prior paragraph (1)(c).

  5. Paragraph (5) - Contained content from prior paragraph (1)(d).

  6. Paragraph (6) - Contained content from prior paragraph (1)(e) and (1)(f) and further expanded imputed underpayment issues, which will require a BBA POC.

  7. Paragraph (7) - Contained content from prior paragraph (1)(g).

  8. Paragraph (8) - Contained content from prior paragraph (1)(h) and further clarified into a new note to make BBA POC referral prior to updating IRC 6235(a)(1) and to inform the BBA POC if the subsequent return filing is related to foreign tax redetermination.

  9. Paragraph (9) - Added new criteria requiring a BBA POC regarding extension to entities filing partnership return under IRC 6241(8).

  10. Paragraph (10) - Added new criteria requiring a BBA POC regarding special enforcement matters under IRC 6241(11).

  11. Paragraph (11) - Contained content from prior paragraph (2); Updated instructions for LB&I and SB/SE inquiry submissions.

(25) IRM 4.31.9.7.3, Determine if a Partnership is Subject to the BBA Regime:

  1. Paragraph (6) - Added another consideration for extending BBA procedures to other entities under IRC 6241(8) when determining if a partnership is subject to BBA regime.

(26) IRM 4.31.9.7.3.1, Extending BBA Procedures to Other Entities:

  1. New subsection to introduce new procedures when examiners encounter entities filing partnership returns even if it is determined that such entity is not a partnership under IRC 6241(8).

(27) IRM 4.31.9.7.3.1.1, Special Procedures for Unposted Filed Returns:

  1. New subsection to introduce new procedures when examiners encounter unposted filed returns under IRC 6241(8).

(28) IRM 4.31.9.7.4, Election Out of the BBA - Tax Periods Beginning On or After 1/1/2018:

  1. Paragraph (1) - Clarified an election out is deemed valid until IRS determines that the election is invalid; Added Treas. Reg. 301.6221(b)-1(e)(1) reference.

  2. Paragraph (2) - Replaced note with a new table to clarify the location of the BBA opt out election question on Form 1065 or Form 1066, Schedule B, based on existing tax year forms.

  3. Paragraph (3) - Added new Treasury Reg. 301.6221(b)-1(c)(2) reference.

(29) IRM 4.31.9.7.4.1, Determining if an Election Was Made Timely:

  1. Paragraph (1) - Added IRC 6221(b)(1)(D)(i) reference that requires the elect-out election be made with a timely filed return thus non-filers cannot elect out.

  2. Paragraph (3) - Move prior content to new paragraph (4); Added IRS has authority under IRC 7508A to postpone certain tax deadlines and change the timely filing due date of the return depending on several external factors.

  3. Paragraph (4) - Contained content from prior paragraph (3).

(30) IRM 4.31.9.7.4.2, Eligibility to Elect Out of the BBA:

  1. Paragraph (1)(a) - Added eligible foreign entity as a partner in a partnership; Added IRM reference for criterion #1.

  2. Paragraph (1)(b) - Added IRM reference for criterion #2.

(31) IRM 4.31.9.7.4.2.1, Criterion #1 - Partnership May Only Have Certain Types of Partners (Eligible Partners):

  1. Paragraph (4) - Clarified estate of a deceased partner filing Form 1041 may issue Schedule K-1 (Form 1041)’s to its beneficiaries.

(32) IRM 4.31.9.7.4.2.2, Criterion #2 - Partnerships Required to Furnish 100 or Fewer Schedule K-1s:

  1. Paragraph (4) - Clarified Schedule K-1s furnished by the estate are not counted for purposes of determining whether the partnership has furnished 100 or fewer Schedule K-1 statements.

(33) IRM 4.31.9.7.4.3, Determination that an Election Out of the BBA is Invalid:

  1. Paragraph (1) - Moved prior content to new paragraph (2); Clarified coordination with BBA POC before notifying partnership of invalid BBA election unless the invalid election is due to late filed return, invalid partners, or over 100 Schedule K-1s.

  2. Paragraph (2) - Contained content from prior paragraph (1)(a) through (c) and clarified items to consider when taxpayers elect out of BBA.

  3. Paragraph (2)(b) - Clarified 3rd bullet to consider a mandatory BBA POC for a BBA elect-out unless it’s for reasons listed in paragraph (1).

  4. Paragraph (3) - Contained content from prior paragraph (2); Added new note partnership should be given 30 days to file a BBA AAR before the NAPs are issued if IRS has determined the election out of BBA is invalid and the partnership is subject to the BBA regime.

  5. Paragraph (4) - Contained content from prior paragraph (3); Converted from alpha list to step list to ensure the procedures are performed chronologically. Clarified to update “IRC6235A1-PPA-DEADLINE-DT” to 3 years after the Form 1065 filing date; Added guidance to check the filing date for paper return versus electronic return.

(34) IRM 4.31.9.7.5, Revocation of the Election Out:

  1. Paragraph (2) - Clarified that as a general rule, the partnership can request to revoke the election out of the BBA regime within the first 30 days after the partnership receives a Letter 2205-D from the IRS to notify an examination will take place.

  2. Paragraph (3) - Moved prior content to paragraph (4); Added an election to revoke an election out must be done a year-by-year basis.

  3. Paragraph (4) - Moved prior content to new paragraph (5); Contained content from prior paragraph (3) and (3)(a) through (3)(c).

  4. Paragraph (4)(b) - Clarified Form 1065 for the reviewed year.

  5. Paragraph (5) - Contained content from prior paragraph (4); Replaced “Revocation of the Election Out of the BBA” with Form 15288.

(35) IRM 4.31.9.7.5.1, Validate the Statement Revoking the Election Out of BBA:

  1. Paragraph (2)(b) - Clarified to update the “IRC 6235A1-PPA-DEADLINE-DT” to 3 years from the “TC150:MMDDYYYY” date.

(36) IRM 4.31.9.7.6, Partnership Representative (PR) - Incorporated additional guidance from Interim Guidance Memo (IGM) LB&I-04-1025-0010 for the following:

  1. Paragraph (1)(a) - Changed Form 1065 page 3 to Form 1065, Schedule B, Designation of Partnership Representative.

  2. Paragraph (2) - Subsequent to IGM, clarified partnership representative’s (PR) sole authority extends only to actions under Subchapter C of Chapter 63 (the BBA subchapter).

  3. Paragraph (4)(a) - Subsequent to IGM, clarified if the partnership fails to simultaneously appoint a designated individual (DI), the designation of the entity partnership representative (EPR) will be invalid; Clarified that the DI can be any individual and not required to be a partner, an employee, or have any other relations to the partnership or the PR; Clarified DI (similar to the PR) must also have substantial presence in the United States.

  4. Paragraph (6) - Clarified a valid new designation will terminate and revoke the previous PR designation for a given partnership tax year.

  5. Paragraph (7) - Clarified an authorized person can also appoint or change the designated individual; Added note to reference the definition of an authorized person.

  6. Paragraph (8) - Clarified the partnership cannot file an administrative adjustment request (AAR) for the sole purpose of changing the designation or appointment of an PR; Clarified change in designation or appointment is effective on the date the partnership files a valid AAR and the newly designated PR signs the AAR.

(37) IRM 4.31.9.7.6.2, Form 8979 - Incorporated additional guidance from Interim Guidance Memo (IGM) LB&I-04-1025-0010 for the following:

  1. Paragraph (1) - Clarified Form 8979 is the only form for a PR or DI to resign; Subsequent to IGM, clarified partnership must submit a Form 8979 for each year if the partnership wants to change the PR designation or DI appointment for multiple tax years.

  2. Paragraph (2) - Revised table to instruct who completes Form 8979 dependent on who the partnership wants to designate a PR and which party is resigning from representing the partnership.

  3. Paragraph (3) - Added reminder and provided related IRM reference to send NAP to both partnership and PR.

  4. Paragraph (4) - Clarified the PR or DI may resign by submitted Form 8979; Clarified if the resignation results in there being no PR with whom the IRS can interact, the partnership will be asked to designate a PR; Subsequent to IGM, revised IRM reference.

  5. Paragraph (5) - Converted content into table format.

(38) IRM 4.31.9.7.6.3, Multiple Designations by the Partnership Within the 90-day Period - Incorporated additional guidance from Interim Guidance Memo (IGM) LB&I-04-1025-0010 for the following:

  1. Title - Changed title from “Multiple Revocations by the Partnership Within the 90-day Period” to revocations” to “Multiple Designations by the Partnership Within the 90-day Period.”

  2. Paragraph (1) - Added Treasury Reg. 301.6223-1(e)(7) regarding multiple designations within the 90-day period.

  3. Paragraph (1)(a) - Clarified the examiner may (but is not required to) determine that the last received revocation results in there being no PR designation in effect.

  4. Paragraph (1)(b) - Clarified to use Letter 6053, Letter 6007, and Letter 6008 regarding valid multiple designations; Subsequent to the IGM, added reference to Exhibit 4.31.9-3, Form 15416, and Partnership Representative Notices Summary Grid.

  5. Paragraph (2) - Clarified examiner will have only 90 days upon receiving the last Form 8979 to mail Letter 6053; Moved content regarding IRS’s selection of a PR to new paragraph (3).

  6. Paragraph (3) - Moved prior content to new paragraph (4); Added IRS will designate a PR if the examiner determines the multiple designations result in there being no PR designation; Added Treasury Reg. 301.6223-1(f) regarding IRS’s selection of a PR.

  7. Paragraph (4) - Contained content from prior paragraph (3); Clarified partnership submits Form 8979 to designate a PR of its choosing; Added reference Treasury Reg. 301.6223-1(e)(6); Subsequent to IGM, clarified that IRS cannot unreasonably withhold permission to accept the partnership’s revocation of an IRS selected PR.

(39) IRM 4.31.9.7.6.4, Form 8979 and Examiner Responsibilities - Incorporated additional guidance from Interim Guidance Memo (IGM) LB&I-04-1025-0010, which superseded Internal Revenue Procedural Update (IPU) 24U0896, for the following:

  1. Paragraph (1) - Moved some prior content to paragraph (2) regarding issuance of appropriate PR letters within 30 days of receiving Form 8979; Clarified method of acceptance of Form 8979 via fax, email, and Taxpayer Digital Communication (TDC) and acceptable original or digital signatures; Provided knowledge base link reference to electronically date stamp forms.

  2. Paragraph (2) - Contained content from prior paragraph (1) regarding issuance of appropriate PR letters within 30 days of receiving Form 8979; Added reference to Exhibit 4.31.9-3; Subsequent to IGM, added Form 15416 and Partnership Representative Notices Summary Grid as additional job aids to determine appropriate letters.

  3. Paragraph (3) - Contained content from prior paragraph (2) regarding Form 8979 filing chart road map; Removed all verification items within the alpha list and instruct staff to use Form 15416 to validate Form 8979 instead.

  4. Paragraph (4) - Contained content from prior paragraph (3); Clarified Form 8979 will require the PR, DI, or authorized person’s name and title on the form in case of resignations, designations and appointments.

  5. Paragraph (5) - Contained content from prior paragraph (4); Clarified the partnership will be asked to designate a PR if examiner cannot determine the PR or DI of record.

  6. Paragraph (6) - Removed content regarding Letter 6053, Letter 6007, and Letter 6008 and replaced with contents from prior paragraph (7); Subsequent to IGM, added Form 15416 as an additional job aid to determine appropriate letters.

(40) IRM 4.31.9.7.6.5, Identification of the Partnership Representative or Designated Individual for Letter 2205-D - Incorporated additional guidance from Interim Guidance Memo (IGM) LB&I-04-1025-0010 for the following:

  1. Paragraph (2) - Clarified location of where PR or DI is listed on Form 1065 and their TINs are no longer listed on the return; Clarified IDRS (INOLES) instructions to obtain the last known address of the PR or DI.

  2. Paragraph (3) - Clarified instructions for PR or DI designation if partnership filed a valid AAR.

  3. Paragraph (4) - Clarified instructions for PR or DI designation if partnership filed multiple valid AARs; Removed note.

  4. Paragraph (5) - Clarified location of designation of partnership representative on Schedule B of Form 1065; Clarified input instructions to say “Our records do not reflect a partnership representative for the partnership taxable year” when declaring no PR designation is in effect.

(41) IRM 4.31.9.7.6.6, Opportunity for the Partnership to Timely Designate a PR:

  1. Title - Changed title from “Providing an Opportunity to the Partnership to Make a PR Designation” to “Opportunity for the Partnership to Timely Designate a PR.”

  2. Paragraph (1) - Combined prior paragraph (2) into paragraph (1); Clarified language when IRS formally declares no PR designation in effect; Added reference to IRM 4.31.9.7.6.8, IRS’s Selection of a PR; Reformatted existing example from prior paragraph (2) and moved it under paragraph (1).

  3. Paragraph (2) - Contained content from prior paragraph (3); Clarified examiner should provide reasonable period of opportunity for the partnership to make a PR designation; Defined and provided an example of reasonable period of opportunity.

  4. Paragraph (3) - Contained examples of no PR designations from prior paragraph (2)(a)-(c); Added more examples; Added note for examiner to declare no PR designation in effect for a valid resignation.

  5. Paragraph (4) - Added instructions for examiner to contact the partnership to request the partnership to submit a valid Form 8979 after issuing Letter 2205-D; Moved instructions regarding Letter 6053 instructions per IRM 4.31.9.7.6.7 from prior paragraph (4)(a) to new paragraph (5); Moved instructions to follow IRM 4.31.9.7.6.8 regarding invalid Form 8979 received within 30-days period to new paragraph (7).

  6. Paragraph (5) - Removed prior instructions and replaced with instructions from prior paragraph (4)(a); Clarified to remove language regarding multiple invalid Forms 8979; Clarified to follow the Letter 6053 instructions when the reasonable opportunity period expires prior to receiving a valid PR designation from the partnership.

  7. Paragraph (6) - Added instructions to issue NAP letters if the examiner intends to declare “no PR designation in effect.”

  8. Paragraph (7) - Contained instructions to follow IRM 4.31.9.7.6.8 regarding invalid Form 8979 received within 30-days from prior paragraph (4)(a); Clarified procedures are applicable after the IRS formally declares no PR designation in effect.

(42) IRM 4.31.9.7.6.7, No PR Designation in Effect:

  1. Paragraph (1)(a) - Clarified designation does not exists when PR (or DI, if the PR is an entity) does not have substantial presence in the U.S.

  2. Paragraph (1)(b) - Clarified designation does not exists when partnership failed to appoint a DI if the PR is an EPR on Form 1065.

  3. Paragraph (1)(d) - Added note for examiner to declare no PR designation in effect when a valid PR or DI resignations is received but no subsequent designation.

  4. Paragraph (1)(e) - Replaced “revocations” with “designations”; Added IRM 4.31.9.7.6.3 reference.

  5. Paragraph (2) - Clarified exception note that the reasonable opportunity period no longer applies after the examiner and their manager declares no PR designation in effect.

  6. Paragraph (3) - Clarified letters to issue when examiner already issued Letter 2205-D and subsequently conclude that they should declare no PR designation in effect.

  7. Paragraph (4) - Clarified which letters to issue if there is no PR designation in effect due to a valid resignation of a PR or DI.

  8. Paragraph (5) - Clarified that if the partnership does not designate a PR within 30 days of the IRS formally declaring no PR designation in effect, the IRS will need to make the designation.

  9. Paragraph (6) - Clarified to date stamp Form 8979 if examiners receive the form after mailing the notification to the partnership that there is no PR designation in effect.

(43) IRM 4.31.9.7.6.8, IRS’s Selection of a PR:

  1. Title - Changed title from “Service’s Selection of a PR” to “IRS’s Selection of a PR.”

  2. Paragraph (3) - Clarified factors when designation of a PR is needed.

  3. Paragraph (5) - Moved prior content to paragraph (6); Added instructions to consider issuing an IDR to the partnership representative to understand various factors on determining a PR; Added note Form 8979 is the best method indicator for the partnership to communicate its preference for a PR.

  4. Paragraph (6) - Moved prior content to new paragraph (7); Contained content from prior paragraph (5).

  5. Paragraph (7) - Contained content from prior paragraph (6); Added new instructions to issue letters if partnership attempts to revoke an IRS designated PR by making a designation of another PR and examiner decide not to allow the designation.

  6. Paragraph (8) - Added instructions for examiner to document their steps and best efforts to designate a PR if they are unable to make a designation; Added IRM reference if the partnership is unresponsive.

(44) IRM 4.31.9.7.6.9, Unresponsive Partnership:

  1. Title - Renamed title from “Irresponsive Partnership” to “Unresponsive Partnership.”

  2. Paragraph (1) - Clarified to contact designated PR if there is no response from the partnership; Updated IRM reference.

  3. Paragraph (2) - Clarified when to follow generic NAP procedures for unresponsive partnerships.

  4. Paragraph (6) - Revised procedures if the partnership continues to be unresponsive.

(45) IRM 4.31.9.7.7, Administrative Adjustment Request (AAR) and Other Subsequent Filings:

  1. Paragraph (1) - Clarified BBA POC will assist examiner to determine types of filing and whether it is an AAR. Added IRM reference for BBA POC.

  2. Paragraph (2) - Deleted language regarding partnerships that were permitted to file subsequent returns under AAR based on expired Rev Proc.

  3. Paragraph (2)(a) - Clarified AAR has to be valid.

  4. Paragraph (3) - Clarified instructions on checking IDRS TC codes for subsequent filings.

  5. Paragraph (4) - Clarified list of items the BBA POC will assist the examiner with regarding subsequent filings discovered on IDRS during a BBA examination.

  6. Paragraph (5) - Removed prior content due to duplicated procedures within paragraph (4) and replaced with instructions for examiners not to accept an AAR or any other subsequent filing directly from the PR or power of attorney (POA) and should direct the PR or POA to file as per the form instructions or other applicable guidance.

(46) IRM 4.31.9.7.7.1, Basic Configurations for AARs:

  1. Title- Renamed title from “Basic Requirements for AARs” to “Basic Configurations for AARs.”

  2. Paragraph (2) - Revised section number for the BBA AAR box in Part I of Form 1065-X.

  3. Paragraph (4) - Clarified to field examiner that PR or POA needs to file AAR and subsequent filing through official channels (electronically or paper file) per form instructions; Added caution that examiners must not accept an AAR or any other subsequent filing directly from the PR or POA during an ongoing field examination.

  4. Paragraph (5) - Converted prior note to an exception regarding a partnership filing an AAR for a foreign tax redeterminations after the IRS already issued a NAP letter.

  5. Paragraph (12) - Clarified if partner is a pass-through entity and it receives a Form 8986 from a BBA partnership that filed an AAR, the pass-through partner must furnish Form 8986 to its reviewed year partners and also provide to IRS along with Form 8985 by the extended due date of the AAR partnership’s adjustment year return.

  6. Paragraph (13) - Clarified Form 8986 is furnished by the partnership to the reviewed year partner.

  7. Paragraph (14) - Removed language regarding imputed underpayment as that is already addressed previously within this subsection.

  8. Paragraph (15) - Clarified if partnership does not have a partnership agreement, the items each reviewed year partner’s share of the adjustments will be based on how such items would have been under the “partner’s interest in the partnerships” (PIP) rules under IRC 704(b).

  9. Paragraph (17) - New paragraph to move content from prior IRM 4.31.9.7.7(6).

(47) IRM 4.31.9.7.7.2, AAR Exam Scope:

  1. Paragraph (2) - Revised note to remove outdated approach regarding adjustments on imputed underpayment (IU) will require the examiner to open for exam and make corrections to the adjustment year; Updated note that adjusting an IU previously reported on an AAR for the reviewed year, the adjustments to IU are not permitted to be pushed out; Added reference to IRM 4.31.9.7.2(6).

  2. Paragraph (3)(b) - Clarified the discrepancies in the IU calculation include, but is not limited to treatment, grouping, subgrouping, netting and modification of the AAR reported adjustments.

  3. Paragraph (3)(c) - Added reference to IRM 4.31.9.7.2 to the note.

(48) IRM 4.31.9.7.8, Initiate Taxpayer Contact (Letter 2205-D):

  1. Paragraph (2)(a) - Removed reference to TEFRA and added new reference for BBA elect out (BEO) partnerships.

  2. Paragraph (3)(b) - Removed reference to TEFRA for Letter 2205-D, Selectable paragraphs 3 and 4; Added new examples to show new Figure 4.31.9-1, new Figure 4.31.9-2, and new Figure 4.31.9-3 for Letter 2205-D, selectable paragraph 5; Moved reference to IRM 4.31.9.7.6.5 to a new note if IRS records do not reflect a PR for the partnership’s taxable year.

  3. Paragraph (4) - Deleted content regarding Letter 2205-D alerting the time sensitivity of electing into BBA for tax period beginning after November 2, 2015 and before January 1, 2018 and replaced with prior paragraphs (5), and (5)(a)-(b).

  4. Paragraph (4)(b) - Contained content from prior paragraph (5)(b); Clarified partnership has 14 days to contact examiner, but added new note that the partnership is permitted 30 days from the issuance of Letter 2205-D to take certain actions and examiner has discretion.

  5. Paragraph (5) - Moved prior content to new paragraph (4), (4)(a)-(b); Moved prior content paragraph (5)(c) to new paragraph (6) and (6)(a); Replaced with new instructions regarding the actions a partnership can take within 30 days from the date Letter 2205-D is issued.

  6. Paragraph (6) - Moved prior content to new paragraph (8); Contained content from prior paragraph (5)(c) regarding examiner contacting the partnership within 14 days of mailing Letter 2205-D; Expanded additional instructions to schedule an opening conference and request PR and DI’s TIN when contact is made with partnership.

  7. Paragraph (7) - Moved prior content to new paragraph (10) and replaced with new instructions not to include Form 4564, Information Document Requests (IDRs) with the Letter 2205-D, IDRs can only be issued with the appointment confirmation letter, and examiner not to review books and records until the NAP letters are issued.

  8. Paragraph (8) - Moved prior content to new paragraph (11) and contains content from prior paragraph (6).

  9. Paragraph (9) - Moved prior content to new paragraph (12) and replaced with new instructions on the proper appointment confirmation letters after the examiner schedules the opening conference or initial appointment; Added reminder to attach Form 4564 to request for basic information.

  10. Paragraph (10) - Contained content from prior paragraph (7); Removed instructions regarding an additional 30 days for partnership to respond; Added instructions to follow procedures stated in paragraph (4); Removed prior criteria (e) due to newly revised Letter 2205-D (January 2026).

  11. Paragraph (11) - Contained content from prior paragraph (8).

  12. Paragraph (12) - Contained content from prior paragraph (9); Clarified IRM survey after assignment procedures references depending on SB/SE and LB&I.

(49) IRM 4.31.9.7.9, BBA Partnership Check Sheets:

  1. Paragraph (3) - Removed reference to investor level statute control (ILSC) provisions.

  2. Paragraph (4) - Removed reference to ILSC (formerly known as non TEFRA entity); Clarified Form 15263 description to include additional IRM references for Chapter 2/2A procedures; Clarified Form 15264 purpose when a Form 1065 is linked for SECA or NIIT purposes; Updated Form 15416 title, purpose and description.

(50) IRM 4.31.9.7.10, Form 2848, Power of Attorney (POA):

  1. Paragraph (2) - Clarified DI is applicable if the PR is an entity.

  2. Paragraph (3) - Clarified DI is applicable if the PR is an entity; Clarified note regarding EPR designation if the partnership changes the DI only.

  3. Paragraph (4) - Clarified there must be a separate Form 2848 for each partnership tax year because the designation of a PR is only effective for one partnership tax year.

  4. Paragraph (5) - Removed POA verification instructions and replaced with IRM 4.11.55.2.1.2 to verify POA’s authorization to practice before the IRS.

  5. Paragraph (6) - Added new CFR and IRM references; Clarified if an individual is representing a partnership, the individual must be authorized to do so on a separate Form 2848 signed by a partner; Clarified note to avoid confusion caused by the similarity between a partnership representative (PR) and a partnership’s representative (i.e. party representing the partnership).

(51) IRM 4.31.9.7.10.1, Form 2848, For Items Within the Scope of the BBA Regime:

  1. Paragraph (1) - Clarified Form 2848 should also reflect the partnership’s address; Renumbered Figure 4.31.9-1 and Figure 4.31.9-2 to Figure 4.31.9-4 and Figure 4.31.9-5, respectively.

  2. Paragraph (2) - Renumbered Figure 4.31.9-3 to Figure 4.31.9-6.

  3. Paragraph (3) - Renumbered Figure 4.31.9-4 and Figure 4.31.9-5 to Figure 4.31.9-7 and Figure 4.31.9-8, respectively.

  4. Paragraph (4) - Renumbered Figure 4.31.9-6 and Figure 4.31.9-7 to Figure 4.31.9-9 and Figure 4.31.9-10, respectively.

(52) IRM 4.31.9.7.10.2, Form 2848, for Chapter 2, 2A, 3 and 4 Items Outside the Scope of the BBA Regime:

  1. Paragraph (2) - Renumbered Figure 4.31.9-8 to Figure 4.31.9-11.

  2. Paragraph (3) - Renumbered Figure 4.31.9-9 to Figure 4.31.9-12.

  3. Paragraph (4) - Renumbered Figure 4.31.9-10 to Figure 4.31.9-13.

(53) IRM 4.31.9.8, Executing the Examination:

  1. Paragraph (2) - New paragraph to move sentence “The examiner will record all activities in their activity record” from paragraph (1).

(54) IRM 4.31.9.8.1, Notice of Administrative Proceeding (NAP):

  1. Paragraph (1) - Clarified when IRS must mail the NAP letters to the partnership and PR. Added a note and example on when to contact the BBA POC if the examiner did not perfect the NAP letters.

  2. Paragraph (2) - Clarified NAP letters must be mailed in separate envelopes, dated the same on both letters, and should the date should reflect the date that the letters were mailed; Clarified the date the NAP letters are mailed is known as the NAP issuance date.

  3. Paragraph (2)(a) - Clarified instructions to run INOLES to confirm last known address and added IRM reference.

  4. Paragraph (2)(b) - Clarified instruction to run INOLES; Clarified note to save INOLES transcripts for the partnership and PR; Added reminder to use the Certified Automated Mailing System (CAMS) for when processing and sending certified NAP letters; Renumbered Figure 4.31.9-11 to Figure 4.31.9-14.

  5. Paragraph (5) - Removed sentence regarding mailing Letter 5893 and Letter 5893-A separately since it is repeated in paragraph (2).

  6. Paragraph (6) - Corrected IRC reference.

(55) IRM 4.31.9.8.1.1, NAP Date on Examination Returns Control System (ERCS):

  1. Paragraph (2) - Moved Form 5348 instructions regarding examiner’s name, employee group code, and date to an alpha list format paragraph (2)(a).

  2. Paragraph (2)(b) - Added instructions to enter the NAP issuance date to line “NAP-DT” and taxpayer information indicated on page 2, bottom half of the form.

  3. Paragraph (3) - Clarified manager approval.

  4. Paragraph (4) - Changed team secretary to team administrative assistant; Clarified team administrative assistant to input ERCS for NAP date.

(56) IRM 4.31.9.8.1.2, Withdrawal of the NAP:

  1. Paragraph (1) - Added letter references for NAP.

  2. Paragraph (1)(b) - Removed content from prior (1)(b) since NAPs cannot be issued without a partnership return; Replaced content with prior paragraph (1)(c).

  3. Paragraph (1)(c) - Moved prior content to paragraph (1)(b); Contained content from prior paragraph (1)(d).

  4. Paragraph (4)(b) - Clarified IRM references for survey after assignment procedures references depending on SB/SE and LB&I.

  5. Paragraph (6)(c) - Removed outdated instructions for changing the value for “EARLY-ELECT-INTO-BBA-CD” for tax year after November 2, 2015, and before January 1, 2018, and replaced with content from prior paragraph (6)(d).

  6. Throughout this subsection: Changed NAP to NAP letters, where applicable.

(57) IRM 4.31.9.8.2, Consistency Principle:

  1. Paragraph (5) - Clarified the consistency principle applies to all pass-through partners; Clarified math error procedures would apply at the individual shareholder level inconsistencies for a S corporation pass-through partner.

(58) IRM 4.31.9.8.2.1, Partner Fails to Report a PRI Consistently:

  1. Paragraph (2)(a) - Clarified that if a math error correction applies, the IRS may adjust the partners’ reporting to make it consistent with the partnership’s reporting.

(59) IRM 4.31.9.8.2.2 - Math Error Correction:

  1. Paragraph (1)(c) - Clarified IRS may adjust the inconsistently reported item on the partner’s return regardless of whether the partner provided notice of inconsistent treatment; Clarified note that math error procedures will always apply when the partner’s reporting is inconsistent with the exam results for a push out statement from an audit result or a notice of final partnership adjustment (FPA).

  2. Paragraph (3)(a) - Clarified note that the partnership-partner cannot file a petition for readjustment under IRC 6234.

(60) IRM 4.31.9.8.2.3, Notify the Partner of an Assessment on Account of Mathematical Error:

  1. Paragraph (2)(a) - Added note regarding Letter 6202 instructing examiners to prepare and issue Form 4549-A (individuals) or Form 15624 (BBA partnership partner) to show the adjustments, underpayment, or imputed underpayment resulting from corrections to the return.

  2. Paragraph (2)(b) - Moved sentence regarding the ineligible election due to inconsistent push out statement into a new note.

(61) IRM 4.31.9.8.2.4, A Partner Files Inconsistently with the Partnership Return and Provides Notice of the Inconsistent Treatment:

  1. Paragraph (4) - Clarified final decision with respect to an inconsistently treated PRI in a proceeding to which a partnership is not a party is not binding on the partnership.

(62) IRM 4.31.9.8.3, Informal Claims (LB&I Taxpayers):

  1. Paragraph (1) - Added IRM reference for basic configurations for AARs.

  2. Paragraph (6) - New paragraph to add IRM reference for instructions if the examination is a no-change and examiner disallows partnership’s informal claim in full.

(63) IRM 4.31.9.8.4, Statute of Limitations (SOL) on Making Adjustments:

  1. Paragraph (2) - Updated table showing the types of cases with the minimum required time on statute before it goes to Technical Services or CCP; Added no-change (no adjustment and no PCS linkage) will require 4 months of remaining statute before it gets closed to CCP.

(64) IRM 4.31.9.8.4.1, Overview of IRC 6235(a):

  1. Paragraph (4) - Added BBA POC IRM reference.

(65) IRM 4.31.9.8.4.3, Form 872-M:

  1. Paragraph (1) - Added note tag that field exam must select the IRS 6235(a)(1) date for Form 872-M.

  2. Paragraph (4) - Added new note to add that instructions within this subsection will facilitate the PR or DI only having to sign the Form 872-M.

  3. Paragraph (7) - Added to clarify if there is concern on mismatched partnership name, consult with Counsel.

  4. Paragraph (12) - Moved prior content to paragraph (13), and (13)(a)-(b); New paragraph to instruct staff where to enter name of PR and/or DI (if PR is an entity) on Form 872-M.

  5. Paragraph (13) - Contained content from prior paragraph (12); Clarified the signature block and the appointed DI signs Form 872-M on behalf of the EPR.

  6. Paragraph (13)(a) - Contained content from prior paragraph (12)(a); Renumbered Figure 4.31.9-12 to Figure 4.31.9-15.

  7. Paragraph (13)(b) - Contained content from prior paragraph (12)(b); Renumbered Figure 4.31.9-13 to Figure 4.31.9-16.

  8. Paragraph (14) - Contained content from prior paragraph (13).

  9. Paragraph (15) - Contained content from prior paragraph (14).

  10. Paragraph (16) - Contained content from prior paragraph (15).

  11. Paragraph (17) - Contained content from prior paragraph (16).

  12. Paragraph (18) - Contained content from prior paragraph (17).

(66) IRM 4.31.9.8.4.3.1, Form 872-M, Examiner Actions Upon Receipt of Signed Form 872-M:

  1. Paragraph (1) - Added reference for instructions to electronically date stamp Form 872-M.

  2. Paragraph (2) - Incorporated guidance from Internal Revenue Procedural Update (IPU) 24U0896 for clarifying method of acceptance of Form 872-M via fax, email and TDC, and original or digital signatures; Subsequent to IPU, revised note to ensure EPR is still in existence at the time of signing if DI signs the form and to request for Counsel’s approval if Form 872-M is signed by anyone other than the PR.

  3. Paragraph (5) - Clarified to begin a new Form 15271 check sheet and retain the existing Form 15271 for documentation purposes in instances where the PR needs to perfect the Form 872-M.

  4. Paragraph (6) - Clarified examiner is responsible for IRC 6235(a)(1) statute date; Added IRM reference.

  5. Paragraph (6)(a) - Renumbered Figure 4.31.9-14 and Figure 4.31.9-15 to Figure 4.31.9-17 and Figure 4.31.9-18, respectively.

(67) IRM 4.31.9.8.4.3.2: Form 872-M, Group Manager Actions

  1. Paragraph (3) - Clarified AIMS with ERCS.

  2. Paragraph (4) - Clarified AIMS with ERCS; Removed instruction for manager to approve update in ERCS; Added new IRM reference.

(68) IRM 4.31.9.9.1, No-Change Exam:

  1. Paragraph (1) - Clarified and listed the 2 types of no-change examinations; Clarified a no-change determination will be known as a “no-change” throughout the IRM.

  2. Paragraph (2) - Clarified instructions for a no-change (no adjustment and no PCS linkage) examination and close case paperless electronically to CCP; Added caution there should be at least 4 months of IRC 6235(a)(1) statute remaining or else refer to imminent statute procedures.

  3. Paragraph (3) - Moved prior content to paragraph (4); Added instructions for a no-change (with adjustment and/or PCS linkage) examination; Revised caution there should be at least 6 months of IRC 6235(a)(1) statute remaining for this case type or else refer to imminent statute procedures.

  4. Paragraph (4) - Contained content from prior paragraph (3); Clarified if PR does not agree to no-change determination due to informal claim, no-change determination will not apply; Added new procedures for next steps to prepare additional forms and IUA workbook.

  5. Paragraph (5) - Contained content from prior paragraph (4).

(69) IRM 4.31.9.9.2, Partnership Adjustments and Imputed Underpayment (IU):

  1. Paragraph (2) - Clarified LB&I uses Form 886-A and SB/SE uses lead sheets to convey partnership adjustments and applicable penalties.

  2. Paragraph (3) - Clarified that the IU is a partnership-level tax that is not based on the amount of tax the partners should have owed if the PRIs had been correctly reported by the partnership.

  3. Paragraph (4)(a) - Clarified the field will only calculate a general IU.

  4. Paragraph (5) - Added instructions for examiners to prepare and complete IUA computation workbook and submit to TCS.

(70) IRM 4.31.9.9.2.1, Imputed Underpayment (IU):

  1. Paragraph (1) - Renumbered Figure 4.31.9-16 to Figure 4.31.9-19.

  2. Paragraph (2) - Clarified proposed audit adjustments to partnership-related items and inputting them into the formula.

  3. Paragraph (2)(b) - Added citation to IRC 6225(b)(2) through (4) to comply with the IU subgrouping adjustment.

  4. Paragraph (4)(d) - Clarified net negative adjustment to tax, penalty, addition to tax, or additional amount for which the partnership is liable under Chapter 1, or an adjustment to any imputed underpayment calculated by the partnership for the taxable year reduce the product of the TNPA times the highest tax rate cannot be less than zero; Added new IRM reference regarding special IU recalculation procedures.

  5. Paragraph (5)(a) - Added new IRM reference regarding special IU recalculation when determining whether net negative adjustments in credit grouping is allowed in the IU computation.

(71) IRM 4.31.9.9.2.2, First Step in Computing the Imputed Underpayment (IU):

  1. Paragraph (2) - New paragraph to move sentence regarding four groupings from paragraph (1).

(72) IRM 4.31.9.9.2.3, Second Step in Computing the IU:

  1. Paragraph (3) - Clarified that a partnership may request to subgroup adjustments in a different manner such as requesting modification of the imputed underpayment amount under Treas. Regs. 301.6225-2 after the issuance of the notice of proposed partnership adjustment (NOPPA).

(73) IRM 4.31.9.9.2.2.2, Credit Grouping:

  1. Paragraph (3) - Provided examples of a Chapter 1 liability credit grouping.

  2. Paragraph (4) - Provided an example of an IU calculated by the partnership in a credit grouping.

(74) IRM 4.31.9.9.2.2.3, Creditable Expenditure Grouping:

  1. Paragraph (2) - Clarified there are two legs to the reallocation adjustment.

(75) IRM 4.31.9.9.2.2.4, Residual Grouping:

  1. Paragraph (2) - New paragraph to move sentence regarding residual grouping and adjustment to PRI from paragraph (1).

(76) IRM 4.31.9.9.2.2.5, Recharacterization Adjustments and Zero Adjustments:

  1. Paragraph (1) - Added examples of a recharacterization adjustment.

  2. Paragraph (2) - Added new IRM reference within the example for consistent application to treat an adjustment as zero for computing an imputed underpayment.

(77) IRM 4.31.9.9.2.3, Second Step in Computing the IU:

  1. Paragraph (4) - Clarified a partnership may request to subgroup adjustments in a manner such as requesting modification of the IU after issuance of the NOPPA.

(78) IRM 4.31.9.9.2.7, Sixth Step in Computing IU:

  1. Paragraph (1) - Clarified net negative adjustments are also used to determine the sum that will increase or potentially decrease product of the total netted partnership adjustment (TNPA); Added note to see special IU recalculation rules if the adjustments to PRIs include a negative adjustment (decrease) to tax, penalty, addition to tax, or additional amount for which the partnership is liable under Chapter 1, or include a negative adjustment (decrease) to any imputed underpayment calculated by the partnership for the taxable year.

  2. Paragraph (2) - Corrected that the default treatment of a net negative adjustment is excluded from the calculation of the IU, not the TNPA as originally stated; Added exception regarding net negative adjustment excluded from IU calculation; Added IRM reference for special IU recalculation rules.

  3. Paragraph (4) - Added 2 exceptions regarding net negative adjustments excluded from imputed underpayment; Clarified note to contact BBA POC if examiner is taking into account any net negative adjustment to credit to reduce the product of TNPA times the highest tax rate in effect.

(79) IRM 4.31.9.9.2.7.1, Special IU Recalculation Rules:

  1. Added new subsection to introduce procedures for special IU recalculation rules applicable to partnership taxable years ending on or after November 20, 2020.

(80) IRM 4.31.9.9.2.8, Seventh Step in Computing the IU:

  1. Paragraph (1) - Added reference to Figure 4.31.9-19.

(81) IRM 4.31.9.9.2.9, Consistent Application of IRS Discretion to Treat an Adjustment as Zero for Computing an IU:

  1. Moved all prior contents from IRM 4.31.9.9.2.9, Partnership Treatment and Allocation of Adjustments that do not Result in an Imputed Underpayment, to new IRM 4.31.9.9.2.10.

  2. Title - Renamed subsection title from “Partnership Treatment and Allocation of Adjustments that do not Result in an Imputed Underpayment” to “Consistent Application of IRS Discretion to Treat an Adjustment as Zero for Computing an IU.”

  3. All paragraphs - Replaced existing subsection and introduced new procedures, examples, Figure 4.31.9-20 and Figure 4.31.9-21 to provide instruction to staff on applying consistent application of IRS discretion to treat adjustments as zero for purposes of computing an imputed underpayment.

(82) IRM 4.31.9.9.2.10, Partnership Treatment and Allocation of Adjustments that do not Result in an Imputed Underpayment:

  1. New subsection to contain all contents from prior IRM 4.31.9.9.2.9.

  2. Paragraph (1)(b) - Clarified all partnership adjustments that result in zero or less than zero do not result in an IU; Clarified note to reference special IU recalculation IRM.

  3. Paragraph (2) - Moved sentence regarding partnership adjustment in general that does not result in an imputed underpayment is taken into account by the partnership in the adjustment year into paragraph (2)(a); Added exception note regarding treatment of partnership adjustments that do not result in an IU along with citations.

  4. Paragraph (2)(a) - New bullet to contain sentence from paragraph (2) above.

  5. Paragraph (2)(b) - Contained content from prior paragraph (2)(a); Clarified modification types.

  6. Paragraph (2)(c) - Contained content from prior paragraph (2)(b); Clarified partnerships with both IU and adjustments that do not result in IU can be pushed out; Clarified only partnerships with adjustments that do not result in an IU must take the adjustments into account in the adjustment year return.

  7. Paragraph (2)(d) - Contained content from prior paragraph (2)(c); Clarified partnerships that file AAR must push out all adjustments that do not result in an IU.

  8. Paragraph (3) - Added a new criteria that adjustments to PRI that were reported or could have been reported by the partnership as a credit on its reviewed year return (along with reallocation adjustments) is not dependent upon whether the partnership adjustment item is a non-separately stated item, or whether the PRI is a separated stated item of income or loss.

  9. Paragraph (3)(a) - Clarified partnership adjustment can increase or decrease non-separately stated income or less unless it is an adjustment to a PRI that is required to be separately stated under IRC 702.

  10. Paragraph (3)(b) - Clarified if the partnership adjustment is to a PRI that is required to be separately stated under IRC 702, the partnership adjustment is taken as a reduction in such separately stated item or as an increase in such separately stated item depending on whether the adjustment is a reduction or an increase to the separately stated item

  11. Paragraph (3)(d) - Clarified push out instructions by the partnership with respect to IU; Added citation.

  12. Paragraph (3)(f) - Clarified instructions regarding imputed underpayments with the application of credits.

  13. Paragraph (5)(c) - Replaced petition court with final court decision.

  14. Paragraph (6)(a) - Clarified push out option and push out statements for reporting or taking into account adjustments not resulting in an imputed underpayment; Clarified action steps in table for reviewed year partners that are pass-through partners (PTPs).

  15. Paragraph (6)(c) - Clarified last sentence in the paragraph that an AAR partnership may not place adjustments that do not result in an IU on its adjustment year return; Clarified note to align language to the text of Treas. Reg. 301.6226-3(e)(3)(i).

(83) IRM 4.31.9.9.3, Making Adjustments on either Form 886-A or Lead Sheets:

  1. Title - Changed title from “Making Adjustments: Form 886-A” to “Making Adjustments on either Form 886-A or Lead Sheets”.

  2. Paragraph (1) - Moved instruction in regards to adding specific language for substantive issues to Form 886-A to new paragraph (2).

  3. Paragraph (2) - Clarified instructions to add specific language for substantive issues to lead sheets in addition to Form 886-A.

(84) IRM 4.31.9.9.3.1, Form 886-A or Lead Sheets for Substantive issues Including Penalties:

  1. Title - Changed title from “Form 886-A for substantive issues” to “Form 886-A or Lead Sheets for Substantive issues Including Penalties”.

  2. Paragraph (2) - Clarified to include the option for lead sheets.

(85) IRM 4.31.9.9.3.2, Form 886-A or Lead Sheets for Imputed Underpayment Amount (IUA):

  1. Title - Changed title from “Form 886-A for Imputed Underpayment Amount (IUA)” to “Form 886-A or Lead Sheets for Imputed Underpayment Amount (IUA)”.

  2. Paragraph (1) - Clarified to include the option for lead sheets; Added note for the option to use the Imputed Underpayment Amount 886-A Template when preparing Form 886-A for IUA.

  3. Paragraph (1)(f) - Added new component for IU recalculation rules.

  4. Paragraph (3) - Clarified instructions to include information from the listed IUA spreadsheet tabs to Form 886-A or lead sheets.

(86) IRM 4.31.9.9.3.3, Penalties and Interest:

  1. Title - Changed title from “Form 886-A: Interest and Penalties” to “Penalties and Interest”.

  2. Paragraph (1) - Replaced centralized partnership audit regime to BBA.

  3. Paragraph (3)(b) - Moved prior content to new paragraph (3)(c); Added imputed underpayment is treated as an understatement of tax for the reviewed year.

  4. Paragraph (3)(c) - Contained content from prior paragraph (3)(b).

  5. Paragraph (4)(c) - Clarified Form 886-A or lead sheets must be prepared for each penalty proposed.

  6. Paragraph (4)(d) - Clarified summary report package such as 30-day letter package, if applicable.

  7. Paragraph (4)(e) - Added instructions for computation of substantial underpayment penalty and added note for job aid to calculate IRC 6662(d) penalty for BBA partnerships.

  8. Paragraph (7) - Changed revenue agents with examiners for consistency

  9. Paragraph (7)(a) - Clarified computing interest using approved interest computation tools and added IDRS command code ACT/DMI.

(87) IRM 4.31.9.9.3.3.2, Requesting an Interest Calculation from the Centralized Case Processing (CCP) Campus:

  1. Paragraph (1) - Incorporated Internal Revenue Procedural Update (IPU) 24U0896 to add LB&I PBC 330 to send request for an interest computation from the Cincinnati campus; Clarified efax numbers for SB/SE areas for BBA interest computation requests.

(88) IRM 4.31.9.9.4, Communicate Adjustments to Tax Computation Specialist (TCS):

  1. Paragraph (1)(b) - Clarified to provide an explanation to TCS as to why the adjustment is treated as zero for purposes of computing IU; Removed instructions regarding TCS inputting information into IUA calculator and display a footnote on the report.

(89) IRM 4.31.9.9.5, Available Alternative Dispute Resolutions (ADRs) for BBA Partnerships:

  1. Added new subsection to clarify available alternative dispute resolutions (ADRs) for BBA partnerships such as Fast Track Settlement and Early Referral based on business operating divisions.

(90) IRM 4.31.9.10.1, Summary Report Package:

  1. Paragraph (2)(c) - Clarified to include the option for lead sheets.

  2. Paragraph (2)(d) - Added Form 4605-A and Form 886-S (if applicable) to be consistent with Form 15262.

  3. Paragraph (6) - Clarified PR can request a conference within 2 weeks of issuing the summary report package, and the conference is not a statutory requirement.

(91) IRM 4.31.9.10.2, 30-day Letter Package:

  1. Paragraph (2) - Clarified there must be 18 months of IRC 6235(a)(1) date remaining when the case is received by Technical Services, not transferred to Technical Services.

  2. Paragraph (4)(c) - Clarified to include the option for lead sheets.

  3. Paragraph (4)(d) - Added Form 4605-A and Form 886-S (if applicable) to be consistent with Form 15262.

  4. Paragraph (7) - Added new procedures based on different scenarios when examiners receive protests from the taxpayer.

(92) IRM 4.31.9.10.3, Notice of Proposed Partnership Adjustment (NOPPA) Package:

  1. Paragraph (3)(d) - Clarified to include the option for lead sheets.

  2. Paragraph (5) - Clarified to leave certain fields blank on the Letter 5892 and Letter 5862-A.

(93) IRM 4.31.9.11, Case Disposition Procedures - Incorporated additional guidance from Interim Guidance Memo (IGM) LB&I-04-0524-0006 for the following:

  1. Paragraph (1) - From IGM, changed guidance to instruct staff to route no-change cases (not PCS-linked) directly to CCP; Subsequent to IGM, added note regarding splitting multi-year cases in RGS for SB/SE staff and updated for new IRM reference.

  2. Paragraph (2) - Clarified TSPC will continue to perform cursory review of case file for applicable cases that are still routed to Technical Services.

  3. Paragraph (3) - From IGM, clarified language to inform staff that CCP and Technical Services will receive BBA cases depending on case type, and no-change cases (no adjustment and no PCS linkage) will require 4 months of remaining IRC 6235(a)(1) statute; Subsequent to IGM, added new column to existing table to instruct where the cases will go depending on the case type.

  4. Paragraph (5) - Introduced electronic closing procedures when closing cases to Technical Services for their mandatory review.

  5. Paragraph (6) - Referenced new Exhibit 4.31.9-6, BBA Case Closing Document IMS SAIN and RGS Section Reference Chart.

(94) IRM 4.31.9.11.1, No-Change Case (No Adjustment and No PCS Linkage) - Incorporated additional guidance and IRM references from Interim Guidance Memo (IGM) LB&I-04-0524-0006 and subsequently updated after the IGM for the following:

  1. Title - Changed title from “No-Change Case” to “No-Change Case (No Adjustment and No PCS Linkage)”.

  2. Paragraph (1) - Changed guidance to instruct staff to route no-change cases (not PCS-linked) directly to CCP within 10 days of the no-change determination, and changed existing reminder to have at least 4 months instead of 6 months of statute remaining before CCP receives the no-change case; Removed all references to Technical Services for no-change cases; Added reminder that PCS-linked cases cannot be closed to CCP and should be transferred to Technical Services.

  3. Paragraph (2) - Replaced paragraph with guidance on qualifications for paperless closing depending on the “return requested” indicator; Added note to see IRM 4.46.5.11.2.4 if the case does not qualify for paperless case close.

  4. Paragraph (3) - Moved prior content to paragraph (4) and replaced it with guidance on paperless case closing general procedures for LB&I, SB/SE, and LB&I International Individual Compliance (IIC) examiners.

  5. Paragraph (4) - Moved prior content to new paragraph (5); Contained content from prior paragraph (3); Added additional guidance on paperless closing to verify blocking series number.

  6. Paragraph (5) - Contain content from prior paragraph (4); Clarified completing Form 3198 instructions for a BBA no-change.

  7. Paragraph (6) - Added guidance for completing Letter 6099 and Letter 6099-A for BBA no-change cases.

(95) IRM 4.31.9.11.2, No-Change Case (With Adjustments and/or PCS Linkage):

  1. Title - Changed title from “No-Change Case (With Adjustments)” to “No-Change Case (With Adjustments and/or PCS Linkage).

  2. Paragraph (2) - Clarified POA for Form 2848.

  3. Paragraph (6) - Added new procedures for paperless case close for a no-change (with adjustments and/or PCS linkage) case depending on BODs.

  4. Paragraph (7) - Added new procedures for Technical Services to upload documents before closing the case to CCP.

(96) IRM 4.31.9.11.3, Case With Adjustments (No Appeals):

  1. Paragraph (3) - Clarified POA for Form 2848.

  2. Paragraph (6) - Added new procedures for paperless case close for a case with adjustments (no Appeals) case depending on BODs.

  3. Paragraph (7) - Added new procedures for BBA operations to upload the “NforwardX1.zip” file to SAIN 090 via IMS Team Website (TWS), if applicable.

  4. Paragraph (8) - Added new procedures for Technical Services to upload a list of applicable documents before closing the case to BBA Operations or CCP.

(97) IRM 4.31.9.11.4, Case With Adjustments (to Appeals):

  1. Paragraph (3) - Clarified POA for Form 2848.

  2. Paragraph (6) - Added new procedures for paperless case close for a case with adjustments (to Appeals) case depending on BODs.

  3. Paragraph (7) - Added new procedures for Technical Services to open a new request and upload Form 3198 and Appeals Electronic Case Receipt Check Sheet for each case and submit it to the Appeals Hub and Electronic Case Receipts SharePoint site once the AIMS status is 71.

  4. Paragraph (8) - Added new procedures for Technical Services to upload a list of applicable documents before closing the case to Appeals.

(98) IRM 4.31.9.11.5, LB&I Paperless Case Closing to Technical Services:

  1. Moved all prior contents from IRM 4.31.9.11.5, BBA Imminent Statute Procedures, to new IRM 4.31.9.11.6.

  2. Title - Changed title from “BBA Imminent Statute Procedures” to “LB&I Paperless Case Closing to Technical Services”.

  3. All paragraphs - Replaced existing subsection and introduced new paperless case closing procedures when examiners are closing cases electronically to Technical Services.

(99) IRM 4.31.9.11.6, BBA Imminent Statute Procedures - Incorporated additional guidance and IRM references from Interim Guidance Memo (IGM) LB&I-04-0524-0006 for the following:

  1. New subsection to contain all contents from prior IRM 4.31.9.11.5.

  2. Paragraph (1) - From IGM, replaced paragraph with guidance for imminent BBA no-change (no adjustment and no PCS linkage) cases to CCP with less than 4 months of IRC 6235(a)(1) statute and removed all reference to Technical Services for no-change cases; Subsequent to IGM, removed IRM reference.

  3. Paragraph (2) - From IGM, repurposed paragraph with guidance on BBA no-change cases with adjustment with less than 6 months of IRC 6235(a)(1) statute, and clarified field group will keep ERCS/AIMS control over case until TSPC is ready to prepare Letter 6099 and Letter 6099-A and move the case to CCP; Subsequent to IGM, clarified instructions to apply to no-change cases with adjustments and/or PCS linkage; Clarified field group to field exam or examiner; Clarified exam team will provide TSPC group manager with electronic case file information.

  4. Paragraph (3) - From IGM, repurposed paragraph with guidance on BBA case with adjustments (no Appeals) with less than 12 months of IRC 6235(a)(1) statute.

  5. Paragraph (3)(c) - From IGM, added guidance on coordination and case transfers between field exam group manager and TSPC group manager; Subsequent to IGM, clarified field group to field exam or examiner, and introduced new TSPC suspense code procedures when examiners are closing imminent statute cases to Technical Services; Clarified exam team will provide TSPC group manager with electronic case file information.

  6. Paragraph (4) - New paragraph to move guidance for BBA cases with adjustments routed to Appeals with less than 18 months of IRC 6235(a)(1) statute from prior paragraph (3); Subsequent to IGM, clarified field group to field exam or examiner.

(100) IRM 4.31.9.12, Special Enforcement Matters for Partnership-Related Items:

  1. Moved all prior content from IRM 4.31.9.12, Early Elections, to new IRM 4.31.9.13.

  2. Title - Renamed subsection title from “Early Elections” to “Special Enforcement Matters for Partnership-Related Items.”

  3. All paragraphs - Replaced existing subsection paragraphs and introduced new procedures for special enforcement matters for partnership-related items under IRC 6241(11).

(101) IRM 4.31.9.12.1, Applicable Dates of Special Enforcement Matters:

  1. Moved all prior content from IRM 4.31.9.12.1, Information to be Included in the Election Statement, to new IRM 4.31.9.13.1.

  2. Title - Renamed subsection title from “Information to be Included in the Election Statement” to “Applicable Dates of Special Enforcement Matters.”

  3. All paragraphs - Replaced existing subsection paragraphs and introduced new procedures for applicable dates regarding special enforcement matters under Treas. Reg. 301.6241-7.

(102) IRM 4.31.9.12.2, Conditions for Special Enforcement Activities:

  1. Moved all prior content from IRM 4.31.9.12.2, Examiner Procedures, to new IRM 4.31.9.13.2.

  2. Title - Renamed subsection title from “Examiner Procedures” to “Conditions for Special Enforcement Activities.”

  3. All paragraphs - Replaced existing subsection paragraphs and introduced new procedures and explained conditions of activities for special enforcement matters.

(103) IRM 4.31.9.12.3, Notification Requirements When BBA Does Not Apply Due to Special Enforcement Matters:

  1. Moved all prior content from IRM 4.31.9.12.3, Early Elections Made with Administrative Adjustment Requests (AARs), to new IRM 4.31.9.13.3.

  2. Title - Renamed subsection title from “Early Elections Made with Administrative Adjustment Requests (AARs)” to “Notification Requirements When BBA Does Not Apply Due to Special Enforcement Matters.”

  3. All paragraphs - Replaced existing subsection paragraphs and introduced new procedures for notification requirements when BBA does not apply due to special enforcement matters.

(104) IRM 4.31.9.13, Early Elections:

  1. New subsection to contain all contents from prior IRM 4.31.9.12.

  2. Paragraph (8) - Added IRM reference for BBA POC.

(105) IRM 4.31.9.13.1, Information to be Included in the Election Statement:

  1. New subsection to contain all contents from prior IRM 4.31.9.12.1.

(106) IRM 4.31.9.13.2, Examiner Procedures:

  1. New subsection to contain all contents from prior IRM 4.31.9.12.2.

(107) IRM 4.31.9.13.3, Early Elections Made with Administrative Adjustment Requests (AARs):

  1. New subsection to contain all content from prior IRM 4.31.9.12.3.

  2. Paragraph (7) - Updated applicable tax years for Form 8082 instructions from January 2019 through December 2024.

  3. Paragraph (8) - Updated applicable tax years for Form 1065-X instructions from January 2019 through August 2023.

(108) Exhibit 4.31.9-1, Example 1 - $1,000,000 Adjustment to Sch K, line 1 Ordinary Income and $1,000,000 Adjustment to Sch K, line 14 NESE - IRC 6501(c)(12) applies:

  1. BBA Audit Reports - Clarified note that the $370,000 is the sole adjustment to Line 1 in the amount of $1,000,000.

  2. Form 886-A - Clarified procedures that SECA tax at the Form 1065 level for the adjustment to line 14a and separately attach to Form 4605-A.

  3. Field BBA Ch2/2A Procedures - Removed issue Form 4605-A to the partnership when issuing the summary report package.

(109) Exhibit 4.31.9-2, Example 2 - $1,000,000 Adjustment to Sch K Portfolio Income Items - IRC 6501(c)(12) applies:

  1. BBA Audit Reports - Clarified note the $370,000 IU is the sum of adjustments to Line 6 in the amount of $300,000 and to Line 7a in the amount of $700,000.

  2. Form 886-A - Clarified procedures that NIIT to be attached to Form 4605-A.

  3. Field BBA Ch 2/2A Procedures - Removed instruction to simultaneously issue BBA summary report and Form 4605-A to the PR; Removed instruction that there is no cover letter for partnership Form 4605-A; Removed instruction to notate at the bottom of Letter 5895 that Form 4605-A is included as an enclosure; Clarified PR cannot receive Form 4605-A since NIIT is not a PRI.

(110) Exhibit 4.31.9-3, Options for Partnership Representative Notices - Incorporated additional guidance from Interim Guidance Memo (IGM) LB&I-04-1025-0010 for the following:

  1. Simplified options for partnership representative notices to align with the newly published Form 8979 dated October 2025.

  2. Revised note to clarify designations with or without revocation, and appointments with or without revocations.

  3. Subsequent to the IGM, added new footnotes 1 thru 4 to clarify additional letter instructions for various Form 8979 scenarios.

(111) Exhibit 4.31.9-6, BBA Case Closing Document IMS SAIN and RGS Section Reference Chart:

  1. New exhibit for paperless case closing document placement in IMS and RGS systems.

(112) Throughout:

  1. Corrected IDRS command code from COMPD to COMPAD.

  2. Corrected hyperlinks.

  3. Hyperlinked additional forms, letters, and citations.

  4. Stylistic editorial, grammar, punctuation, formatting and spelling changes.

Effect on Other Documents

This IRM incorporates the following documents:

1) Interim Guidance Memo (IGM) LB&I-04-1025-0010, Interim Guidance on the Partnership Representative Designation Procedures for Partnerships Subject to the Bipartisan Budget Act of 2015 (BBA) Audit Regime, dated October 1, 2025.

2) Interim Guidance Memo (IGM) LB&I-04-0524-0006, Interim Guidance on Closings of No-Change Cases Subject to the Bipartisan Budget Act of 2015 (BBA) Audit Regime, dated May 7, 2024.

3) Internal Revenue Procedural Update (IPU) 24U0896, Centralized Partnership Audit Regime (BBA) Field Examination Procedures, dated August 1, 2024.

IRM 4.31.9 dated January 24, 2024, is superseded.

Audience

LB&I, SB/SE and IRS Independent Office of Appeals (Appeals) employees.

Effective Date

(05-08-2026)

Ronald H. Hodge II
Assistant Deputy Commissioner Compliance Integration
Large Business and International Division

4.31.9.1 (05-08-2026)

Program Scope and Objectives

  1. Purpose: The purpose of this IRM is to provide field examination procedures, processes, and guidelines to LB&I, SB/SE, and Appeals employees who examine or work on partnership returns under the Bipartisan Budget Act of 2015 (BBA) centralized partnership audit regime.

  2. Audience: LB&I and SB/SE employees are the primary users of this IRM.

  3. Policy Owner: LB&I Policy under the Strategy, Policy and Governance office in the Assistant Deputy Commissioner Compliance Integration organization and Director, Pass-Through Entities (PTE) Practice Area (PA).

  4. Program Owner: Director, Pass-Through Entities Practice Area

  5. Primary Stakeholders: Employees in LB&I, SB/SE and IRS Independent Office of Appeals (Appeals) who work on partnership cases.

  6. Contact Information: To recommend changes or to make any other suggestions to this IRM section, contact the IRM author or see SPDER’s IMD Contacts list by referencing guidelines provided in IRM 1.11.6.5, Providing Feedback About an IRM Section - Outside of Clearance. A request or inquiry can also be made using the LB&I Policy Gateway.

4.31.9.1.1 (01-24-2024)

Background

  1. This IRM sets forth field exam procedures implementing the BBA regime, including the scope and election out of the BBA regime, partnership representative, consistency principle, imputed underpayment (IU) with respect to any partnership adjustment, administrative adjustment request, statute of limitations on making adjustments, communication, report writing, and case disposition guidelines.

4.31.9.1.2 (01-24-2024)

Authority

  1. Section 1101 of the Bipartisan Budget Act of 2015 (BBA) as amended by the Protecting Americans from Tax Hikes Act of 2015 (PATH Act) and sections 201 through 207 of the Tax Technical Corrections Act of 2018 (TTCA) repealed the TEFRA partnership procedures and the electing large partnership provisions and replaced them with a new centralized partnership audit regime.

  2. Delegation Order 4-52 (Rev. 2), Partnership Matters Under the Centralized Partnership Audit Regime. See IRM 1.2.2.5.40, Servicewide Delegations of Authority.

4.31.9.1.3 (05-08-2026)

Roles and Responsibilities

  1. The Director, LB&I PTE PA, is the executive responsible for the policies and procedures in this IRM section.

  2. The Director, Examination Headquarters, is the executive responsible for providing policy and guidance for SB/SE examination employees and ensuring consistent application of policy, procedures and tax law administration.

  3. The Director of Field Operations (DFO), Pass-Throughs and DFO, Global High Wealth and High Income Compliance Strategy, provide oversight of PTE territory managers and issue policy and guidance to field employees to promote consistent application of policy, procedures, and tax law and to administer the tax laws while protecting taxpayer rights.

  4. The PTE territory managers, under DFO Pass-Throughs, and DFO Global High Wealth and High Income Compliance Strategy, provide procedural guidance on the BBA examination process and oversee the PTE team managers.

  5. The PTE team managers, under the PTE territory managers, provide management oversight of the field exam revenue agents and maintain responsibility for the overall management of the BBA case.

  6. The field exam revenue agents conduct thorough BBA examinations based on procedures set forth in this IRM.

  7. LB&I practice areas share an equal responsibility in conducting a thorough examination. Practice area directors are responsible for ensuring their employees follow the procedures outlined in the IRM.

  8. All IRS personnel have the responsibility to ensure that taxpayer rights are protected and observed under Pub 1, Your Rights as a Taxpayer.

4.31.9.1.4 (01-24-2024)

Program Management and Review

  1. Program Reports: Each year, an exam plan is created for partnership examinations.

  2. Program Effectiveness: The exam plan is monitored to ensure the partnership examination objectives are met. Open examinations are monitored to ensure a BBA determination is made and that the BBA Notice of Administrative Proceeding (NAP) date is entered on the Examination Returns Control System (ERCS).

4.31.9.1.5 (05-08-2026)

Program Controls

  1. The Audit Information Management System (AIMS) is the official system for monitoring inventory and activity controls of examination cases. It uses linkage to Integrated Data Retrieval System (IDRS) to input status changes, adjustments and case closing actions.

  2. The Examination Returns Control System (ERCS) is used to request, update and close returns under examination. ERCS is also used to record technical time spent on cases and monitor statute expiration dates.

4.31.9.1.6 (05-08-2026)

Terms/Definitions/Acronyms

  1. The following tables list commonly used terms and acronyms:

    Terms

    Term Definition
    Adjustment year Partnership tax year in which:

    • The decision of a court becomes final in a proceeding brought under IRC 6234;

    • An administrative adjustment request is filed under IRC 6227 or;

    • In any other case, a notice of final partnership adjustment is mailed under IRC 6231 or a waiver is executed to waive the restrictions under IRC 6232(b).

    Authorized person When a partnership designates a partnership representative (PR) or appoints a designated individual (DI) outside the filing of the originally filed Form 1065, it must do so by having an authorized person sign and submit a Form 8979 to the appropriate IRS point of contact. For this purpose, an authorized person is a person who was a partner at any time during the partnership tax year to which the designation, appointment, or change being made on a Form 8979 submission relates. If the authorized person is an entity reviewed year partner, the person signing on behalf of the entity partner must be able to legally bind that entity under applicable state law.
    BBA regime or PBBA regime Examination subject to the Bipartisan Budget Act of 2015 (BBA). This term is used interchangeably with "centralized partnership audit regime" or Partnership Bipartisan Budget Act (PBBA).
    Modification A request made by the audited partnership under IRC 6225(c), to modify the imputed underpayment, and/or adjustments that do not result in an imputed underpayment that were included in a notice of proposed partnership adjustment (NOPPA).
    Partnership Any partnership required to file a return under IRC 6031(a).
    Partnership adjustment Any adjustment to a partnership-related item as defined in IRC 6241(2)(B).
    Pass-through partner Any pass-through entity that holds an interest in a partnership.
    Push Out An election to push out adjustments to reviewed year partners under IRC 6226 instead of the partnership paying the imputed underpayment.
    Reviewed year Partnership tax year under exam or to which a partnership adjustment relates.
    Terminal partner The direct or indirect partner subject to Chapter 1 income tax of the partnership.

    Acronyms

    Acronym Definition
    AAR Administrative Adjustment Request
    AC Action Code
    ADR Alternative Dispute Resolution
    AIMS Audit Information Management System
    ASED Assessment Statute Expiration Date
    ATDNR Adjustments That Do Not Result
    BBA Bipartisan Budget Act of 2015
    BEO BBA Elect Out
    BMF Business Master File
    CAP Compliance Assurance Process
    CCP Centralized Case Processing
    CFD Case File Document
    CFR Code of Federal Regulations
    Ch 2/2A Chapters 2 and/or 2A of the Internal Revenue Code (IRC)
    DC Disposal Code
    DI Designated Individual
    ECI Effectively Connected Income
    EIN Employer Identification Number
    EPR Entity Partnership Representative
    ERCS Examination Returns Control System
    ESBT Electing Small Business Trust
    EUP Employee User Portal
    FDAP Fixed, Determinable, Annual or Periodical Income
    FIRPTA Foreign Investment in Real Property Tax Act
    FPA Notice of Final Partnership Adjustment (some IRS systems use a 3-character acronym)
    FTS Fast Track Settlement
    GP General Partner
    IDRS Integrated Data Retrieval System
    IIC International Individual Compliance
    ILSC Investor Level Statute Control
    IMD Internal Management Document
    IMS Issue Management System
    IRC Internal Revenue Code
    IPR Individual Partnership Representative
    ITC Investment Tax Credit
    IU Imputed Underpayment
    IUA Imputed Underpayment Amount
    LB&I Large Business & International
    LEP LB&I Examination Process
    LLC Limited Liability Company
    LP Limited Partnership
    MSNC Mandatory Standard Naming Convention
    NAP Notice of Administrative Proceeding
    NESE Net Earnings from Self-Employment
    NIIT Net Investment Income Tax
    NOPPA Notice of Proposed Partnership Adjustment
    PAP Partner Alternative Procedure
    PBBA Partnership Bipartisan Budget Act
    PCS Partnership Control System
    PMAR Partner Modification of Amended Return
    POA Power of Attorney
    POC Point of Contact
    PPA Notice of Proposed Partnership Adjustment (some IRS systems use a 3-character acronym for NOPPA)
    PR Partnership Representative
    PRI Partnership-Related Item
    PTE/PTEPA Pass-Through Entities Practice Area (some IRS systems use a 3-character acronym for PTEPA)
    PTP Pass-Through Partner
    PTPP Pass-Through Partnership Partner
    QBI Qualified Business Income
    QSST Qualified Subchapter S Trust
    RGS Report Generating Software
    SAIN Standard Audit Index Number(s)
    SB/SE Small Business/Self-Employed
    SECA Self-Employment Contributions Act
    SFR Substitute for Return
    SND Statutory Notice of Deficiency
    SOL Statute of Limitations
    SPDER Servicewide Policy, Directives, and Electronic Resources
    SRS Specialist Referral System
    TC Transaction Code
    TCS Tax Computation Specialist
    TDC Taxpayer Digital Communication
    TEFRA Tax Equity and Fiscal Responsibility Act of 1982
    TIN Taxpayer Identification Number
    TMP Tax Matters Partner
    TNPA Total Netted Partnership Adjustment
    TS Technical Services
    TSPC Technical Services Pass-Through Coordinator
    TWS IMS Team Website
    UBIA Unadjusted Basis Immediately After Acquisition
    UIL Uniform Issue List

4.31.9.1.7 (01-24-2024)

Related Resources

  1. See the BBA Centralized Partnership Audit Regime website.

  2. See the BBA landing page in the Partnership Knowledge Base on the virtual library.

  3. See Pub 5388, Bipartisan Budget Act (BBA) Roadmap for Taxpayers.

  4. See Rev. Proc. 2020-23, Revenue Examiner Guidance for Amended BBA Partnership Returns Under Revenue Procedure 2020-23.

  5. See Rev. Proc. 2021-29, Revenue Examiner Guidance for Amended BBA Partnership Returns Under Revenue Procedure 2021-29.

4.31.9.2 (05-08-2026)

General Guidelines

  1. A partnership must designate a partnership representative (PR) for each tax year. The PR has sole authority to act on behalf of the partnership. Partners are bound by the decisions made by the PR. Direct and indirect partners who have not been designated as the PR for the year under exam have no participation rights during the examination. There may only be one designated PR for a partnership’s tax year at any time. A power of attorney may not designate a PR.

  2. The BBA regime also provides that if an adjustment is identified due to a mathematical or clerical error on the partnership return, the IRS may make an adjustment to correct the error and may assess the partnership an imputed underpayment (IU) as a result of that adjustment. The notice to the partnership of a mathematical adjustment or correction of error is not considered a notice of final partnership adjustment under IRC 6231(a)(3). A math error correction also applies to an adjustment made to any inconsistently reported partnership-related item on a partner’s return when notice of such inconsistency is not provided.

  3. Adjustments to partnership related items, and the applicability of any penalty, addition to tax, or additional amount (plus interest as provided by law) that relates to such adjustment are generally determined and assessed at the partnership level.

  4. After a case is disposed from the field to Technical Services for issuance of a notice of proposed partnership adjustment (NOPPA), if applicable, the subsequent phases of the examination process will be handled by CCP, Technical Services, Appeals, or BBA Operations. A no-change case (no PCS linkage) is closed directly from the field to CCP.

  5. The payment relating to any imputed underpayment, interest or penalties that is made by the partnership is non-deductible and must be treated as an expenditure described in IRC 705(a)(2)(B).

  6. These procedures apply to all partnerships for tax years beginning after December 31, 2017, unless a valid election out of the BBA regime described in IRC 6221(b) has been made.

  7. These procedures also apply to partnerships that elect into the BBA regime for tax years beginning after November 2, 2015, and before January 1, 2018. Refer to IRM 4.31.9.13, Early Elections.

  8. Examiners and managers are expected to know and follow general examination procedures and principles, specifically, those found throughout the series of IRM 4.10, Examination of Returns. In addition, for LB&I the series of IRM 4.46, LB&I Examination Process, must be used. The guidance in this IRM will focus on examination processes and procedures for the BBA regime.

  9. Document and file all actions, determinations, forms, letters, and job aids relating to BBA under a 600 Section for SB/SE or SAIN 724 for LB&I cases.

4.31.9.3 (05-08-2026)

Delinquent Return and Substitute for Return (SFR)

  1. Delinquent returns and substitute for returns (SFRs) are subject to the BBA regime because an election out of the BBA regime can only be made on the eligible partnership’s timely filed return. By definition, delinquent returns and SFRs are not timely.

    1. If the secured delinquent return includes such an election out, it is automatically deemed invalid and should be denied.

    2. If a partnership files a return before the filing due date without an election out of BBA and subsequently files a superseding return on or before the due date that includes an election out of BBA, the election on the superseding return is valid, provided all other requirements under IRC 6221(b) are met. For more information on superseding returns, see IRM 21.7.9.3.4, Business Master File (BMF) Superseding Tax Returns.

    3. Refer to IRM 4.4.9, Delinquent and Substitute for Return Processing, for AIMS procedures and processing instructions for delinquent returns and substitute for returns.

  2. Issue Letter 3798, Non-Filer Appointment, first in non-filer cases where return solicitation language is unwarranted. Letter 3798 is not a notice of selection for examination.

  3. Once you determine to conduct an examination of a non-filed or late filed return, issue Letter 2205-D, Initial Contact to Schedule Appointment - Partnership Returns, and follow the BBA procedures, including completion of Form 15262, Bipartisan Budget Act (BBA) Partnership Procedures Check Sheet.

    Note:

    For non-filed returns, establish the SFR before mailing the Letter 2205-D.

  4. Per IRM 4.4.9.5.3.1.1(2), Prepare Case for Closing, all SFRs having tax adjustments that follow deficiency procedures must have a completed Form 13496 , IRC Section 6020(b) Certification, including those with the failure to pay (FTP) penalty applied under IRC 6651(g) and BBA imputed underpayment. See IRM 20.1.2, Penalty Handbook - Failure to File/Failure to Pay Penalties, for more information.

  5. When examining a BBA delinquent return or SFR, consider Chapter 2/2A implications. If there is a material adjustment to self-employment earnings or net investment income tax, the relevant partners must be linked if a Ch 2/2A adjustment is pursued. See IRM 4.31.9.6.2, Auditing Chapters 2 & 2A - BBA Partnership is the Key Case. Link the relevant partners regardless of whether they are also non-filers. If the relevant partners are non-filers, field examiners may be required to set up an SFR exam for these partners.

  6. Failure to File Penalty (IRC 6698, Failure to File Partnership Return) considerations - This penalty is not part of the IU computation and will need to be assessed separately.

4.31.9.3.1 (05-08-2026)

Processing a Delinquent Partnership Return

  1. If a return is received after an SFR TC 150 has posted, see IRM 4.4.9.6, Delinquent Return Received After SFR TC 150 Posted at MF.

    • BBA, unlike other pass-through regimes, does not allow for linking and the related campus consistency checks of linked partner returns with filed Sch K-1s unless it involves a Ch 2/2A examination and assessments at the partner level. With a BBA SFR, all amounts must, by default, be included in a BBA report. However, agents have the discretion to not include the amounts if the partners included their Sch K-1s with their respective tax returns.

      Example:

      A Form 1065 was prepared, Sch K-1s were distributed, and the partners included the Sch K-1s with their respective Form 1040s. However, that Form 1065, for whatever reason, was not e-filed with the IRS. In this example, it would be appropriate for the IRS to exclude the SFR amounts in a BBA report.

    • Do not forward the delinquent return to submission processing or CCP for posting of a TC 150.

      Reminder:

      If the return is received after SFR TC 150 has posted, the amounts on the secured return must be incorporated into an examination report and assessed as a TC 300. See IRM 4.4.9.6, Delinquent Return Received After SFR TC 150 Posted at MF.

    • Request the input of a TC 971 AC 282 using the return received date in the trans date field. This updates the master file to show that examination secured a delinquent return. When exam controls are requested on an unfiled return using Push Code 036, this automatically generates an SFR and inputs a TC150 on the module.

  2. Update the IRC 6235(a)(1) date to 3 years from the date that the delinquent return was received. For delinquent return statute concerns, see IRM 4.4.9.6.2, Statute Concerns.

  3. Prepare BBA Reports and Form 5344, Examination Closing Record. See IRM 4.4.9.6.3.1, Prepare Examination Report and Form 5344, Examination Closing Record.

4.31.9.3.2 (05-08-2026)

Determining a Partnership Representative (PR) When the Partnership is a Non-Filer

  1. Issue Letter 2205-D, Initial Contact to Schedule Appointment - Partnership Returns, with paragraph 5 selected for BBA. In the field that lists the PR, the examiner should write "OUR RECORDS DO NOT REFLECT A PARTNERSHIP REPRESENTATIVE FOR THE PARTNERSHIP TAXABLE YEAR" .

  2. Allow 30 days for the partnership to submit a Form 8979, Partnership Representative Designation or Resignation, that properly designates a PR. Utilize Form 15416, Validation Check Sheet for Form 8979, Partnership Representative Designation or Resignation, to determine if the Form 8979 is valid.

    • If a valid Form 8979 is received, proceed to paragraph 4 below, in this section.

    • If a valid Form 8979 is not received, proceed to paragraph 3 below, in this section.

  3. The examiner and manager should proceed in accordance with IRM 4.31.9.7.6.6, Opportunity for the Partnership to Timely Designate a PR.

  4. When it is time to send the notice of administrative proceeding (NAP) letters, refer to IRM 4.31.9.8.1, Notice of Administrative Proceeding (NAP), to correctly issue the NAP letters.

    Reminder:

    It is a best practice to print and save the INOLES and save the certified mail receipt (the receipt for mailing, not the green signature card) for both NAP letters and file them under Section 600 for SB/SE and SAIN 724 for LB&I.

4.31.9.4 (05-08-2026)

Compliance Assurance Process For LB&I

  1. The Compliance Assurance Process (CAP) is a method of identifying and resolving tax issues through open, cooperative, and transparent interaction between the IRS and LB&I taxpayers prior to the filing of a return. Refer to IRM 4.51.8, Compliance Assurance Process, for CAP information and procedures.

  2. Partnerships participating in the CAP are only subject to the BBA regime during the post-filing phase of the audit. The post-filing representation procedures for issues will be performed under the BBA regime. See CAP IRMs below for additional reference:

    • IRM 4.51.8.3.6, Post-Filing Representation

    • IRM 4.51.8.3.7, Post-Filing Full and Partial Acceptance Letters

    • IRM 4.51.8.3.8, Post-Filing Review

4.31.9.5 (01-24-2024)

Partnerships in Bankruptcy or Partnerships That Cease to Exist

  1. BBA partnerships in bankruptcy or that have ceased to exist may still be examined. Active examinations can still be completed after a change in status.

  2. In general, the running of any period of limitations for making a partnership adjustment and assessment or collection of the imputed underpayment is suspended during the period the IRS is prohibited from making the adjustment, assessment or collection in a Title 11 case. The following actions are allowed in Title 11 cases:

    1. A BBA examination

    2. The mailing of any notice with respect to a BBA examination,

    3. The issuance of a NAP, NOPPA, and FPA,

    4. A demand for tax returns,

    5. The assessment of any tax and imputed underpayment, or

    6. The issuance of notice and demand for payment.

  3. For information on bankruptcy examinations and points of contact, refer to:

    1. IRM 4.27.1, Bankruptcy, Examiner Responsibilities and Procedures

    2. LB&I Bankruptcy & Remittance Table of Contents

    3. Bankruptcy Knowledge Base

    4. LB&I Bankruptcy & Remittance Guide

    5. Technical Services Exam Bankruptcy Coordinator

  4. When a partnership ceases to exist for BBA purposes, partnership adjustments shall be taken into account by the former partners of the partnership. A partnership ceases to exist if the IRS determines that a partnership (including partnership-partner):

    1. Terminates within the meaning of IRC 708(b)(1), or

    2. Does not have the ability to pay, in full, the amount due or that may be due (not collectible).

  5. The cease to exist determination will be made by BBA Operations. A partnership ceases to exist if the IRS determines that the partnership does not have the ability to pay in full the amount that the partnership may become liable for under the centralized partnership audit regime.

4.31.9.6 (05-08-2026)

BBA Scope – Adjustments at the Partnership Level

  1. A partnership adjustment and the applicability of any penalty, addition to tax, or additional amount that relates to such adjustment is determined at the partnership level. Any legal or factual determinations underlying any partnership adjustment or determination are also determined at the partnership level.

  2. A partnership adjustment is any adjustment to a partnership-related item (PRI) and includes any portion of an adjustment to a PRI. IRC 6241(2)(B) and 26 CFR 301.6241-1(a)(6) define the term PRI as:

    1. Any item or amount with respect to the partnership which is relevant in determining the tax liability of any person under Chapter 1 of subtitle A of the code;

    2. Any partner’s distributive share of any such item or amount; and

    3. Any imputed underpayment determined under the BBA regime.

  3. An item or amount is with respect to the partnership if it’s:

    1. Shown or reflected, or required to be shown or reflected, on a return of the partnership under IRC 6031, the regulations thereunder, or the forms and instructions prescribed by the IRS for the partnership’s tax year or is required to be maintained in the partnership’s books or records, or

    2. Relating to any transaction with, liability of, or basis in the partnership but only if it’s described in the preceding sentence.

    Note:

    An item or amount shown or required to be shown on a return of a person other than the partnership (or in that person’s books and records) that results after application of the IRC to a PRI based upon the person’s specific facts and circumstances, including an incorrect application of the IRC or taking into account erroneous facts and circumstances of the partner, is not an item or amount with respect to the partnership. Therefore, an item described in the previous sentence is not a PRI.

  4. Examples of PRIs include:

    1. The character, timing, source, and amount of the partnership’s income, gain, loss, deductions, and credits;

    2. The character, timing, and source of the partnership’s activities;

    3. The character, timing, source, value, and amount of any contributions to, and distributions from, the partnership;

    4. The partnership’s basis in its assets, the character and type of the assets, and the value (or revaluation) of the assets;

    5. The amount and character of partnership liabilities and any changes to those liabilities from the preceding tax year;

    6. The category, timing, and amount of the partnership’s creditable expenditures;

    7. Any item or amount resulting from a partnership termination;

    8. Any item or amount resulting from an election under IRC 754;

    9. Partnership allocations and any special allocations; and

    10. The identity of a person as a partner in the partnership.

  5. Examples of items that are not PRIs include:

    1. A deduction shown on the return of a partner that results after applying (correctly or incorrectly) a limitation under the IRC (such as IRC 170(b)) at the partner level to a partnership-related item based on the partner’s facts and circumstances;

    2. A partner’s adjusted basis in their partnership interest (outside basis);

    3. A determination whether a partner is at risk, within the meaning of IRC 465, in the activity of the partnership; and

    4. A determination whether a partner materially participates or is passive, within the meaning of IRC 469, in the activity of the partnership.

    5. Chapter 2 Self Employment Income - SECA tax is not a PRI. However, an adjustment to net earnings from self-employment earning (NESE) to Schedule K/K-1 Line 14 is a PRI.

    6. Chapter 2A Unearned Income Medicare Contribution - NIIT.

    Note:

    The partner’s adjusted basis may be affected by adjustments to PRIs.

  6. There are two types of PRI:

    Types of partnership-related items (PRIs) Description
    Income items

    • Consist of adjustments to income, gain, loss, deduction or credit

    • Can be a positive, negative, or zero adjustment
    Non-income items

    • Consist of adjustments to assets, liabilities, capital, and information items

    • Always positive, or zero (if applying discretion under 26 CFR 301.6225-1(b)(4))

  7. Examples of how PRIs and non-PRIs are adjusted or reported:

    PRI and Non-PRI Examples How item is adjusted or reported
    Nondeductible partnership adjustments If it is determined that certain expenses that were deducted on the return are nondeductible expenses, the adjustment to the nondeductible expense should be reflected as a negative adjustment to Schedule K, Line 18c.


    The adjustment is considered an adjustment that does not result in an imputed underpayment (ATDNR) and is reported in the adjustment year. Such adjustments are placed in the residual grouping (unless it is a reallocation of a nondeductible adjustment).

    Example:

    The IRS determines that the partnership deducted expenses were not entitled to be deducted. This results in a recharacterization adjustment under 26 CFR 301.6225-1(c)(6) because it recharacterizes an expense from one that is deductible to one that is not. Therefore, the following scenarios can occur:

    1. Positive adjustment: A positive adjustment would be made to the residual grouping because reducing deductible expenses constitutes a decrease in an item of loss or deduction. See 26 CFR 301.6225-1(d)(2)(i)(D).

    2. Negative adjustment: A negative adjustment would be made to the residual grouping because nondeductible expenses constitute an increase in an item of loss or deduction. See 26 CFR 301.6225-1(d)(2)(i)(C).

    3. The positive adjustment would create an IU, and the negative adjustment would be taken into account on the partnership adjustment year return. See 26 CFR 301.6225-1(f).
    Non-monetary partnership adjustments Non-monetary amounts are maintained and reported to partners by the partnership. Non-monetary amounts are partnership-related items that do not have dollar values. Examples include, but are not limited to:

    • The reporting on Schedule K-1, Line 20c, Other items and amount Code C Fuel Tax credit information which is reported in the number gallons sold or used,

    • Partner’s status as a limited or general partner,

    • A determination that the partnership did not make a valid election under IRC 754, and

    • Whether the partnership made a valid election to be treated as a qualified opportunity fund.




    Adjustments to non-monetary PRIs should generally be treated as ATDNR when they do not form the basis of, or underlie, an adjustment to a monetary PRI. However, when an adjustment to a non-monetary PRI forms the basis of, or underlies, one or more adjustments to a monetary PRI, it might be appropriate to instead treat the adjustment as an adjustment resulting in an IU. A mandatory referral must be made so that a BBA POC can consider whether the adjustment to the non-monetary adjustment would be more appropriately treated as an ATDNR or an adjustment resulting in an IU. See IRM 4.31.9.7.2, Mandatory Referral to the BBA Point of Contact (POC). When a partnership cases to exist for BBA purposes, the partnership adjustments shall be taken into account by the former partners of the partnership.
    Adjustments to Schedule K, Line 15(f) - Other Credits - Code O This line item relates to credits that are for backup withholding on dividends, interest, and other types of income of the partnership under Chapters 3 and 4. Thus, such adjustments are not an adjustment to a PRI and are not within the scope of BBA.


    Any proposed changes to this line item are considered ministerial acts and must be corrected through the filing of an amended return within the allowed time prescribed under IRC 6501 and IRC 6511.
    Schedule K, Line 20c - Other Items and Amount Basis of Energy Property - Code E 26 CFR 1.46-3(f) provides that the partnership’s basis in energy property is allocated to the partners, and each partner computes the investment tax credit (ITC) based on such partner’s share of eligible basis. The partnership reports out to its partners the basis of the energy producing property that is placed in service in addition to some other miscellaneous disclosures about kilowatts produced and energy efficiency percentages. These disclosures are reported to show the property qualifies for the energy credit.


    The basis of property is recorded on Form 3468, Investment Credit. If an adjustment is proposed to the partnership’s basis in this property, then any adjustments needed to the basis of the qualified property that is reported by the partnership to its partners is a PRI and can be included in an IU computation. The adjustment is placed in the creditable expenditure grouping.
    Schedule K, Line 20c - IRC 453A(c) information - Code P The partnership is required to supply any information related to installment obligations due to disposition of properties under the installment method. IRC 453A requires the partners to pay interest on the deferred tax liability from gain reported under the installment method. The interest charge is required to be computed at the partner level if the sales price exceeds $150,000 and the aggregate amount of all installment obligations for the partner, outstanding as of the close of the taxable year, exceeds $5 million. See IRC 453A(b)(2).


    The partnership is required to provide the partners with specific reporting information. These items are non-income partnership related items which include the following:

    • Description of property.

    • Date acquired.

    • Date property sold.

    • *Selling price, including mortgages and other debts, not including interest, whether stated or unstated.

    • *Mortgages, debts, and other liabilities the buyer assumed or took the property subject to.

    • *Gross profit.

    • *Contract price.

    • Gross profit percentage.

    • *Current year payments and deemed payments received during the year, not including interest whether stated or unstated.

    • *Origination year payments and deemed payments received during the year, not including interest whether stated or unstated.

    • *Prior year payments, not including interest whether stated or unstated.

    • Installment sale income.

    • Character of income - capital or ordinary.



    (*) denotes dollar specific reporting requirements exist.

    If the partnership fails to properly report any of the PRIs, you can propose an adjustment. The non-income adjustments are placed in the residual grouping in a separate and distinct subgrouping. You must consider whether to treat the adjustments as zero for the purpose of calculating the IU, see IRM 4.31.9.9.2.9, Consistent Application of IRS Discretion to Treat an Adjustment as Zero for Computing an IU.
    Partners’ capital accounts Since 2020, partnerships have been required to report partners’ tax capital account information as part of filing its Form 1065 and related Schedules K-1. Because the tax capital account information is required to be reported on the partnership return (on the Schedule K-1), it could, in some circumstances, be relevant in determining the Chapter 1 liability of any person because some adjustments may result in an adjustment to the partner’s outside basis. Tax capital accounts are non-income PRIs. Such adjustments are placed in the residual grouping.
    Discrepancy between Form 1065, Schedule K and Schedule K-1 Multiple lines on Form 1065, page 1, comprise the ordinary business income (loss) on Schedule K, Line 1. These amounts are also allocated to the partners on Schedule K-1. If ordinary income is reported correctly and consistently on the Form 1065 but a partner’s Schedule K-1 omits ordinary income, this is an adjustment to a PRI.


    A particular partner’s distributive share of a PRI is a separate PRI from the aggregate of the allocations (that is, a partner’s share of ordinary income versus the partnership’s overall ordinary income). Therefore, changing a particular partner’s distributive share of a PRI is an adjustment that is separate from an adjustment to the aggregate number such that the ordinary income missing from the Schedule K-1 would be an adjustment even if total ordinary income was reported correctly on the Form 1065. See IRC 6241(2)(B)(ii) and 26 CFR 301.6241-1(a)(6)(v)(A) as it relates to a partner’s distributive share.
4.31.9.6.1 (10-29-2021)

Non-Chapter 1 Taxes

  1. The BBA regime applies to Subtitle A, Chapter 1 Income Tax only and will not apply to the other taxes as shown below.

    1. Chapter 2 (Tax on Self-Employment Income – “SECA”)

    2. Chapter 2A (Unearned Income Medicare Contribution – “NIIT”)

    3. Chapter 3 (Withholding of Tax on Nonresident Aliens and Foreign Corporations)

    4. Chapter 4 (Taxes to Enforce Reporting on Certain Foreign Accounts)

    Note:

    No guidance exists for coordination of the BBA regime with Chapter 6 Consolidated Returns or any other Subtitle of the section at the time this IRM was released.

  2. If the IRS adjusts PRIs or determinations about PRIs in a BBA audit, those adjustments or determinations must be considered when determining a tax under Chapters 2, 2A, 3 & 4.

  3. In the case of any partnership adjustment determined under the BBA regime, IRC 6501(c)(12) provides the period for assessment of any tax imposed on a partner under Chapter 2 or 2A which is attributable to such adjustment shall not expire before the conclusion of the BBA audit which is the date that is one year after one of two following events:

    1. In the case of an adjustment pursuant to the decision of a court in a proceeding brought under IRC 6234, the period for assessment shall not expire before the date that is one year after the decision becomes final.

    2. In any other case, the period for assessment shall not expire before one year and 90 days after the date on which the notice of final partnership adjustment (FPA) is mailed under IRC 6231.

  4. If a partnership adjustment subjects the partnership to withholding requirements under Chapter 3 or 4, the partnership can either pay the Chapter 1 tax (imputed underpayment under IRC 6225) allocable to the foreign partner’s distributive share of the adjustment or, if electing to push out the adjustments, remit Chapter 3 or 4 withholding tax on the foreign partner’s distributive share of the adjustment and file all applicable withholding tax returns.

4.31.9.6.2 (05-08-2026)

Auditing Chapters 2 & 2A (Ch 2/2A) – BBA Partnership is the Key Case

  1. All partnerships are required to determine a partner’s distributive share of net earnings from self-employment on Sch K/K-1 Line 14. Partnerships are also required to classify partners who are individuals as active or passive on the Analysis of Net Income (Loss). Partnerships do not determine whether their partners are subject to net investment income tax (NIIT). However, partnerships are required to give partners information to allow partners to correctly figure their NIIT. Partnerships report information about NIIT by giving information directly to partners or on Schedules K and K-1, line 20, code Y (Line references 2018 through the current version).

    • Self-Employment Contributions Act (SECA) and/or NIIT may be collected through a process that is outside the BBA regime. For BBA audits with relevant partners, additional partner level SECA and/or NIIT may be adjusted or assessed at the conclusion of the BBA audit. The relevant partners are determined on Form 15263 .

    • IRC 6501(c)(12) holds open the partners’ IRC 6501(a) statutes for one year after adjustments made under the BBA regime become final for the purpose of adjusting or assessing any partner level SECA and/or NIIT related to a BBA partnership adjustment.

    • Examiners are required to make a relevant partner determination by completing Form 15263 for the purpose of adjusting or assessing additional partner level SECA and/or NIIT at the conclusion of the BBA audit.

  2. If there are relevant partners, PCS Linkage is required. See IRM 4.31.9.6.4, BBA Linkage Procedures. If there are no relevant partners, no linkage is required.

  3. The partners’ returns can be controlled in the field or by the Ogden PTE BBA Ch 2/2A Team but they must be PCS linked.

  4. Examiners must link relevant partners’ returns when working an NIIT and/or SECA issue. For partners who claim they are not subject to either SECA nor NIIT on their distributive share of partnership trade or business income, examiners must control the partner’s return and prepare a partner-specific Form 886-A detailing why the partner is subject to either SECA or NIIT. The examiner must also issue to the partner Form 4549 for an agreed case or Form 4549-A for an unagreed case that will reflect SECA or NIIT adjustments (please see document, Gaps between the Net Investment Income Tax Base and the Employment Tax Base).

  5. Please refer to the table below for scenarios when auditing Chapter 2/2A, when the BBA partnership is the key case:

    If... Then...
    The partnership did not allocate NESE to the partner on the partner’s Schedule K-1, Line 14a, and the partner claims not to be subject to SECA. However, a determination was made that the partner is subject to SECA and a related adjustment to Schedule K or Schedule K-1, Line 14a on the BBA partnership’s return was proposed. The examiner will do the following:

    1. Take control of the partner’s return,

    2. Issue to the partner a partner’s specific Form 886-A, and

    3. Issue to the partner Form 4549 for an agreed case or Form 4549-A for an unagreed case that will reflect SECA adjustments.
    The partnership allocated NESE to the partner on the partner’s Schedule K-1, Line 14a, and the partner reported SECA accordingly. An adjustment to Schedule K or Schedule K-1, Line 14a on the BBA partnership’s return was proposed. The Chapter 2/2A team will issue to the partner Form 4549 at the conclusion of the BBA audit because there is a correlative adjustment to the BBA PRI. For more information, refer to Exhibit 4.31.9-1, Example 1 - $1,000,000 Adjustment to Schedule K, Line 1 Ordinary Income/Loss and $1,000,000 Adjustment to Sch K, Line 14 NESE-IRC 6501(c)(12) applies if there are no other non-pass-through unagreed issues.


    Alternatively, if the examiner controls the partner’s tax return, the examiner may offer to issue Form 4549 during the partner’s audit.
    There are other non-pass-through issues at the partner level. See IRM 4.31.9.6.5 Processing Partner Non-Pass-Through Adjustments.
    There is a determination that the partner is subject to NIIT. There is generally no correlative adjustment to a BBA PRI. If the partner has not reported NIIT on the partner’s originally filed tax return, the field examiner must do the following:

    1. Take control of the partner’s return to propose an NIIT adjustment,

    2. Issue to the partner a partner’s specific Form 886-A, and

    3. Issue to the partner Form 4549 for an agreed case or Form 4549-A for an unagreed case to adjust and assess the NIIT.



    For all other scenarios, refer to Exhibit 4.31.9-2, Example 2 - $1,000,000 Adjustment to Sch K Portfolio Income Items - IRC 6501(c)(12) applies.
4.31.9.6.3 (05-08-2026)

Auditing Chapters 2 & 2A (Ch 2/2A) – Form 1040 is the Key Case

  1. Assessments of Chapters 2 & 2A (Ch 2/2A) taxes are made at the partner (direct and indirect) level in proceedings outside of the BBA regime.

  2. For examiners auditing a BBA partnership but not auditing its partners, the procedure for assessing Ch 2/2A taxes resulting from partnership adjustments is to link the relevant partners of the BBA partnership and allow the BBA Ch 2/2A Team to assess the additional Ch 2/2A taxes, at the partner level, at the conclusion of the BBA examination in the one-year period under IRC 6501(c)(12). See IRM 4.31.9.6.5, Processing Partner Non-Pass-Through Adjustments.

  3. For examiners auditing both a BBA Partnership and its partners, the examiner is required to link the key Form 1065 and relevant partners. The examiner may allow the BBA Ch 2/2A Team to assess the additional Ch 2/2A taxes, at the partner level, at the conclusion of the BBA examination; or, under 26 CFR 301.6241-6 , to the extent an adjustment or determination is made under subchapter C of Chapter 63 for purposes of Chapter 1 and is relevant in determining tax imposed under Chapter 2/2A , such adjustment or determination can be taken into account for purposes of determining and assessing any additional Ch 2/2A tax related to those adjustments to PRIs. See IRM 4.31.9.6.5, Processing Partner Non-Pass-Through Adjustments.

  4. When the examiner has secured the partner return and is examining only the issue of Ch 2/2A related to a BBA partnership, the examiner should use Letter 2205, Initial Contact, to inform the partner of the examination instead of Letter 3458, Notice of Potential Adjustment Affecting Taxes under Chapters 2 and 2A. If the partner’s return is not controlled or audited, issue Letter 3458 to inform the partner of the examination. This assures the partner’s first contact is not a request for a statute extension, a 30-day letter, or a notice of deficiency. Consider separate notice requirements for taxpayers filing joint returns.

4.31.9.6.4 (05-08-2026)

BBA Linkage Procedures

  1. PCS linkage is required when auditing a BBA partnership that is a key case, and the agent has determined there are additional assessments of Ch 2/2A taxes to be made at the partner level; this is because partners are subject to general deficiency proceedings for assessment of SECA or NIIT related to BBA Partnership adjustments.

  2. The examiner and manager must determine who the relevant partners are (direct or indirect) prior to submitting the PCS linkage request. Form 15263, Bipartisan Budget Act (BBA) Partnership Chapter 2/2A Relevant Partner Determination, has been developed to assist the examiner in making relevant partner determinations. A relevant partner determination for BBA linkage purposes is based on IRM 25.6.23.4.5.1, Inconsistent Application for Investor Returns - ILSC, for inconsistent application for investor returns. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  3. Form 15264, Bipartisan Budget Act (BBA) Chapter 2/2A Linkage Check Sheet, is used to submit linkages for BBA Partnerships with relevant partners that have Chapter 2/2A issues.

  4. The group manager must review the package and sign both Form 15263 and Form 15264 before submission to the linkage mailbox. The manager’s signature on Form 15263 signifies approval of the relevant partners or lack of relevant partners. The manager’s signature on Form 15264 indicates the linkage package has been reviewed, is accurate and complete. Incomplete packages may be returned to the group and will cause a delay in the linkage. If there are no relevant partners determined on Form 15263, then Form 15264 is not required.

  5. Where the examiner is controlling a partner’s return, the examiner is responsible for protecting the partner’s IRC 6501(a) statute. The examiner is responsible for securing partner statute extensions using the version of Form 872 appropriate for each partner. Examiners are always responsible for statutes for partners under their control. For additional information, refer to IRM 4.31.9.6.2, Auditing Chapters 2 & 2A (Ch 2/2A) – BBA Partnership is the Key Case. For further information, refer to IRM 4.31.9.6.5, Processing Partner Non-Pass-Through Adjustments and IRM 4.31.5.11, Investor Level Statute Control (ILSC) Examinations - Field Office Procedures, Extension of Investor Statute for ILSC Items.

  6. Before submitting the linkage package, first update ERCS (via Form 5348 - PBBA Section, BBA-Chapter-2-2A-CD) with the Ch 2/2A codes:

    Value Literal Term Used on Form 15264 Definitions
    0 No Issues/ Default N/A N/A
    1 SECTION6501c12OYD Programming to be changed to: StandardPartnerLanguage Campus controlled partner (standard language partner to determine whether C2 and/or C2A tax applies) Applies when the partner reported their distributive share of Sch K, Line 1 as either subject to SECA or NIIT, any guaranteed payment adjustment subject to SECA, and any investment income such as interest, dividends, and capital gains subject to NIIT. Under the standard language partner option, the relevant partners are generally controlled by campus.
    2 SECTION6501a Dual Programming to be changed to: FieldDraftedLanguage Field controlled partner (field drafted language partner to determine whether C2 and/or 2A tax applies) Applies when the partner did not report their distributive share of Sch K, Line 1 as either subject to SECA or NIIT. Includes non-filers. Under the field drafted language partner option, all relevant partners are required to be controlled by the field agent.
    3 SECTION6501a and c12 Programming to be changed to: FieldDraftedLanguageAndStandardPartnerLanguage Standard language partner and field drafted language partner. Applies when a partnership has both types of partners.
    4 Withdrawn N/A N/A
4.31.9.6.5 (05-08-2026)

Processing Partner Non-Pass-Through Adjustments

  1. The examiner may have AIMS control of a partner that is linked because either the examiner controls the BBA partnership as well as the partner or that the partner is linked by another BBA partnership with Ch 2/2A issues. Below are sample scenarios to help you correctly process a partner with non-pass-through adjustments.

  2. Scenario 1 - Partner No-Change or Survey: You audit an individual for non-pass-through items and that individual is linked to a BBA partnership. If you do not propose any non-pass-through adjustments, then you will close the individual to the Technical Services pass-through coordinator (TSPC) due to the linkage. Before closing the case to the TSPC, you must update the partner’s statute to alpha code AF (or RR until AF is available) if the partner’s statute is within 210 days of expiration. The TSPC will send the individual to CCP to address the no-change or survey. Once CCP processes the no-change or survey and if applicable, CCP will transfer the individual to the Ogden PTE BBA Ch 2/2A Team to suspend the return until the BBA audit is finalized and the Ch 2/2A issues stemming from the BBA audit can be finally determined and assessed. The table below shows the available options and required action for this scenario:

    Available options Action required
    Option 1: Partner disposition is a no-change or survey for non pass-through items and BBA disposition is a no-change (full no-change or BBA partnership changes do not affect the partner’s self employment tax or NIIT with respect to the partner).

    1. Prepare a Form 8339 for the TSPC. The Form 8339 will resolve the linkage if the partnership is determined to be a no-change for the BBA Ch 2/2A issue or the examiner must revise their relevant partner determination if the no-change determination applies only to the specific partner.

    2. Ensure the BBA audit’s Form 4605-A and Form 886-S in the BBA audit file consistently reflect any adjustment to this partner as zero or submit a new relevant partner determination stating there are no relevant partners.
    Option 2: Partner disposition is a no-change for non pass-through items and BBA partnership disposition is a change that affects the partner.

    1. If the partner(s) wants to agree to the determination and assessment of SECA before the BBA case is resolved, issue Form 4549 to the partner, include any Ch 2 and/or 2A adjustments and add in the explanation of items section the following language, “The IRS is, under Treas. Reg. 301.6241-6, adjusting PRIs on this partner’s return solely for the purpose of adjusting and assessing additional Ch 2 and/or 2A tax related to the partner’s interest in the BBA partnership.” The examiner utilizing this option must include a Form 8339 to resolve the linkage when closing a linked partner to the TSPC.

    2. If the partner(s) does not want to agree to the determination and assessment of SECA before the BBA case is resolved, issue the Form 4549 to a BBA linked partner and do not include any Ch 2 and/or 2A tax on Form 4549. The following statement should be added in the explanation of items: “The following BBA partnerships are subject to partnership level proceedings pursuant to the Centralized Partnership Audit Regime under Subchapter C of Chapter 63 of the IRC with respect to the taxable year(s) included in this report and accordingly, you may be notified of an additional deficiency under Chapters 2 and/or 2A, to the extent partnership adjustments are relevant to such determination: [LIST BBA PARTNERSHIP LINKAGES].”
    Option 3: Partner disposition is a no-change for non pass-through items and BBA partnership disposition is not yet known. Issue a Form 4549 to a BBA linked partner and do not include any Ch 2 and/or 2A tax on Form 4549. The following statement should be added in the explanation of items: “The following BBA partnerships are subject to partnership level proceedings pursuant to the Centralized Partnership Audit Regime under Subchapter C of Chapter 63 of the IRC with respect to the taxable year(s) included in this report and accordingly, you may be notified of an additional deficiency under Chapters 2 and/or 2A, to the extent partnership adjustments are relevant to such determination: [LIST BBA PARTNERSHIP LINKAGES].”

  3. Scenario 2 - Agreed: You audit an individual for non-pass-through items and audit the related BBA partnership. You propose non-pass-through adjustments. The individual is linked to the BBA partnership for material IRC 6501(c)(12) Ch 2/2A issues. If the individual agrees with their individual non-pass-through adjustments, then you have two options with respect to the Ch 2/2A taxes related to the BBA partnership adjustment:

    Note:

    The NIIT or SECA coverage issue is a non-pass-through adjustment which is described as the determination that a partner is subject to either NIIT or SECA when the partner claimed they were not subject to either on their original (unadjusted) distributive share of items included on their Schedule K-1. If the partner-level adjustment is to subject the partnership income to NIIT, then the partner’s IRC 6501(a) statute must be protected. Similarly, in rare instances, if the partner-level adjustment is to subject the partnership income to self-employment tax, but the partnership reported income to the partner as subject to self-employment tax, then the partner’s IRC 6501(a) statute must be protected.

    Available options Action required
    Option 1: The partner agrees with the additional Ch 2/2A taxes related to the BBA partnership adjustment and wants the adjustments to be included on Form 4549.

    1. You will include the additional Ch 2/2A tax on the partner’s Form 4549. The report should specifically note: “The IRS is, under Treas. Reg. 301.6241-6, adjusting PRIs on this partner’s return solely for the purpose of adjusting and assessing additional Ch 2 and/or 2A tax related to the partner’s interest in the BBA partnership.”

    2. Include Form 8339 to resolve the linkage when closing a linked partner to the TSPC.
    Option 2: The partner disagrees with the additional Ch 2/2A taxes related to the BBA partnership adjustment or BBA partnership disposition is not yet known. The next processing step is based on the number of days left on the partner’s ASED. See below:

    1. Partner has less than 210 days on their ASED, you must close the partner’s tax return with a partial assessment (process a prompt assessment if there are less than 90 days), and update the partner’s statute to alpha code AF (or RR until AF is available) before closing the case to the TSPC. The individual will be transferred to the Ogden PTE BBA Ch 2/2A Team to suspend the return until the BBA audit is finalized and the Ch 2/2A issues stemming from the BBA audit can be finally determined and assessed. Add the following statement in the explanation of items: “The following BBA partnerships are subject to partnership level proceedings pursuant to the Centralized Partnership Audit Regime under Subchapter C of Chapter 63 of the IRC with respect to the taxable year(s) included in this report and accordingly, you may be notified of an additional deficiency under Chapters 2 and/or 2A, to the extent partnership adjustments are relevant to such determination: [LIST BBA PARTNERSHIP LINKAGES].”

    2. Partner has 210 days or more on their ASED, you will close the individual to the TSPC due to the linkage and, prepare all the partial documents and including them in the case file. The TSPC will send the individual to CCP for a partial assessment of the individual’s non-pass-through adjustments. Once CCP inputs this partial assessment, the individual will be transferred to the Ogden PTE BBA Ch 2/2A Team to suspend the return until the BBA audit is finalized and the Ch 2/2A issues stemming from the BBA audit can be finally determined and assessed. Add the following statement in the explanation of items: “The following BBA partnerships are subject to partnership level proceedings pursuant to the Centralized Partnership Audit Regime under Subchapter C of Chapter 63 of the IRC with respect to the taxable year(s) included in this report and accordingly, you may be notified of an additional deficiency under Chapters 2 and/or 2A, to the extent partnership adjustments are relevant to such determination: [LIST BBA PARTNERSHIP LINKAGES].”

  4. Scenario 3 - Unagreed to Appeals: You audit an individual for non-pass-through items and the individual is linked to a BBA partnership. If the individual does not agree with their individual non-pass-through adjustments and files a protest in response to the 30-day letter and requests to go to Appeals, then include the additional Ch 2/2A tax, or an estimated amount on the partner’s Form 4549-A. The report should specifically note “The IRS is, under Treas. Reg. 301.6241-6, adjusting PRIs on this partner’s return solely for the purpose of adjusting and assessing additional Ch 2 and/or 2A tax related to the partners interest in the BBA partnership.” Close the Form 1040 case to the TSPC due to the linkage. The TSPC will send the Form 1040 case to Appeals. Partner IRC 6501(a) statutes must be protected even if the sole partner-level issue is the NIIT or SECA coverage issue. If you are working the NIIT or SECA coverage issue in correlative audits of BBA and the partner, you should make the effort to associate both cases for Appeals and align the statutes of the BBA and the partner.

  5. Scenario 4 - Unagreed Statutory Notice of Deficiency (SND): You audit an individual for non-pass-through items and the individual is linked to a BBA partnership. If the individual does not agree with their individual non-pass-through adjustments (requiring issuance of a SND), you will close the Form 1040 case to the TSPC due to the linkage. The TSPC will route the case to local Technical Services to issue the SND. The SND will need to be issued to the individual (by local Technical Services) that will include any potential Ch 2/2A adjustments. The Form 4549-A issued with the SND should specifically note “The IRS is, under Treas. Reg. 301.6241-6, adjusting PRIs on this partner’s return solely for the purpose of adjusting and assessing additional Ch 2 and/or 2A tax related to the partners interest in the BBA partnership.” Once the individual agrees to the SND, the SND defaults, or the individual petitions the SND and the Tax Court’s decision becomes final, any necessary assessment will be made.

  6. Scenario 5 - BBA partnership audit finalized prior to partner audit: You are auditing an individual for non-pass-through items and the individual is linked to a BBA partnership. If the individual audit is being conducted (i.e. case is in status 12) and the BBA partnership audit has been finalized, then the BBA Ch 2/2A Team will send a closing package prepared for the Ch 2/2A adjustments stemming from the BBA partnership audit to you so you can solicit a partial agreement and complete a partial assessment. If a partial agreement cannot be secured, combine all adjustments on Form 4549. Follow the preceding scenarios in that event, but do not include any note regarding Treas. Reg. 301.6241-6. If the Ch 2/2A adjustment is the only unagreed issue, close the individual to local Technical Services to issue a notice of deficiency.

4.31.9.6.6 (05-08-2026)

Non-PRI Report Writing

  1. This requires a mandatory referral to a BBA POC. See instructions in IRM 4.31.9.7.2, Mandatory Referral to the BBA Point of Contact (POC).

  2. If after reviewing the Form 1065 filed by the partnership, it is determined that adjustments to non-PRIs should be made for purposes of tax under Ch 2/2A, then these adjustments are made outside of the BBA regime.

  3. Procedures for allocating or reporting non-PRI adjustments to the partners of a BBA partnership may require the agent to examine both the partnership and partner, even though linked, to adjust and assess any SECA and/or NIIT.

    • One example is required on Sch K/K-1, Line 20, Code Y (Net Investment Income). Adjustments to items required to be disclosed by the partnership under this form instruction only affect partners’ Ch 2A liability. The examiner will need to examine both the partnership and partner and make the adjustments to both the partnership Sch K, Line 20, Code Y and the partner’s return to adjust and assess additional NIIT.

    • Another example is a SECA disclosure to a partner who receives a disguised payment for services. The determination of a disguised payment for services is a PRI, however there is no line item on Form 1065 to report this amount to the affected partner. As such, examiners will be responsible for issuing Form 4549 to the affected partner to assess SECA related to an adjustment asserting the receipt of a disguised payment for services.

  4. The examiner must prepare a Form 4605-A adjusting and allocating or reporting adjustments to non-PRIs and issue to the partnership, by following general IRM 4.31.5, Investor Level Statute Control (ILSC) Examinations - Field Office Procedures. At the same time, the examiner issues the summary report to the PR.

  5. The examiner must prepare Form 886-A for each partner and Form 886-S that includes all partners receiving an allocable share of the non-PRI adjustments.

4.31.9.6.7 (01-24-2024)

Examples of Partner-level Audits

  1. An examiner is auditing the Form 1040 of an individual taxpayer. Taxpayer is a partner in a partnership that is subject to the BBA regime. The partnership issued a Schedule K-1 to the partner reporting $100,000 of ordinary income on line 1 and $100,000 of income subject to SECA on line 14 of Schedule K. The partner did not report the income as subject to SECA. The examiner determines, as part of the individual’s audit, a Chapter 2 deficiency of $3,800 ($100,000 X 3.8% maximum Medicare rate). BBA regime doesn’t apply to taxes under Chapter 2 and the inconsistent reporting rules under IRC 6222 can’t be used to assess non-chapter 1 taxes. The examiner is not required to open an audit of the BBA partnership because there are no adjustments to PRIs.

  2. An examiner is auditing the Form 1040 of an individual taxpayer. That taxpayer is a partner in a partnership that is subject to the BBA regime. The partnership issued a Schedule K-1 to the partner reporting $100,000 of IRC 1231 gain on line 10 of Schedule K from the sale of assets used in one of its trade or business activities. The partner did not report the income as subject to NIIT. The examiner determines, as part of the individual’s audit, that the partner was a passive investor in the BBA partnership and its activities. As such the examiner determines a Chapter 2A deficiency of $3,800. This adjustment and assessment are made in a proceeding outside of the BBA regime. The examiner is not required to open an audit of the partnership under the BBA regime, because the partner’s failure to include this income as NIIT is exclusively a partner level issue.

  3. An examiner is auditing the Form 1040 of an individual taxpayer. That taxpayer is a partner in a partnership that is subject to the BBA regime. The partnership issued a Schedule K-1 to the partner reporting $100,000 of ordinary income on line 1 and $0 of income subject to SECA on line 14 of Schedule K. The partner did not report the income as subject to SECA. Examiner reviews the partnership’s other partners and notes that all its partners took similar positions with respect to SECA that they, as partners, were not subject to SECA. The examiner may open the partnership for examination and follow procedures in IRM 4.31.9.6.2, Auditing Chapters 2 & 2A - BBA Partnership is the Key Case.

4.31.9.6.8 (05-08-2026)

Examples of Partnership-level Audits

  1. The examiner must contact the appropriate BBA POC if the partnership exam year involves adjustments impacting Chapters 2, 2A, 3, and 4. See IRM 4.31.9.7.2, Mandatory Referral to the BBA Point of Contact (POC).

  2. For NESE adjustments when the partnership reported NESE on Form 1065, Schedule K, line 14a, the partner accordingly reported NESE on the partner’s tax return. The examiner is not challenging the taxpayer’s position. See Exhibit 4.31.9-1, Example 1 - $1,000,000 Adjustment to Sch K line 1 Ordinary Income and $1,000,000 Adjustment to Sch K line 14 Net Earnings from Self-Employment (NESE) - IRC 6501(c)(12) Applies.

  3. For NIIT adjustments when the partnership reported NIIT on the partnership’s originally filed tax return for the pass-through items subject to NIIT. The examiner is not challenging the taxpayer’s position. See Exhibit 4.31.9-2, Example 2 - $1,000,000 Adjustment to Sch K Portfolio Income Items - IRC 6501(c)(12) Applies.

4.31.9.6.9 (05-08-2026)

Auditing Chapters 3 & 4

  1. A partnership (domestic or foreign) is subject to the U.S. withholding tax rules that apply to payments of U.S. source income to foreign partners. If the partnership has any foreign partner, the examiner should:

    1. Refer to the International Knowledge Base and select Withholding Business Book from the Business Inbound shelf for more information.

    2. Coordinate with the Withholding Practice Network.

  2. Assessing Chapters 3 and 4 taxes are generally in proceedings outside of the BBA regime. If foreign withholding is the only issue, the examination is not subject to the BBA regime and the examiner is not required to follow these procedures.

  3. Rate adjustments and failure to file or withhold are determinations that must be made under a Chapter 3 or 4 audit, such as:

    1. Applying an incorrect withholding rate on Form 8804 or Form 1042 on partner level income.

    2. A partnership’s failure to withhold any tax on fixed, determinable, annual or periodical (FDAP) income or effectively connected income (ECI) to foreign persons.

    3. A partnership’s failure to withhold on a disposition of U.S. real property interests (e.g., Foreign Investment in Real Property Tax Act (FIRPTA) withholding).

    4. A failure to file Form 1042 and/or Form 8804 but no disagreement of amount of FDAP or ECI.

  4. Base adjustments may be made under either a Chapter 1 BBA audit or a Chapter 3 or 4 audit which include items identified by a Form 1042 or Form 8804 audit, such as:

    1. Income omissions by the partnership.

    2. Determination that partnership is engaged (or treated as engaged) in a U.S. trade or business and has ECI.

    3. Determination that income paid to foreign partners is not ECI, but FDAP that is taxed on a gross basis.

    4. Determination that a partnership has U.S. rather than foreign source income.

    5. Any other changes to the character or source of the partnership’s income.

  5. A base adjustment to increase the partnership's income is an adjustment to a PRI and will likely result in an IU. However, the tax imposed on the partnership for failing to withhold on that income is not imposed under Chapter 1; it is imposed under Chapter 3.

    1. A partnership paying the IU will satisfy its Chapters 3 and 4 withholding obligations.

    2. For partnerships that elect to push out the Chapter 1 adjustments, the partnership must pay the amount of tax required to be withheld under Chapters 3 and 4 on any adjustment. If the Chapter 3 or 4 audit is completed first, then any partnership adjustments for which Chapter 3 or 4 withholding has been paid are removed from the calculation of the IU.

    3. An audited partnership may have withholding and reporting obligations if it furnishes a Form 8986 to a reviewed year partner that includes an adjustment subject to withholding under Chapter 3 or Chapter 4. In those cases, the audited partnership must withhold the amount required under Chapter 3 or Chapter 4 and deposit the amount with the IRS before the due date for furnishing the Form 8986. See Instructions for Form 1042 or Form 8804 for deposit procedures. The audited partnership must also file an applicable withholding tax return, Form 1042 or Form 8804, and the associated information returns, Forms 1042-S, or Forms 8805, for the calendar year (if filing Form 1042 or Form 1042-S) or tax year (if filing Form 8804 or Form 8805) that includes the date on which the Form 8986 was furnished.

  6. Examples of Chapter 3 or 4 audits:

    1. An examiner is auditing Form 1042 filed by a partnership that is subject to the BBA regime. The partnership has 2 equal partners, one is a U.S. citizen and one is a non-resident alien who is a resident of another country. The partnership earned $200 of U.S. source royalty income and reported $100 on each partner’s Schedule K-1. The partnership withheld $15 from the foreign partner. The examiner proposes a rate adjustment and determines that the partnership should have withheld $30 from the foreign partner. As such the examiner determines a Chapter 3 deficiency of $15. This adjustment and assessment are made in a proceeding outside of the BBA regime because the tax imposed on the partnership for its failure to withhold tax on that income is not a tax imposed by Chapter 1. Rather, it is a tax imposed by Chapter 3, which is not covered by the BBA regime. Even though the examiner is auditing the partnership’s Form 1042, the examiner is not required to open an audit of the BBA partnership’s Form 1065.

    2. An examiner is auditing Form 1065 filed by a partnership subject to the BBA regime. The partnership has 2 equal partners, one is a U.S. citizen and one is a nonresident alien who is a resident of another country. The partnership earned $200,000 of U.S. source royalty income and reported $100,000 on each partner’s Schedule K-1. The examiner notes that the partnership properly withheld $30,000 from the foreign partner. The examiner determines, as part of the Form 1065 audit, the partnership should have reported $400,000 of U.S. source royalty income and proposes a base adjustment. The imputed underpayment is $74,000, calculated as the $200,000 adjustment to royalty income subject to Chapter 1 income tax multiplied by the maximum individual rate of 37%. The examiner notes that the partnership should have withheld an additional $30,000 from the foreign partner. In this instance, the $37,000 imputed underpayment attributable to the foreign partner’s $100,000 allocable share of the adjustment satisfies the partnership’s requirement to withhold Chapter 3 tax. If the partnership elects to push out the partnership adjustment, the partnership must remit $30,000 of Chapter 3 withholding on behalf of the foreign partner’s $100,000 allocable share of the adjustment. The audited partnership must also file an applicable withholding tax return, Form 1042, and the associated information returns, Forms 1042-S, Foreign Person's U.S. Source Income Subject to Withholding.

    3. Similar facts as example (b) above except that the examiner is auditing Form 1042 (instead of Form 1065) and discovers the under-reported royalty. The examiner may determine, assess, and collect Chapter 3 tax attributable to an adjustment to a partnership-related item (increase the partnership’s royalty income) without conducting a BBA examination. The examiner’s assessment will be limited to $30,000 (not the $74,000 imputed underpayment), the Chapter 3 withholding attributable to the foreign partner. This adjustment and assessment are made in a proceeding outside of the BBA regime because the tax imposed on the partnership for its failure to withhold on that income, however, is not a tax imposed by Chapter 1. Rather, it is a tax imposed by Chapter 3, which is not covered by the BBA regime. Even though the examiner is auditing the partnership’s Form 1042, the examiner is not required to open an audit of the BBA partnership’s Form 1065.

4.31.9.7 (05-08-2026)

Planning the Examination

  1. During the planning phase of the examination, the examiner will prepare a risk assessment of the tax return (including any AARs or other subsequent filings) to determine whether audit potential exists, to understand the partnership’s organizational structure, to determine if the examination is subject to the BBA regime, and to identify the initial PR.

  2. An exam shouldn’t be initiated with less than 12 months remaining on the statute of limitations (SOL) on making adjustments under IRC 6235(a)(1) without first securing written managerial approval. If the examiner and manager decide to initiate the examination with less than 12 months on the statute, the examiner will need to request a statute extension or proceed under imminent assessment statute procedures. See IRM 4.31.9.8.4, Statute of Limitations (SOL) on Making Adjustments. Consider statutory rules under IRC 6235(c) that extend the SOL, such as fraud, and other specified reasons when deciding whether to open a case with less than 12 months remaining on the SOL. See IRM 4.31.9.8.4.1(6), Overview of IRC 6235(a).

  3. A tax computation specialist (TCS) is requested through the Specialist Referral System (SRS). Towards the end of the exam, it is the TCS who is responsible for preparing Form 14791 and Form 14792 (see IRM 4.31.9.10, Report Writing).

    1. For LB&I, follow existing procedures and request the TCS at the beginning of the examination.

    2. For SB/SE, the request should be made after all Forms 886-A or lead sheets (for substantive issues) have been finalized and issued to the partnership representative.

    3. TCS will generally respond within 2 weeks from the date of the request.

4.31.9.7.1 (05-08-2026)

Risk Analysis

  1. Subsequent filings: To establish a correct starting point of examination, obtain IDRS prints to determine whether:

    1. There are subsequently filed returns for the tax year under examination. If so, secure a copy of the subsequent filings unless already provided.

    2. BMFOLT reflects a TC 976 with a condition code “G”.

    3. A mandatory referral to the BBA point of contact (POC) is required when there is a subsequent filing. Generally, BBA partnerships are required to file administrative adjustment requests (AAR) to amend filed returns for the tax year. When there is a subsequent filing, the examiner must make a mandatory referral to a BBA POC in accordance with IRM 4.31.9.7.2, Mandatory Referral to the BBA Point of Contact (POC). The BBA POC will help determine whether the subsequent filing meets the requirements to be treated as an AAR and the starting point of the audit when there is a subsequent filing.

    4. If the subsequent filing is an AAR, work with the BBA POC to ensure the IRC 6235(a)(1) statute date is updated properly. AARs have special statute update procedures. See IRM 4.31.9.8.4, Statute of Limitations (SOL) on Making Adjustments.

  2. Previous audit adjustments - Consider the following:

    1. If the partnership return being risk assessed includes payments of an IU, penalties and interest that resulted from a prior year BBA audit (meaning that the reviewed year partnership return is also an adjustment year return), then the payments for IU and related penalties and interest are nondeductible expenses. Determine if there were any payments of IU, penalties and interest that resulted from a prior year BBA audit that should have been reported in the adjustment year (the current year under examination). If any such payments were deducted, an adjustment should be made. Refer to the “Nondeductible partnership adjustments” example in IRM 4.31.9.6(7), BBA Scope – Adjustments at the Partnership Level, to make the adjustment.

    2. Research IDRS and secure a BMFOLT to determine if an IU was made. Upon reviewing the BMFOLT, the recording of an IU is as follows:

      Note:

      Review the table below for module and description for a previously recorded IU:

      Module Description
      Adjustment Year module (the current year under exam)

      • TC 971 with AC 813 – Identifies the reviewed year: “BBA: REVIEWED-YR:YYYYMM” and dollar amount of the IU: “SEC TRANS AMOUNT: N,NNN.NN”. This is the cross reference indicating the original reviewed year which is posted to the “adjustment year” when a previous BBA Exam is closed.
      Reviewed Year module (previous BBA Exam year)

      • TC 300 with RC 187 with the amount of the IU.

      • TC 971 with AC 817 – Records the adjustment year MISC>IU-ADJ-YR:YYYYMM, no amount listed separately as it’s listed under TC 300/RC 187. The adjustment year is the year in which the BBA adjustments and IU amount are considered final.

  3. Negative adjustments (see IRM 4.31.9.9.2.1(2)(b) for definition): If it is determined that the year currently under examination is also an adjustment year for a previous audit with negative adjustments, the examiner should determine if negative adjustments flowing from the previous audit were reported correctly in the adjustment year. To check if negative adjustments were reported in the reviewed year:

    1. The negative adjustments related to a prior year BBA examination reported in the adjustment year (the current year under examination) should be consistent in the amount, character, category and timing with amounts reported on Form 15027 or Form 14792 (and corresponding Form 886-As) from the reviewed year or final court decision if an FPA was petitioned.

    2. If the negative adjustments reported in the adjustment year are not consistent with how those adjustments were reflected on Form 14792 or Form 15027, the examiner should consider proposing an adjustment that reflects the correct reporting.

    3. To determine if there are any negative adjustments to be reported in the audit year, run transcript BMFOLZ for the audit year. For the year in which the negative adjustment was reported, run transcript BMFOLA to determine the adjustment year in which the negative adjustment must be reported. If the adjustment year for a prior examination is also the audit year for the current examination, make sure the partnership filed the tax return for the current examination year consistently with the negative adjustments reflected on Form 14792 or Form 15027 for the prior examination year. If not, propose adjustments for the current examination year to have the partnership be consistent.

  4. Consider any potential non-chapter 1 tax issues, such as Chapter 2, 2A, 3, and 4 issues.

4.31.9.7.2 (05-08-2026)

Mandatory Referral to the BBA Point of Contact (POC)

  1. The examiner must contact the appropriate BBA POC if the partnership exam year involves any of the following situations listed in the paragraphs in this subsection below. Instructions to request a BBA POC are also located below.

  2. An election into the centralized partnership audit regime for tax years beginning after November 2, 2015 and before January 1, 2018.

  3. An invalid election out of the centralized partnership audit regime under IRC 6221(b) for reasons other than the following items:

    1. Late filed return,

    2. Invalid partners, and/or

    3. Over 100 Schedule K-1s were required to be issued (including by any S corporation partners) for the tax year.

      Note:

      The three reasons listed above are automatic denials for which the examiner does not need to make a BBA POC referral.

  4. Adjustments impacting Chapters 2, 2A, 3, and 4.

  5. Notice to partner of inconsistent treatment under IRC 6222.

  6. Imputed underpayment (IU) calculation issues such as the following:

    1. Requesting to net any of the groupings or subgroupings with negative adjustments that are considered in computing the imputed underpayment,

    2. Any adjustment to non-monetary PRIs. A non-monetary PRI is a PRI that is not represented by a dollar amount,

    3. Determining one or more specific imputed underpayments, in addition to the general imputed underpayment (see IRM 4.31.9.9.2, (Partnership Adjustments and Imputed Underpayment (IU)),

    4. Proposing adjustments to a tax, penalty, addition to tax, or additional amounts for which the partnership is liable under Chapter 1, or

    5. Proposing adjustments to any imputed underpayment calculated by the partnership for the taxable year (such as in the case of an AAR).

  7. Penalties when there are negative adjustments.

  8. Where any subsequent return has been filed for a tax year under examination.

    Note:

    Make the referral to the BBA POC prior to updating the IRC 6235(a)(1) date to ensure such an update is appropriate. If a subsequent filing is made due to a foreign tax redetermination, inform the BBA POC of this information because such filings may require special treatment.

  9. Determination made under extension to entities filing partnership return. See IRC 6241(8) and IRM 4.31.9.7.3.1, Extending BBA Procedures to Other Entities, for more information.

  10. Application of special enforcement matters under IRC 6241(11) and 26 CFR 301.6241-7. See IRM 4.31.9.12, Special Enforcement Matters for Partnership-Related Items, for more information.

  11. Instructions to request a BBA POC: Once you identify the need for a BBA POC, you need to request for a referral as soon as possible. See the table below on how to make a BBA POC referral depending on your business operating division (BOD).

    If your BOD is: Then:
    LB&I Submit an inquiry into the request tracker by going to “Contact an Expert”.
    SB/SE Contact your assigned Technical Service pass-through coordinator (TSPC). See Technical Services Pass-Through Coordinators List.
4.31.9.7.3 (05-08-2026)

Determine if a Partnership is Subject to the BBA Regime

  1. The centralized partnership audit regime applies to all partnerships required to file information returns under IRC 6031(a) whose tax years begin on or after January 1, 2018, except:

    1. Partnerships electing out of the BBA regime; and

    2. Partnerships electing out of partnership status pursuant to IRC 761(a). Refer to IRM 4.31.5, Investor Level Statute Control (ILSC) Examinations - Field Office Procedures.

  2. The examiner must determine, for each tax year, whether the partnership return is subject to the BBA regime by completing Form 15260, Determination of Pass-through Audit Regime check sheet. This is necessary for each tax year since a partnership may have elected out of the BBA regime for one year under examination but not another. Once Form 15260 is completed by the examiner, it must be signed by the manager and filed in the case file under SAIN 724 for LB&I or Section 600 for SB/SE.

  3. Section 1101(g)(4) of the BBA regime also provides that partnerships may “elect” to have the centralized partnership audit regime apply to partnership returns filed for tax periods beginning after November 2, 2015 and before January 1, 2018. This election may only be made within 30 days of the date the IRS first notifies a partnership in writing that its return has been selected for examination (via Letter 2205-D) or by filing an Administrative Adjustment Request under IRC 6227.

  4. If the partnership is not subject to the BBA regime, the examination is subject to deficiency procedures at the partner level. Follow IRM 4.31.5, Investor Level Statute Control (ILSC) Field Office Procedures.

  5. Record the determination on whether the taxpayer is a partnership subject to BBA or not on the activity record.

    Note:

    The BBA partnership rules, and the deficiency procedures are mutually exclusive. Application of the wrong rules will impact and potentially bar the assessment of tax.

  6. The examiner must consider that an entity that erroneously filed a partnership return is subject to the BBA regime pursuant to IRC 6241(8). See IRM 4.31.9.7.3.1, Extending BBA Procedures to Other Entities.

4.31.9.7.3.1 (05-08-2026)
Extending BBA Procedures to Other Entities

  1. IRC 6241(8) and 26 CFR 301.6241-5 expressly state that the BBA procedures of IRC 1101 will apply to an entity and its items where such entity filed a partnership return, even if it is determined that such entity is not a partnership.

    Note:

    IRC 6241(8) does not say such classification is correct, but it does establish the procedural rules to make any corrections. This “return” must be signed by an authorized individual to be considered filed under IRC 6241(8). If the entity elects out of BBA under IRC 6221(b), the procedures within this IRM will not apply.

  2. A mandatory referral to the BBA POC must be made. See IRM 4.31.9.7.2, Mandatory Referral to the BBA Point of Contact (POC), for more information. Examples of extension to entities filing partnership returns requiring a BBA POC include the following:

    1. Cases where a partnership return is filed, and it is determined that no entity is found to exist.

    2. A taxpayer files a partnership return even though it only has one member; and the partnership is a single member disregarded entity with its owner.

    3. A taxpayer files a partnership return that should have filed a S corporation return or a Form 1120 return.

  3. If you determine that a partnership is not a valid partnership, but a Form 1065 return was filed, you must follow the procedures listed below:

    1. Follow the BBA partnership exam procedures as described within this IRM even if it is determined that the partnership return filed is not a valid partnership.

      Exception:

      If a taxpayer files a partnership return (deemed to be an invalid filing) but the taxpayer files a subsequent correct return that is filed before or on the due date of the return, the subsequent filing would be considered a superseding return. See IRM 21.7.9.3.4(1), Business Master File (BMF) Superseding Tax Returns, for more information on superseding returns. Therefore, it is treated as the original return for the year regardless of the filing of an invalid Form 1065. However, if such a return is filed after the due date of the return, the originally filed Form 1065 would be subject to the BBA proceedings and the subsequent filing would be treated as an amended return (i.e., an invalid AAR, an evaluation of facts and circumstances will determine how the examination will be handled). Always consult the BBA POC when there are subsequent filings. See IRM 4.31.9.7.2, Mandatory Referral to the BBA Point of Contact (POC).

    2. IRC 6241(8) does not cause a temporary or permanent change to an LLC’s corporate entity classification under 26 CFR 301.7701-3, which relates to the classification of the entity as a partnership related item (PRI). Therefore, if you address this issue and want to change such classification, the issue must be raised under a BBA examination.

      Note:

      The determination that the partnership is invalid should be documented in a separate Form 886-A as an examination issue. This is included in the summary report package, 30-day letter (if applicable), and the NOPPA report package. See IRM 4.31.9.10.1, IRM 4.31.9.10.2, and IRM 4.31.9.10.3 for more information on summary report package, 30-day letter, and NOPPA report package, respectively.

    3. Do not “zero-out” all partnership adjustments, or transfer partnership income and deduction to the partners’ returns. Also, do not perform any dual procedures that will cause the partnership adjustments to be presented on both the BBA entity and the partners when closing them out. All partnership adjustments should stay with the BBA entity.

    4. The examiner can make adjustments to disallow deductions that are only available to valid partnerships.

      Example:

      IRC 743(b) basis adjustments and IRC 704(b) special allocations would not be available to entities that do not qualify as valid partnerships.

    5. The examiner must explain to the entity’s participants how to allocate income if it is determined that the partners’ allocation rules under IRC 704(b) do not apply because the partnership is not valid.

      Example:

      The entity has income and expenses on its own, or income must be allocated under a different set of IRC rules other than subchapter K.

4.31.9.7.3.1.1 (05-08-2026)
Special Procedures for Unposted Filed Returns

  1. There are scenarios when the IRS rejects the “partnership” return filed by the entity and does not post the return because the entity filed a partnership return even though such an entity is not a partnership. Scenarios include:

    • The entity filed Form 1065 is rejected and not posted by the IRS.

    • The entity filed Form 1065 is rejected and not posted by the IRS, but a substitute for return (SFR) is posted with a TC 150 to MFT 02.

  2. If you encounter the scenarios listed above within this subsection, follow the procedures listed below:

    1. Conduct IDRS research to request TRDBV to look for unposted returns. If you find returns as described in the scenarios listed above, put in an inquiry to the BBA POC if you are in LB&I. If you are in SB/SE, contact the Entity Classification SME. See IRM 4.31.9.7.2(11), Mandatory Referral to the BBA Point of Contact (POC), for instructions. The LB&I BBA POC or SB/SE entity classification SME will work with Campus Entity and Unpostable personnel to force the posting of the filed Form 1065.

    2. Initiate a BBA audit of the filed return using standard BBA audit procedures once Submission Processing processes the filed Form 1065.

4.31.9.7.4 (05-08-2026)

Election Out of the BBA – Tax Periods Beginning On or After 1/1/2018

  1. If there is an election out, determine if the election is valid. An election out is deemed valid until the IRS determines that the election is invalid. See 26 CFR 301.6221(b)-1(e)(1).

  2. Eligible partnerships may make the election under IRC 6221(b) to elect out of the centralized partnership audit regime on their timely filed Form 1065 or Form 1066, Schedule B (including extensions). The table below shows the Schedule B question number for each tax year for the partnership to elect out of BBA. AMDISA in the BBA PARTNERSHIP section will display “ELECT-OUT-OF-BBA-CD>1” if there’s an election out.

    Tax Years Location of Form 1065 or Form 1066 - BBA Regime Opt Out Election
    2018 through 2020 Schedule B, Question 25
    2021 Schedule B, Question 29
    2022 Schedule B, Question 30
    2023 Schedule B, Question 31
    2024 Schedule B, Question 33
    2025 Schedule B, Question 33

  3. In addition, eligible partnerships must attach Schedule B-2 to provide information concerning their partners as required by IRC 6221(b)(1)(D) and 26 CFR 301.6221(b)-1(c)(2) to include each partner’s name, correct TIN, and federal tax classification.

  4. The goal is to have a complete list of the terminal partners for linkage and assessment purposes. The examiner and their manager have the discretion to approve the election out even if the information reflected on Schedule B-2 was transposed incorrectly, and the IRS has information that would remedy the incorrect information. Always consult the BBA POC if there are any concerns.

4.31.9.7.4.1 (05-08-2026)
Determining if an Election Was Made Timely

  1. Before determining whether a partnership is eligible to elect out, ensure that the election was made timely. Non-filers can’t elect out because it requires that the election be made with “a timely filed return.” See IRC 6221(b)(1)(D)(i). The election can’t be made on an SFR. The SFR will be subject to the centralized partnership audit regime. Similarly, a constructive or de facto partnership would be subject to the centralized partnership audit regime because it would not have made a timely election.

  2. The TC 150 date should be used for determining timeliness of the election out of the BBA regime. If the TC 150 date reflects a late filing, the examiner may use the partnership’s proof of timely filing, such as E-File receipts or certified mailing slips. To assess whether a return has been timely filed, refer to IRM 20.1.2.2.1, When Timely Mailing Equals Timely Filing or Paying (Received Date vs. Filing/Payment Date).

  3. The IRS has the authority to postpone certain tax-related deadlines by reason of federally declared disaster, significant fire, terroristic, or military action. If such an event is declared, it could change the timely filing due date of the return. See IRC 7508A.

  4. If the election is not made on a timely filed return (including extensions), the election out is invalid.

4.31.9.7.4.2 (05-08-2026)
Eligibility to Elect Out of the BBA

  1. There are two criteria that a partnership must meet to be eligible to elect out of the BBA regime:

    1. The partnership may only have partners each of whom are either an individual, a C corporation, an estate of a deceased partner, an “eligible foreign entity” as defined in 26 CFR 301.6221(b)-1(b)(3)(iii) , or an S Corporation (see IRM 4.31.9.7.4.2.1, Criterion #1 - Partnership May Only Have Certain Types of Partners (Eligible Partners)), and

    2. The partnership is required to furnish 100 or fewer Schedule K-1s (see IRM 4.31.9.7.4.2.2, Criterion #2 - Partnerships Required to Furnish 100 or Fewer Schedule K-1s).

  2. If either one of these requirements is not met, the partnership is not eligible to elect out and is automatically subject to the BBA regime.

4.31.9.7.4.2.1 (05-08-2026)
Criterion #1 - Partnership May Only Have Certain Types of Partners (Eligible Partners)

  1. In the first criterion, a partnership may only have direct partners who are either an individual, a C corporation, an estate of a deceased partner, or an S corporation.

  2. In general, a partner that is a foreign entity will be considered an eligible partner if the foreign entity would be treated as a C corporation if it were a domestic entity.

  3. S corporations may have shareholders (such as QSSTs and/or ESBTs) that would otherwise be ineligible if they were direct partners. The type of shareholders doesn’t factor into the determination of eligible partners.

    Note:

    Partnerships that have Q-Sub(s) as a direct partner are not permitted to elect out.

  4. An estate of a deceased partner filing Form 1041 may issue Schedule K-1 (Form 1041)’s to its beneficiaries. Similar to S corporations, an estate may have beneficiaries that would otherwise be ineligible if they were direct partners. The type of beneficiaries doesn’t factor into the determination of eligible partners.

  5. Another way to assess whether a partnership meets the criterion for the type of partners is if any of the following entities or persons are direct partners, then the partnership is not eligible to elect out of the BBA regime and is subject to centralized partnership audit regime:

    1. A partnership or limited liability company

    2. Any type of trust, including a grantor trust

    3. A foreign entity that is not treated as a C corporation if it were a domestic entity

    4. A wholly owned entity disregarded as separate from its owner for Federal income tax purposes

    5. An estate of an individual other than a deceased partner

    6. Any person who holds an interest in the partnership on behalf of another person

    7. A qualified Subchapter S subsidiary, as defined in IRC 1361(b)(3)(B)

4.31.9.7.4.2.1.1 (01-24-2024)
Determining if the Partnership Has Any Ineligible Partner During the Tax Year

  1. The examiner must confirm that there are no ineligible partners at any time during the year. Form 1065, Schedule B-2, requires that each partner’s federal tax classification be listed, which should agree to the Schedule K-1 entry for "type of entity."

  2. In reviewing Schedule B-2 to determine the type of partners, the partner information contained in the schedule should be cross referenced with the related Schedule K-1 information for each partner, compared to IDRS, YK-1, TST and other usual verification tools. Any inconsistencies should be investigated, especially the type of partner indicated. Investigation may require deferring the determination until the partnership agreement is obtained and reviewed.

  3. If any of the partners is an LLC whose type of entity is reported as a corporation, IDRS must be researched to verify the filing status of the LLC as a corporation and not as a pass-through entity.

  4. If determined that the partnership had ineligible partners during the tax year, the election out is invalid.

4.31.9.7.4.2.2 (05-08-2026)
Criterion #2 - Partnerships Required to Furnish 100 or Fewer Schedule K-1s

  1. In the second criterion, the number of Schedule K-1s required to be furnished can’t exceed 100.

  2. In the determination of whether the 100 or fewer Schedule K-1 threshold is met, the standard is based upon the number of Schedule K-1s required to be furnished, not the actual number of Schedule K-1s furnished. Therefore, if the taxpayer fails to furnish one or more Schedule K-1s, those not furnished but required to be furnished will be included in the total count.

  3. Because S corporations are allowable partners and issue Schedule K-1s to their shareholders, in the determination of whether the partnership has furnished 100 or fewer Schedules K-1s, the Schedule K-1 furnished to the S corporation partner counts as one Schedule K-1 while all of the Schedule K-1s required to be furnished to the shareholders of the S corporation partner count as additional Schedule K-1s. Please refer to criterion # 1, IRM 4.31.9.7.4.2.1(5)(g), a qualified Subchapter S subsidiary, as defined in IRC 1361(b)(3)(B), is not an eligible partner but an S corporation is an eligible partner.

  4. Regarding a partner that is an estate of a deceased partner, the estate may file Form 1041 and furnish Schedule K-1s to its beneficiaries. For purposes of determining the number of Schedule K-1s required to be furnished by the partnership, any Schedule K-1s furnished by the estate are not counted for purposes of determining whether the partnership has furnished 100 or fewer Schedule K-1 statements.

  5. If more than 100 Schedule K-1s are required to be furnished, the partnership is not eligible to elect out.

4.31.9.7.4.2.2.1 (10-29-2021)
Determining the Number of Schedule K-1s Required to be Furnished

  1. If a statement (Schedule K-1) is required to be furnished (whether issued or not) under IRC 6031(b) with respect to each partner, then each such statement is included in the calculation of the number of Schedule K-1s and should be disclosed on Schedule B-2, Part III, Line 3.

  2. Page 1 of the Form 1065 requires an entry for the number of Schedule K-1s attached to the return. This entry will provide a preliminary assessment as to whether the partnership is close to or has exceeded the maximum 100 threshold, notwithstanding whether any partners are S corporations or whether certain Schedule K-1s were actually issued.

  3. If an S corporation partner is listed, the examiner should ensure that the Schedule K-1 issued to the S corporation is counted as well as the number of Schedule K-1s the S corporation is required to furnish to its shareholders under IRC 6037(b).

    Example:

    The partnership, PS, has two partners, S1 and S2, each of which is an S corporation. S1 has 20 shareholders and S2 has 35 shareholders. Solely for purposes of determining eligibility to elect out, partnership PS is deemed to be required to furnish 57 Schedule K-1s, consisting of S1 and S1’s 20 shareholders (21 total) and S2 and S2’s 35 shareholders (36 total) for a total count of 57.

  4. If it is determined that the number of Schedule K-1s required to be furnished is more than 100, the election out is invalid.

4.31.9.7.4.3 (05-08-2026)
Determination that an Election Out of the BBA is Invalid

  1. If you determine the election out of the BBA regime is invalid at the field level, you must coordinate with a BBA POC before notifying the partnership and/or proceeding with the examination, unless the invalid election is due to the following:

    • Late filed return - See IRM 4.31.9.7.4.1, Determining if an Election Was Made Timely, for more information.

    • Invalid partners - See IRM 4.31.9.7.4.2.1, Criterion #1 - Partnership May Only Have Certain Types of Partners (Eligible Partners), for more information.

    • Over 100 Schedule K-1s issued for the tax year - See IRM 4.31.9.7.4.2.2, Criterion #2 - Partnerships Required to Furnish 100 or Fewer Schedule K-1s, for more information.

  2. You should consider the following when taxpayers elect out of the BBA regime:

    • A determination that an election out is invalid is not immediately and independently appealable.

    • If substantive issues are unagreed in addition to a denial of an election out of the BBA regime, Appeals will consider both. The audit should be handled under dual procedures as both a BBA and a BBA elect out (BEO) audit.

    • Make a mandatory referral to a BBA POC if there is a denial of elect out of BBA regime unless it is for reasons listed in paragraph (1) above.

  3. Use Letter 6062, Notice of Invalid Election Out of the BBA, to notify a partnership of the IRS’s determination. Mail or issue this letter separately and no earlier than the issuance of Letter 2205-D.

    Note:

    Since the IRS has determined that the election out of BBA is invalid and the partnership is subject to the BBA regime, the examiner should give 30 days to the partnership to file a BBA AAR before the NAPs are issued.

  4. Update ERCS/AIMS to indicate the return is subject to the BBA regime.

    1. Prepare Form 5348, AIMS/ERCS Update (Examination Update) and in the “PBBA” section of the form, locate the “ELECT-OUT-OF-BBA-CD” line and request to change the value to “2”.

    2. Update "IRC6235A1-PPA-DEADLINE-DT" to 3 years after the Form 1065 filing date. For paper filed returns, the filing date is the postmarked date on the return. For electronically filed returns, the filing date is the “TC150:MMDDYYYY” posting. Check EUP to confirm the electronic date received.

    3. Ensure the AMDISA shows “ELECT-OUT-OF-BBA-CD>2” and the 6235(a)(1) date was updated accordingly.

4.31.9.7.5 (05-08-2026)

Revocation of the Election Out

  1. Once the partnership made an election to elect out of the BBA regime, the election out cannot be revoked without the consent of the IRS.

  2. As a general rule, the partnership can request to revoke the election out of the BBA regime within the first 30 days after the partnership receives notification from the IRS that an examination will take place (via Letter 2205-D). An election to revoke an election out must be done on a year-by-year basis.

  3. An election to revoke an election out must be done on a year-by-year basis.

  4. Partnership must mail or submit Form 15288, Request to Revoke Partnership Election under IRC 6221(b) or Request to Revoke Election under 1101(g)(4), to the person whose name appears on Letter 2205-D. You should consider the following in regards to the partnership filing Form 15288:

    1. Form 15288 must be prepared on a year-by-year basis. Form 15288 cannot be prepared for multiple years.

    2. Form 15288 should be signed and dated by any person who is authorized to sign the Form 1065 for the reviewed year. Any partner or LLC member is considered an authorized person to sign Form 1065.

    3. The partnership must also designate a partnership representative and submit Form 8979, Partnership Representative Designation or Resignation.

  5. If IRS accepts Form 15288, the partnership should be given 30 days to file a BBA AAR before the NAPs are issued.

4.31.9.7.5.1 (05-08-2026)
Validate the Statement Revoking the Election Out of BBA

  1. Ensure the partnership timely submitted Form 15288, it was signed by an authorized person and included the required information. Also, validate Form 8979 and identify the PR of record.

  2. If the examiner accepts the revocation of a valid IRC 6221(b) election out, the partnership examination is subject to the BBA regime.

    1. The case or group manager must approve the determination (accept or reject). The activity record should record this action.

    2. The examiner must update ERCS/AIMS to indicate the return is subject to the BBA regime. Prepare Form 5348, AIMS/ERCS Update (Examination Update) and in the "PBBA" section of the form, locate the "ELECT-OUT-OF-BBA-CD" line and request to change the value to "2" . Ensure the AMDISA in the BBA PARTNERSHIP Section screen shows "ELECT-OUT-OF-BBA-CD>2" . Also update the "IRC6235A1 – PPA-DEADLINE-DT" field to 3 years from the “TC150:MMDDYYYY” date.

  3. Regardless of its acceptance or rejection, file the revocation statement under Section 600 for SB/SE or SAIN 724 for LB&I.

    Note:

    Only under unusual circumstances and when it is administratively convenient for the IRS and the partnership, will the IRS consider a request to revoke an election out of the BBA regime if received after the first 30 days upon the issuance of Letter 2205-D . Coordinate with the BBA POC if you encounter this scenario.

4.31.9.7.5.2 (01-24-2024)
Election Out Forms and Notices

  1. The following are election out forms and notices:

    1. Form 15288, Request to Revoke Partnership Election under IRC 6221(b) or Request to Revoke Election under 1101(g)(4)

    2. Letter 6062, Notice of Invalid Election Out of BBA

4.31.9.7.6 (05-08-2026)

Partnership Representative (PR)

  1. The partnership must designate a PR on each return filed for tax years beginning after December 31, 2017. The designation is effective on the date the return is filed.

    1. Form 1065, Schedule B, Designation of Partnership Representative, should reflect the designation of the PR. Generally, this is the initial designation of record.

    2. There may be only one PR for a partnership’s tax year at any time.

  2. A PR has a key role in a BBA proceeding. Under IRC 6223, the PR has the sole authority to act on behalf of the partnership under Subchapter C of Chapter 63 (the BBA subchapter). All partners and the partnership are bound by the PR’s actions and the PR’s final decision in a BBA proceeding.

  3. A PR can be any person, including the partnership itself. The PR is not required to be a partner, an employee, or have any other relation to the partnership. This allows the partnership to select the person best suited to represent the partnership. The PR must have substantial presence in the United States. See IRM 4.31.9.7.6.1, Substantial Presence in the United States, for the substantial presence test.

  4. A PR can be either an entity or an individual person.

    1. Typically, both are referred to as the "partnership representative" or "PR." A PR that is an entity may be referred to as an "entity partnership representative" or "EPR." If an EPR is designated, a designated individual (DI) must also be simultaneously appointed. If the partnership fails to simultaneously appoint a DI, the designation of the EPR will be invalid. The DI acts on behalf of the EPR. The DI can be any individual (not required to be a partner, an employee, or have any other relation to the partnership or the partnership representative), but the DI (like the PR) must also have substantial presence in the United States.

    2. A PR that is an individual may alternatively be referred to as an "individual partnership representative" or "IPR" .

      Note:

      For simplicity, throughout this IRM, the term PR will be used (unless discussing subject matter that requires more specificity).

  5. The IRS is not bound by any limitations, restrictions or agreements placed upon the PR by the partnership in the partnership agreement, any side agreements or any other document to which the IRS is not a party.

  6. The designation of a PR remains in effect for a given partnership tax year until the designation is terminated by a valid new designation (that will revoke the previous PR designation), a valid resignation, or a determination by the IRS that the designation is not in effect (no PR designation in effect). If there is a change to the PR or DI, any valid actions of the former PR or DI prior to the change will remain valid and in effect.

  7. A partnership, through an authorized person, may designate or change the PR or appoint or change the DI by submitting Form 8979, Partnership Representative Designation or Resignation, to an IRS point of contact (i.e., examiner, Appeals Officer, or Counsel Attorney). For more information on Form 8979, see the Form 8979 instructions.

    Note:

    See IRM 4.31.9.1.6, Terms/Definitions/Acronyms, for the definition of an authorized person.

  8. Form 8979 may also be submitted in conjunction with the partnership’s filing of an administrative adjustment request (AAR). The partnership cannot file the AAR for the sole purpose of changing the designation or appointment. The change in designation (and appointment, if the PR is an entity) is treated as occurring to the filing of the AAR and is effective on the date the partnership files a valid AAR. The newly designated PR signs the AAR.

  9. Document all actions concerning the identification of the PR in the case file under Section 600 for SB/SE or SAIN 724 for LB&I cases. You may use the Partnership Representative of Record Job Aid to keep track of all designations.

4.31.9.7.6.1 (01-24-2024)
Substantial Presence in the United States

  1. The PR (and DI if the PR is an EPR) must have substantial presence in the United States. All of the following requirements must be met:

    1. Must be available to meet in person with the IRS in the United States, at a reasonable time and place, as determined by the IRS in accordance with 26 CFR 301.7605-1 ;

    2. Have a United States street address and a telephone number with a United States area code; and

    3. Have a United States taxpayer identification number (TIN).

    4. An EPR must be in legal existence to have a substantial presence, including if the EPR is the BBA partnership under exam.

      Note:

      26 CFR 301.6223-1(f)(2) states the IRS may, but is not required to, determine that a PR designation is not in effect. The IRS is not obligated to search for or otherwise seek out information related to the circumstances in which the IRS may determine a PR designation is not in effect, and the fact that the IRS is aware of any such circumstances does not obligate the IRS to determine that a PR designation is not in effect.

4.31.9.7.6.2 (05-08-2026)
Form 8979

  1. Form 8979, Partnership Representative Designation or Resignation, allows the partnership to designate a PR with or without revocation and to appoint a DI, if the PR is an entity, with or without revocation. Form 8979 is the only form that a PR or DI can use to resign. A Form 8979 can only be submitted for a single tax year. If a partnership wants to change the PR designation or DI appointment for multiple tax years, it must submit a Form 8979 for each tax year.

  2. The following table presents possible actions and who can submit Form 8979:

    If: Who can submit Form 8979:
    The partnership needs to designate an individual or entity partnership representative (PR) and appoint a designated individual (DI) if the PR is an entity.

    Note:

    A valid designation of a PR automatically revokes an existing PR designation (and DI appointment).

    		 The partnership, through an authorized person.

    Note:

    See IRM 4.31.9.1.6, Terms/Definitions/Acronyms, for the definition of an authorized person.
    The individual partnership representative (IPR) needs to resign. The resigning IPR.
    The entity partnership representative (EPR) needs to resign.

    Note:

    If an EPR validly resigns, the appointment of the DI is also terminated.

    		 The resigning EPR. The form will be signed by the DI on behalf of the EPR.
    The designated individual (DI) needs to resign. The resigning DI.

  3. Partnerships can submit Form 8979 with an administrative adjustment request (AAR) or any time after the IRS issues a notice of selection for examination (Letter 2205-D), or a notice of administrative proceeding (NAP) to the partnership.

    Reminder:

    It is a statutory requirement to issue the NAP to both the partnership and the PR. See IRM 4.31.9.8.1, Notice of Administrative Proceeding (NAP), for more information and detailed instructions.

  4. The PR or DI may resign by submitting Form 8979 any time after the issuance of a notice of selection for examination (Letter 2205-D) or a notice of administrative proceeding (NAP). If an EPR is resigning, the DI signs the form on behalf of the EPR. However, a DI can separately resign as well. In either case, the resignation will result in there being no PR with whom the IRS can interact during an examination. See IRM 4.31.9.7.6.7, No PR Designation in Effect, in such an instance.

  5. Form 8979 has four (4) parts as noted in the table below:

    Form 8979 - Part Sections Description
    Part I Identifies the reason for submitting the Form 8979.
    Part II Provides information on the designation of a PR with or without revocation and appointment of a DI, if the PR is an entity, with or without revocation.
    Part III Provides information on the resignation of a PR or DI.
    Part IV Signature section.
4.31.9.7.6.3 (05-08-2026)
Multiple Designations by the Partnership Within the 90-day Period

  1. If you receive multiple designations (that each result in revocation of an existing PR) within a 90-day period resulting in a negative impact on achieving an efficient and effective audit, you should consider the requirements of 26 CFR 301.6223-1(e)(7), which are addressed below:

    1. If you receive multiple designations (that each result in revocation of an existing PR) within a 90-day period, you may (but are not required to) determine that the last received revocation (the “current” revocation) results in there being no PR designation in effect. If you determine there is no PR designation in effect, see paragraph (2) within this subsection below for letter instructions.

    2. If based on the facts and circumstances there are valid reasons for the partnership to have made multiple designations within the 90-day period, then the current designation (if valid) may be accepted. Confirm the PR designation made by the partnership by sending Letter 6053, Letter 6007 and Letter 6008. See Exhibit 4.31.9-3, Options for Partnership Representative Notices, Form 15416, Validation Check Sheet for Form 8979 , Partnership Representative Designation or Resignation, and Partnership Representative Notices Summary Grid, which also contains information about issuing the appropriate letters.

  2. If you determine there is no PR designation in effect, you will have only 90 days upon receiving the last Form 8979 to mail Letter 6053, Notice to Partnership or Partnership Representative Change. Prepare Letter 6053 using paragraph C and line 6, and two Letters 6007. The first Letter 6007 should be sent to the PR that had a designation in effect prior to the IRS receiving the last Form 8979. The second Letter 6007 should be sent to the PR that was designated on the last Form 8979 . For both letters, use paragraph C.

  3. If you determine that there is no PR designation in effect due to receiving multiple designations (that each result in the revocation of an existing PR) within a 90-day period, the partnership will not have the opportunity to designate a new PR. The IRS will designate the PR. While there is no set timeframe for you to designate a PR, the selection of the PR (and the DI, if applicable) should be made with reasonable due diligence while prioritizing the need to continue the examination in an efficient and effective manner. For factors to consider when designating a PR, see 26 CFR 301.6223-1(f) and IRM 4.31.9.7.6.8, IRS’s Selection of a PR.

  4. Once you select a PR, the partnership cannot revoke the PR without the permission of the IRS. However, the IRS also cannot unreasonably withhold permission under 26 CFR 301.6223-1(e)(6). Permission is granted if the partnership submits a Form 8979 to designate a PR of its choosing and the IRS accepts the submittal as valid.

4.31.9.7.6.4 (05-08-2026)
Form 8979 and Examiner Responsibilities

  1. When you receive a Form 8979, you must date stamp the form upon receipt. See paragraph (3) within this subsection below for mandatory use of Form 15416, Validation Check Sheet for Form 8979, Partnership Representative Designation or Resignation.

    • Form 8979 will continue to be accepted by fax in routine operations. See IRM 4.10.1.3.7, Policy for Use of Fax in Taxpayer Submissions.

    • Form 8979 received via fax is acceptable only if it contains an original signature (not digital). Certain procedures apply, see IRM 25.6.22.5.1, Fax Signatures, and IRM 4.10.1.3.7, Policy for Use of Fax in Taxpayer Submissions.

    • Form 8979 received via email and taxpayer digital communication (TDC) is acceptable with either a digital signature or an original signature. See IRM 10.10.1.6.1, Accepting Images of Signatures and Digital Signatures in Certain Taxpayer Interactions. For instructions to date stamp the form electronically, see Knowledge Base - Instructions for Electronic Date Stamp.

  2. Within 30 days of receipt, issue the appropriate set of letters (as described in Exhibit 4.31.9-3 and Form 15416, Validation Check Sheet for Form 8979, Partnership Representative Designation or Resignation) to inform the appropriate parties about the determination. You may also refer to Partnership Representative Notices Summary Grid. Form 8979 is deemed valid until the IRS says it’s invalid.

  3. You must use Form 15416 , Validation Check Sheet for Form 8979, Partnership Representative Designation or Resignation, to ensure Form 8979 is valid and to assist you with the issuance of the letters. Use Form 8979 Filing Chart job aid as a roadmap.

  4. In the case of resignation, Form 8979 must be signed and dated by the resigning PR or DI and must state the resigning PR or DI’s name and title. In the case of designation (and appointment, if the PR is an entity), Form 8979 must be signed by an authorized person and must state the authorized person’s name and title. If the authorized person is an entity, Form 8979 must be signed by an individual who can legally bind the authorized person under applicable state law and that person’s name and title must be entered. See Form 15416, Validation Check Sheet for Form 8979, Partnership Representative Designation or Resignation, to assist with validation. Document the determination in the case file.

  5. If it cannot be determined who the PR or DI of record is, the partnership will be asked to designate a PR. See IRM 4.31.9.7.6.6, Opportunity for the Partnership to Timely Designate a PR.

  6. The table in Exhibit 4.31.9-3, Options for Partnership Representative Notices and Form 15416, Validation Check Sheet for Form 8979, Partnership Representative Designation or Resignation, will help in determining which letter to issue and how to properly prepare each letter. Additionally, the Partnership Representative Notices Summary Grid job aid can assist in determining which letters to mail.

4.31.9.7.6.5 (05-08-2026)
Identification of the Partnership Representative or Designated Individual for Letter 2205-D

  1. Letter 2205-D is mailed to the partnership as a Notice of Selection of Examination. See IRM 4.31.9.7.8, Initiate Taxpayer Contact (Letter 2205-D).

  2. Generally, the PR (and DI, if the PR is an entity), on Schedule B, Designation of Partnership Representative, of the originally filed Form 1065 is the PR (and DI, if applicable) of record and should be listed on Letter 2205-D. The TINs for the PR and DI are not listed on Form 1065. Obtain the TINs from the PR or DI directly, prior to issuing the NAP letters. This is required so that the last known address for the PR can be obtained from IDRS (INOLES) for purposes of mailing the PR NAP (Letter 5893-A ).

  3. If the partnership filed a valid AAR with a Form 8979 properly designating a PR and appointing a DI, if the PR is an entity, then any prior designation is terminated and the PR and DI of record are now the PR (and DI, if applicable) from the Form 8979 filed with the AAR and should be listed on Letter 2205-D.

  4. If the partnership filed multiple valid AARs with Form 8979, generally the IRS will use the PR (and DI, if the PR is an entity), information from a valid Form 8979 submitted with the most recently filed valid AAR to complete the Letter 2205-D.

  5. If there is no valid designation on Schedule B, Designation of Partnership Representative, of Form 1065 and no subsequent designation via a valid AAR filing including a valid Form 8979, the partnership should be given a reasonable opportunity to designate its PR. Therefore, rather than declaring no PR designation is in effect, input in the space for the PR on Letter 2205-D, “Our records do not reflect a partnership representative for the partnership taxable year.” Accordingly, the IRS should not automatically declare no PR designation in effect when making initial contact. Indicating that the IRS records do not reflect a PR for the partnership taxable year is not a declaration that no PR designation is in effect, and the statement provides an opportunity for the partnership to make such a designation. See IRM 4.31.9.7.6.6, Opportunity for the Partnership to Timely Designate a PR.

4.31.9.7.6.6 (05-08-2026)
Opportunity for the Partnership to Timely Designate a PR

  1. IRC 6223 provides that each BBA partnership shall designate a PR. If there is no PR designation in effect, it is a best practice for taxpayers to choose a PR who can best serve them. Under the regulations, when the IRS mails a notification to formally declare no PR designation in effect, the partnership has 30 days to designate a PR. If the partnership has not designated its own PR before the lapse of those 30 days, the IRS must designate a PR to represent the partnership. See IRM 4.31.9.7.6.8, IRS’s Selection of a PR.

    Example:

    With non-filers, partnerships may not respond to any correspondence sent by the IRS. Once the IRS formally declares no PR designation in effect and the partnership does not designate a successor PR within 30 days of that declaration, the IRS will have to designate a PR for the partnership despite having had no contact with the partnership. The following procedures provide a reasonable period of opportunity for a partnership to designate its PR to the extent that the case timeline permits.

  2. The examiner should provide a reasonable period of opportunity for the partnership to make its PR designation when one hasn’t been made, or the original designation is invalid. The examiner can determine a reasonable period of opportunity by considering the audit timeline such as how much time remains on the IRC 6235(a)(1) statute when the Letter 2205-D is mailed. Use the following language on Letter 2205-D: "Our records do not reflect a partnership representative for the partnership taxable year." This will avoid starting the 30-day timeframe and will give the partnership additional time to make its designation. It will also avoid the necessity of the examiner having to make the designation on the partnership’s behalf.

    Example:

    You might determine a reasonable time period to provide the partnership the opportunity to designate or perfect a designation (using Form 8979) is within 30-60 days of the Letter 2205-D’s issuance date.

  3. Some situations when this might occur are listed below:

    • An examiner opens a non-filer partnership for exam. All non-filer partnerships are subject to BBA procedures. Since a PR must be designated on a Form 1065, non-filers have not designated a PR.

    • A partnership did not elect out of BBA and did not designate a PR on its original return.

    • The designation of the PR (and the appointment of the DI, if the PR is an entity), is invalid on Form 1065 and the IRS had not previously declared no PR designation in effect.

    • The IRS receives an invalid Form 8979 after issuing Letter 2205-D with the language discussed in the paragraph above in paragraph (2) within this subsection.

    • An examiner determined the partnership had an invalid election out of BBA and the partnership does not designate a PR.

    • When the IRS cannot determine the PR or DI of record.

    Note:

    In the case of a valid Form 8979 received for a PR or DI resignation, you will have to declare no PR designation in effect. See IRM 4.31.9.7.6.7, No PR Designation in Effect.

  4. After the examiner issues Letter 2205-D, the examiner should contact the partnership to request that the partnership submit a valid Form 8979 to designate a PR. If you receive an imperfect or invalid Form 8979, call the person who submitted the form, explain to them why the Form 8979 is imperfect or invalid, and encourage them to submit a perfected Form 8979. This should be done within the reasonable opportunity period.

  5. If the reasonable opportunity period expires prior to receiving a valid PR designation from the partnership, issue Letter 6053 with paragraph C, line 3 in accordance with IRM 4.31.9.7.6.7, No PR Designation in Effect. Issuing Letter 6053 will start the 30-day period for the partnership to respond with a valid Form 8979.

  6. If the examiner intends to declare no PR designation in effect and also decides to issue the NAP, Letter 5893 and Letter 5893-A, first issue Letter 6053 to declare no PR designation in effect. Then issue the NAP, Letter 5893 and Letter 5893-A, according to the guidance in IRM 4.31.9.8.1(2), Notice of Administrative Proceeding (NAP).

    Note:

    Issuing the NAP letters formally commences the partnership examination.

  7. After the IRS formally declares no PR designation in effect, the partnership has 30 days under the regulations to designate a PR. If you do not receive a valid Form 8979 within the 30-day period, follow the procedures in IRM 4.31.9.7.6.8, IRS’s Selection of a PR.

4.31.9.7.6.7 (05-08-2026)
No PR Designation in Effect

  1. The IRS may need to determine and declare that no PR designation in effect after providing a reasonable time for the partnership to make a PR designation. The procedures under IRM 4.31.9.7.6.6, Opportunity for the Partnership to Timely Designate a PR, are designed to provide time for the partnership to make its designation. Some circumstances under which the IRS may determine that no PR designation exists include:

    1. The PR (or DI, if the PR is an entity) does not have substantial presence in the United States. See IRM 4.31.9.7.6.1, Substantial Presence in the United States, above.

    2. The partnership designated an EPR on the Form 1065 but failed to appoint a DI.

    3. The partnership failed to make a valid designation of a PR.

    4. There was a valid resignation of PR or DI with no subsequent designation by the partnership.

      Note:

      In the case of a valid Form 8979 received for a PR or DI resignation, you will have to declare no PR designation in effect. See paragraph (4) within this subsection below. IRM 4.31.9.7.6.6, Opportunity for the Partnership to Timely Designate a PR, is not applicable because the valid resignation automatically results in no PR designation in effect.

    5. There are multiple designations within the 90-day period and the IRS determined that there is no designation in effect. See IRM 4.31.9.7.6.3, Multiple Designations by the Partnership Within the 90-day Period.

    6. The PR is no longer in effect for any other reason as determined by other published guidance.

  2. If, after giving a partnership a reasonable opportunity period to designate a PR, a PR designation is no longer in effect or does not exist, prepare and issue the applicable letter to the partnership’s last known address.

    Exception:

    The reasonable opportunity period instructions no longer apply after the examiner decides (and their team manager approves) to declare no PR designation in effect due to multiple designations within a 90-day period. See IRM 4.31.9.7.6.3, Multiple Designations by the Partnership Within the 90-day Period.

  3. If you already issued Letter 2205-D and subsequently conclude that you should declare no PR designation in effect:

    1. Issue Letter 6053 to the partnership. Choose the relevant line item for selectable paragraph C. Ensure the response due date field reflects a date that is 30 days from the date the letter is mailed.

      Note:

      The no PR designation in effect determination is effective on the date the examiner mails the notification.

    2. If there is an existing PR designation that you determine is no longer in effect, in addition to issuing Letter 6053, issue Letter 6007 with selectable paragraph C to the PR at the PR’s last known address.

  4. If you determine there is no PR designation in effect due to a valid resignation of a PR or DI, for purposes of notifying the partnership, issue Letter 6053 with paragraph C, line 4 or 5 (as appropriate). For purposes of notifying the PR (of a valid resignation), issue Letter 6007 with paragraph A. See Exhibit 4.31.9-3, Options for Partnership Representative Notices.

  5. If the partnership does not designate a PR within 30 days of the IRS formally declaring no PR designation in effect, the IRS will need to make the designation. See IRM 4.31.9.7.6.6, Opportunity for the Partnership to Timely Designate a PR. Therefore, if after the IRS notifies the partnership that there is “no PR designation in effect,” the partnership fails to respond within the 30-day timeframe, the examiner will select a PR. See IRM 4.31.9.7.6.8, IRS’s Selection of a PR.

  6. If a Form 8979 is received after mailing the notification that no PR designation is in effect, date stamp it. Determine the form’s validity and process it accordingly. See IRM 4.31.9.7.6.4, Form 8979 and Examiner Responsibilities.

    Note:

    Document activities in the case file.

4.31.9.7.6.8 (05-08-2026)
IRS’s Selection of a PR

  1. If the IRS must select a PR, there is no specific prescribed timeframe to do so. However, a new PR must be selected with reasonable due diligence while prioritizing the need to continue the examination in an efficient and effective manner.

  2. The IRS can select any person to be the partnership representative (except for an IRS employee, agent, or contractor unless they are a partner in the partnership); however, the person designated by the IRS should have sufficient knowledge of the partnership tax return and business operations to participate in the examination.

  3. When designation of a PR is needed, consider the following factors:

    1. The intention of the partnership based on a late or untimely submitted Form 8979,

    2. The views of majority interest partners,

    3. The partner’s or other person’s general knowledge of tax matters and administrative matters of the partnership,

    4. The partner's or other person’s access to the books and records of the partnership,

    5. The profits interest held by the partner,

    6. Whether there is a partner from the year under examination that is also a partner at the time the PR selection is made,

    7. Whether the person meets the substantial presence test.

  4. To determine the factors above, seek information and discuss the matter with partners, employees, and other prospective candidates to assess the person’s depth of knowledge. Generally, these inquiries are not disclosures or third-party contacts under IRC 6103 and IRC 7602. However, limit any information gathering solely to factors involving an appropriate PR designation. Do not address or inquire about tax issues.

  5. Consider issuing Form 4564, Information Document Request (IDR), addressed to “PARTNERSHIP REPRESENTATIVE” at the last known address of the partnership. The IDR should ask or consider the following:

    • Who runs the day-to-day operations of the partnership

    • Who has access to and the best understanding of the partnership’s books and records

    • Who was most involved with the drafting of the partnership agreement

    • Who is responsible for communications to the partners,

    • Any other relevant request for determining who is the best person to be PR, and

    • Ask the partnership to provide a completed Form 8979 so it can be considered in the pending designation of the PR by the IRS.

      Note:

      Although the partnership cannot use Form 8979 to designate a PR after you have declared no PR designation in effect, the Form 8979 is the best method for the partnership to communicate its preference as to who should be designated, which you may consider when the IRS is designating the PR.

  6. The group manager must participate in and approve the PR selection. This approval should be noted and substantiated in the case file. Consider if Counsel advice is needed. Once the PR is selected, prepare and issue:

    1. Letter 6053 with selectable paragraph B to the partnership’s last known address. The designation is effective on the date Letter 6053 is mailed.

    2. Letter 6008 with selectable paragraph B to the new PR.

  7. If a partnership attempts to revoke an IRS designated PR by making a designation of another PR, you may decide to allow the designation. See IRM 4.31.9.7.6.4, Form 8979 and Examiner Responsibilities. If you decide not to allow the designation, perform the following:

    1. Prepare Letter 6053, with selectable paragraph D, line 3 and issue to the partnership

    2. Prepare Letter 6007, with selectable paragraph B, and issue to the IRS designated PR

  8. You should make every effort to designate a PR but in the rare instance where you are unable to designate a PR, you must document the steps and best effort attempts made to designate a PR in your activity record. The documentation must include dates and actions taken. If you are unable to designate a PR due to an unresponsive partnership, see IRM 4.31.9.7.6.9, Unresponsive Partnership.

4.31.9.7.6.9 (05-08-2026)
Unresponsive Partnership

  1. If the partnership fails to respond to the notice of selection for examination (Letter 2205-D) after 30 calendar days, it was not returned as undeliverable, and the examiner already attempted to contact the partnership 14 days after mailing Letter 2205-D (per IRM 4.31.9.7.8(6)) with no response from the partnership, then you must try to make additional contact with the partnership. Additionally, if there is a PR designation in effect, you should contact the PR if there is no response from the partnership.

  2. Continue the examination by issuing NAPs (Letter 5893, Notice of Administrative Proceeding - Partnership, to the partnership and Letter 5893-A, Notice of Administrative Proceeding - Partnership Representative, to the partnership representative of record). You may follow generic NAP issuance procedures under IRM 4.31.9.8.1(2), Notice of Administrative Proceeding (NAP), if there was no PR designated (or an imperfect designation) on the return or if you first declare “no PR designation in effect.” You must declare “no PR designation in effect” prior to utilizing generic NAP issuance procedures.

  3. You must continue follow-up attempts to contact the unresponsive partnership (including by telephone) in an effort to schedule an initial appointment prior to the issuance of a notice of administrative proceeding (NAP). The procedures for issuing a NAP generally provide that it should be issued no earlier than 30 days from the issuance of Letter 2205-D.

  4. If follow-up attempts to contact the partnership by telephone are successful, examiners must follow the procedures in IRM 4.10.2.8.2, Initial Telephone Conversation, to conduct the initial conversation. In addition, confirm the initial appointment per the procedures in IRM 4.10.2.8.1.2(3), Field Examination Initial Contact.

  5. If the PR designation cannot be determined at the time the Letter 2205-D is issued, this should be indicated on Letter 2205-D in accordance with IRM 4.31.9.7.6.5, Identification of the Partnership Representative or Designated Individual for Letter 2205-D, and IRM 4.31.9.7.6.6, Opportunity for the Partnership to Timely Designate a PR.

  6. If the lack of a response from the partnership persists (including where the examiner has tried to designate a PR under IRM 4.31.9.7.6.8(8), IRS’s Selection of a PR, but has been unable to do so because the partnership is unresponsive), contact local Counsel for assistance. You may utilize the following procedures:

    1. Proceed with the examination using the procedures outlined in IRM 4.10.2.8.3(8), No Response/No Show Procedures.

    2. Conduct the examination using third-party contacts as outlined in IRM 4.11.57, Examining Officers Guide (EOG), Third-Party Contacts.

    3. Summon the taxpayer and/or third-parties using the procedures outlined in IRM 25.5.5, Summons for Taxpayer Records and Testimony.

4.31.9.7.7 (05-08-2026)

Administrative Adjustment Request (AAR) and Other Subsequent Filings

  1. The examiner is required to make a mandatory referral to a BBA point(s) of contact (BBA POC) when any subsequent filing is part of the exam year filings. The purpose of the BBA POC referral is to assist the examiner to determine the type of filing and whether it is an AAR. See IRM 4.31.9.7.2(8), Mandatory Referral to the BBA Point of Contact (POC), for more information.

  2. A partnership may file an AAR under IRC 6227 with respect to any PRI and correct errors on a previously filed partnership return. However, a partnership may not file an AAR solely for the purpose of changing the designation of a PR.

    1. The filing of a valid AAR will extend the IRC 6235(a)(1) statute date to the date which is 3 years from the date the AAR was filed.

    2. A subsequent filing other than an AAR may not extend the IRC 6235(a)(1) statute date.

  3. Upon assignment of the case, the examiner should check to see if a subsequent filing has been made. To do this, check IDRS prints (TXMODA or BMFOLT) for the presence of a TC 976. In rare instances, a TC 971 with action codes 010 or 013 may alternatively be present.

  4. If a subsequent filing is indicated on IDRS or the examiner encounters subsequent filings during a BBA examination, the examiner should immediately notify the BBA POC. The BBA POC will assist the examiner on how to:

    1. Confirm that the subsequent filing was timely filed.

    2. Determine if the subsequent filing was made prior to issuance of the NAP when the tax year is under examination.

    3. Determine if the subsequent filing constitutes a BBA AAR.

    4. Discuss if an update to the statute of limitations (SOL) on making adjustments under IRC 6235(a)(1)(C) is appropriate and if so, how to update that SOL.

    5. Proceed with the examination.

      Note:

      A partnership with a short period partnership tax year that begins after December 31, 2017, may file a BBA AAR as long as the partnership did not make an election out of the centralized partnership audit regime under IRC 6221(b) on its tax return for the short year filing.

  5. The PR should file any AAR as per instructions. Any other subsequent filing should be made in accordance with applicable guidance pertaining to such filing. An examiner MUST NOT accept an AAR (or any other subsequent filing) directly from the PR or POA. Instead, the examiner should direct the PR or POA to file as per the form instructions or other applicable guidance. Although the PR or POA may provide the examiner with a copy of the filing, the examiner must obtain the official copy of the AAR (or any other subsequent filing) from the service center or IRS systems (e.g., EUP) to conduct the exam.

4.31.9.7.7.1 (05-08-2026)
Basic Configurations for AARs

  1. If the AAR is filed electronically, the partnership uses Form 1065, U.S. Return of Partnership Income, marks the amended return box, and attaches Form 8082, Notice of Inconsistent Treatment or Administrative Adjustment Request (AAR). On Form 8082, the partnership marks the BBA AAR box in Part I and completes the rest of the form as appropriate.

  2. If the AAR is filed on paper, the partnership uses Form 1065-X, Amended Return or Administrative Adjustment Request (AAR), marks the BBA AAR box in Part I, completes the appropriate items A-E in Section 1, completes the appropriate items in Part II, and completes Part IV (if necessary).

  3. Only the PR (or DI, if applicable) may sign and file an AAR on behalf of the partnership.

    • A partner may not make a request for an administrative adjustment of a PRI unless the partner is a PR (or DI, if applicable) and is doing so on behalf of the partnership.

  4. An AAR is filed through official channels either electronically or on paper with an appropriate service center (where the original return was filed).

    Caution:

    Examiners MUST NOT accept an AAR (or any other subsequent filing) directly from the PR or POA during an ongoing field examination. For more instructions, see IRM 4.31.9.7.7(5), Administrative Adjustment Request (AAR) and Other Subsequent Filings.

  5. A partnership may not file an AAR more than 3 years after the later of: the date the partnership return for such tax year was filed, or the last day for filing such partnership return (without regard to extension). Regardless of the timeframes mentioned, a partnership may not file an AAR after the IRS issues a notice of administrative proceeding (NAP letter).

    Exception:

    If the partnership files subsequent filing(s) due to a foreign tax redetermination (see 26 CFR 1.905-4(b)(2)(ii) ), make a mandatory referral under IRM 4.31.9.7.2(8), Mandatory Referral to the BBA Point of Contact (POC), for a BBA POC to review the subsequent filing(s) and bring this information to the BBA POC’s attention. Such AAR filings require special treatment because they may be found to be an allowable AAR filing under 26 CFR 1.905-4 despite the NAP letter having already been issued by the IRS.

  6. A partnership must determine whether the adjustments requested in the AAR result in an imputed underpayment. If so, the partnership must take the adjustments into account and make payment unless the partnership makes a valid election for the adjustments to be taken into account by the reviewed year partners.

  7. In general, the partnership must pay the imputed underpayment on the date the partnership files the AAR.

  8. A partnership may apply limited types of modifications to the amount of the imputed underpayment if a notification (Form 8980, Partnership Request for Modification of Imputed Underpayments Under Section 6225(c)) is attached to the AAR, and includes the following:

    1. Notification to the IRS of the presence of any modification,

    2. A description of the effect that each modification had on the calculation of the imputed underpayment,

    3. An explanation of the basis for the modification made, and

    4. Documentation to support the partnership’s eligibility for the modification.

    5. Generally, the requirements in a - d above are met if the Form 8980 attached to the AAR is properly completed and includes any required supporting documents pertaining to the permitted modification type.

      Note:

      Contact the BBA POC if the partnership modified the imputed underpayment. Some modifications permitted in the modification phase in exam are not permitted in the AARs.

  9. If the partnership makes a valid election to have adjustments resulting in an imputed underpayment be taken into account by reviewed year partners, the partnership is not required to pay the imputed underpayment. However, if such an election is made, all modifications are disregarded and all adjustments requested in the AAR must be taken into account by each appropriate reviewed year partner.

  10. If the adjustments requested in the AAR result in an IU calculation amount that is less than or equal to zero or the adjustments don't result in an IU, then all adjustments must be taken into account by the reviewed year partners.

  11. If reviewed year partners are required to take into account the adjustments requested in the AAR, the partnership must furnish Form 8986, Partner's Share of Adjustment(s) to Partnership-Related Item(s) to the reviewed year partners and file these forms and Form 8985, Pass-Through Statement-Transmittal/Partnership Adjustment Tracking Report with the IRS on the date the AAR is filed.

  12. If a partner is a pass-through entity and it receives a Form 8986 from a BBA partnership that filed an AAR, the pass-through partner must furnish Form 8986 to its reviewed year partners and also file these forms and Form 8985 with the IRS by the extended due date of the AAR partnership’s adjustment year return.

    Note:

    If the adjustments result in an IU, the pass-through partner may alternatively calculate and pay an IU and furnish Forms 8986 to its reviewed year partners for those adjustments that do not result in an IU. If utilizing this option, the pass-through partner is not permitted any modifications to the IU and is obligated to file any Forms 8986 furnished to its reviewed year partners and Form 8985 with the IRS.

  13. Each reviewed year partner must take into account their share of all the adjustments requested in the AAR as shown on the Form 8986 furnished by the partnership to that reviewed year partner.

  14. Generally, each reviewed year partner’s share of the adjustment requested in the AAR is determined in the same manner as each adjusted PRI was originally allocated on the partnership return for the reviewed year.

  15. If the adjusted PRI was not reported on the partnership’s return for the reviewed year, each reviewed year partner’s share of the adjustments will be based on how such items would have been allocated per the partnership agreement. If the partnership does not have a partnership agreement in effect, such items each reviewed year partner’s share of the adjustments will be based on how such items would have been under the "partner's interest in the partnerships" (PIP) rules under IRC 704(b).

  16. If an adjustment involves a reallocation of an item, the reviewed year partner’s share of the adjustment requested in the AAR is determined in accordance with the AAR.

  17. The table in Exhibit 4.31.9-4 describes the various scenarios for which an AAR may be filed and the applicable audit regime to be applied.

4.31.9.7.7.2 (05-08-2026)
AAR Exam Scope

  1. You may determine a subsequent filing does not constitute an AAR, but can only do this in conjunction with a BBA POC. Any subsequent filing requires a mandatory referral to a BBA POC in accordance with IRM 4.31.9.7.2, Mandatory Referral to the BBA Point of Contact (POC).

  2. You may re-adjust any items that were adjusted on the AAR. Also, the amount of an imputed underpayment determined by the partnership, including any modifications, may be re-determined by the IRS.

    Note:

    If adjusting an IU previously reported on an AAR for the reviewed year, the adjustments to that IU are not permitted to be pushed out. The exam adjustments to an imputed underpayment reported on an AAR are effectively limited to a recalculation of the imputed underpayment using only the adjustments (and treatment of those adjustments for purposes of the IU computation) that were reported on the AAR. Make a mandatory referral to a BBA POC if making an adjustment to an IU previously reported on an AAR. See IRM 4.31.9.7.2(6), Mandatory Referral to the BBA Point of Contact (POC).

  3. The partnership audit plan should include any PRIs the examiner does not agree with, including the following:

    1. Any substantial issue relating to the adjustments requested in the AAR,

    2. Discrepancies in the imputed underpayment calculation as determined in the AAR, including but not limited to treatment, grouping, subgrouping, netting and modification of the AAR reported adjustments and its prescribed regulatory calculation, and

    3. The allocation of the adjustments to the reviewed year partners as reported in the filed statements.

      Note:

      Examiners should contact the BBA POC for assistance. See IRM 4.31.9.7.2, Mandatory Referral to the BBA Point of Contact (POC).

4.31.9.7.8 (05-08-2026)

Initiate Taxpayer Contact (Letter 2205-D)

  1. All initial taxpayer contacts must be made by mail. Prepare and mail Letter 2205-D, Initial Contact to Schedule Appointment - Partnership Returns, to all partnerships regardless of the tax year.

    Note:

    Letter 2205-D does not have to be mailed certified.

  2. Letter 2205-D is used to:

    1. Provide notice of selection for examination to any partnership, whether subject to the centralized partnership audit regime (Bipartisan Budget Act of 2015), or separate deficiency proceedings for BBA elect out (BEO) partnerships. (See IRM 4.31.5.2.2.1, BBA Elect Out (BEO) Partnerships, for more information),

    2. Confirm certain information of record, and

    3. Request that the taxpayer call-back to schedule an initial appointment for the examination of partnership income tax returns.

  3. Letter 2205-D has selectable paragraphs.

    1. Select the appropriate paragraph 1 or 2 based on whether SB/SE or LB&I:

      Paragraph number Division
      1 SB/SE taxpayers
      2 LB&I taxpayers

    2. Select the applicable paragraphs under the BBA regime:

      Selectable paragraph number Audit Regime
      5 BBA Partnerships (tax periods beginning 1/1/2018 or after). See note below for additional information and examples on completing paragraph 5.
      6 Partnerships that elected out of BBA for tax years beginning 1/1/2018 and after

      Note:

      If paragraph 5 is used, ensure that the name and address of the PR is inserted where indicated. If an IPR, insert the IPR’s name and address. If an EPR, insert both the EPR’s name and address and the DI’s name and address. See IRM 4.31.9.7.6, Partnership Representative (PR), for details about EPR vs. IPR.

      Note:

      If IRS records do not reflect a PR for the partnership’s taxable year, see IRM 4.31.9.7.6.5, Identification of the Partnership Representative or Designated Individual for Letter 2205-D.

      Example:

      See figure below illustrating how to input Letter 2205-D, Paragraph 5, designated PR field box, if the designated PR is an individual partnership representative (IPR):

      Figure 4.31.9-1

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      Example:

      See figure below illustrating how to input Letter 2205-D, Paragraph 5, designated PR box, if the designated PR is entity partnership representative (EPR) along with the designated individual (DI).

      Figure 4.31.9-2

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      Please click here for the text description of the image.

      Example:

      See figure below illustrating how to input Letter 2205-D, Paragraph 5, designated PR box, if there is no PR listed or invalid PR on Form 1065.

      Figure 4.31.9-3

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      Please click here for the text description of the image.

  4. Mail Letter 2205-D to the partnership’s last known address, which is either the address on the return or on IDRS master file entity (MEF) if more current. Perform the following before mailing the letter:

    1. Review INOLES for the last known address for the partnership.

    2. Include a call back due date for the partnership to contact the examiner that is 14 days from the date the letter is mailed.

      Note:

      The 14-day response due date on Letter 2205-D is the deadline for the partnership to initiate contact with the examiner. However, the partnership is permitted 30 days from the issuance of Letter 2205-D to take certain actions as described in paragraph (5) within this subsection below and in the selectable paragraphs within Letter 2205-D. The 30 days are not statutory. Therefore, the examiner has discretion on these action dates. Caution should be taken not to impede the examination. The manager should approve any extensions to these action dates.

  5. The partnership generally has 30 days from the date Letter 2205-D is issued to take the following actions:

    1. Send a completed Form 8979, Partnership Representative Designation and Resignation, if there was not a valid PR designation.

    2. File an AAR.

    3. Revoke the election out of BBA.

  6. Contact the partnership within 14 days of mailing Letter 2205-D. Perform the following when the partnership responds or when contact is made with the partnership:

    1. Help ensure the partnership understands all of the information so it can take any allowable action it deems appropriate prior to issuance of the NAP letters, which will be mailed 30 days after the mailing of Letter 2205-D,

    2. Schedule an opening conference or initial appointment,

    3. Request PR or DI’s TINs to properly issue NAP Letter 5893 and Letter 5893-A. See IRM 4.31.9.8.1, Notice of Administrative Proceeding (NAP), for more information.

  7. Do not include or attach any Form 4564, Information Document Request (IDR) to Letter 2205-D. The earliest the IDRs can be issued is with the appointment confirmation letter (Letter 3253 or Letter 3253-L). The examiner determines the response due date for those earliest IDRs, such as the books and records IDRs, and ensures that the records received are not reviewed until the NAPs (Letter 5893 and Letter 5893-A) are issued.

  8. A copy of Letter 2205-D should be filed under Section 600 for SB/SE and under SAIN 724-BBA for LB&I.

    Reminder:

    Letter 3798, Non-Filer Appointment, will be issued first in non-filer cases where return solicitation language is unwarranted. Letter 3798 is not a notice for selection for exam. Once a determination has been made to conduct an examination of the non-filed or late filed return, you will issue Letter 2205-D.

  9. Once you have scheduled the opening conference or initial appointment, issue the proper appointment confirmation letters depending on your business operating division (BOD):

    1. Letter 3253, Taxpayer Appointment Confirmation, if you’re in SB/SE.

    2. Letter 3253-L, Taxpayer Appointment Confirmation, if you’re in LB&I.

    3. Letter 3254, Representative Appointment Confirmation.

    Reminder:

    Attach a Form 4564, Information Document Request, to the appointment confirmation letter and list all the information needed at the initial appointment (e.g., basic books and records, organizational charts, board minutes, general information about the taxpayer’s business, etc.).

  10. Reissue Letter 2205-D and follow the procedures in paragraph (4) within this subsection if one of the following occurs:

    1. The letter is returned undeliverable. If this happens, you must review INOLES to confirm the last known address. Any and all undeliverable notices of selection for examination are addressed under IRM 4.10.2.8.4, Undeliverable Initial Contact Letters.

    2. You issued Letter 2205-L or any other Letter 2205 to the partnership instead of Letter 2205-D. Letter 2205-D must be used for partnership audits.

    3. You issued Letter 2205-D with the wrong selectable paragraph or no selectable paragraphs. See paragraph (3) within this subsection above.

    4. You did not properly include the IPR, or EPR and DI, information (Name or Address) correctly on Letter 2205-D.

    Note:

    Letter 2205-D can be reissued only if the NAP letters have not yet been issued. If the examiner has already issued the NAP letters, Letter 2205-D cannot be re-issued.

  11. If the taxpayer fails to respond to the initial contact letter, and it was not returned as undeliverable, follow the procedures in IRM 4.31.9.7.6.9, Unresponsive Partnership.

  12. If you issued Letter 2205-D, but you did not issue the NAP letters (Letter 5893 and Letter 5893-A), did not inspect books and records, and decided to withdraw from the exam and survey the return, then:

    1. Issue Letter 1024, Return Accepted as Filed.

    2. Follow the survey after assignment closing procedures in IRM 4.10.2.5.2, Procedures for Surveying Returns After Assignment for SB/SE cases. For LB&I cases, follow IRM 4.46.3.2.2, Decision to Survey a Return, IRM 4.46.5.11.2.4, Exception to Paperless Case Closing to CCP, and IRM Exhibit 4.46.5-2, Electronic Case Closing Procedures by Closure Type.

4.31.9.7.9 (05-08-2026)

BBA Partnership Check Sheets

  1. The BBA partnership check sheets are designed to assist examiners in completing the required BBA procedures as well as the BBA elect out (BEO) Investor Level Statute Control (ILSC) procedures. Managerial involvement and signatures are required on all the mandatory forms.

  2. It is critical for the IRS to follow BBA or ILSC rules and procedures during examinations, since procedural errors can affect the validity of adjustments, assessments, infringe on taxpayer rights, and result in improper disclosures of tax information.

  3. Use the check sheets in paragraph (4) within this subsection below when examining a partnership or a limited liability company filing as a partnership subject to BBA. Additionally, use some of the check sheets while considering the applicability of Ch 2/2A tax (SECA and NIIT) and any resulting PCS linkage controls. The check sheets will serve as documentation to confirm the actions taken or decisions made in following the BBA, ILSC and Ch 2/2A procedures.

  4. The following check sheets are mandatory and must be completed for each tax period of the BBA entity being examined.

    • Form 15260, Determination of Pass-Through Audit Regime Check Sheet, is mandatory. You will need to include the completed check sheet in the audit file to document whether or not the partnership is subject to the centralized partnership audit regime (BBA procedures). The examiner’s manager must review this check sheet and the associated work papers. The manager’s signature is mandatory on the check sheet.

    • Form 15262, Bipartisan Budget Act (BBA) Partnership Procedures Check Sheet, is mandatory once you determine that the partnership is to be examined using the centralized partnership audit regime (BBA procedures). You will need to include the completed check sheet in the audit file. This check sheet provides the specific procedural elements necessary to conduct a quality BBA field examination. The examiner’s manager must review the BBA Partnership Procedures Check Sheet and the associated work papers to ensure all appropriate procedures have been completed. The manager’s signature is mandatory on this check sheet and indicates the appropriate procedures have been reviewed and have been correctly completed.

    • Form 15263, Bipartisan Budget Act (BBA) Partnership Chapter 2/2A Relevant Partner Determination, is mandatory. The manager’s signature signifies the examiner or the examination team adhered to BBA Chapter 2/2A procedures. The BBA Chapter 2/2A Relevant Partner Determination check sheet includes the steps necessary to determine, among other things, whether the respective BBA partner(s) are subject to Chapter 2/2A taxes, the statute for the Chapter 2/2A taxes, and if a Chapter 2/2A linkage package is required. You can find further guidance on Chapter 2/2A tax and the Chapter 2/2A dual procedures within IRM 4.31.9.6.2, Auditing Chapters 2 & 2A (Ch 2/2A) - BBA Partnership is the Key Case, and IRM 4.31.9.6.4, BBA Linkage Procedures.

    • Form 15264, Bipartisan Budget Act (BBA) Chapter 2/2A Linkage Check Sheet, is mandatory if the examiner decided to link Form 1065 for SECA or NIIT purposes. It guides examiners in completing the required information when submitting a BBA Chapter 2/2A linkage package and must be completed with the specified attachments. The manager’s signature is mandatory on this check sheet and indicates the linkage package has been reviewed and is accurate and complete.

    • Form 15271, Bipartisan Budget Act (BBA) Partnership Adjustment Statute Extension Check Sheet, is used for BBA partnerships in lieu of Form 10949. Also see IRM 4.31.9.8.4, Statute of Limitations (SOL) on Making Adjustments. Apply the basic logic contained in the general guidance provided in IRM 25.6.22, Extension of Assessment Statute of Limitations by Consent, and IRM 25.6.23, Examination Process-Assessment Statute of Limitations Controls, as indicated throughout Form 15271. This check sheet guides field agents and their managers on securing Form 872-M to extend the statute of limitations on making adjustments per IRC 6235(b) and the procedural requirements involved.

    • Form 15416, Validation Check Sheet for Form 8979, Partnership Representative Designation or Resignation, is mandatory when you receive a Form 8979 for designation or resignation and helps determine whether the Form 8979 is valid. This form assists the examiner where the audited partnership has been identified as subject to the BBA regime and the IRS point of contact (i.e., appeals officer or Counsel attorney) has received a Form 8979 from the partnership to designate a PR and appoint a designated individual if the PR is an entity, or for the PR or DI to resign. This form is not applicable and should not be used for TEFRA partnerships, ILSC partnerships or BBA elect out (BEO) entities that are audited under ILSC procedures.

    • Form 15261, Investor Level Statute Control (ILSC) Pass-through Procedures Check Sheet, is mandatory and requires managerial involvement for an entity that has validly elected out of BBA, BBA Elect Out- (BEO), and for which the BBA audit regime does not otherwise apply. The manager’s signature is mandatory on this check sheet and indicates the ILSC procedures have been reviewed and have been correctly completed.

  5. SB/SE examiners will file these check sheets and other BBA workpapers under a separate line item in Section 600 on the Form 4318, Examination Workpaper Index. LB&I examiners will file the BBA check sheets and workpapers under SAIN number 724.

4.31.9.7.10 (05-08-2026)

Form 2848, Power of Attorney (POA)

  1. Form 2848, Power of Attorney and Declaration of Representative, is used to authorize an individual to represent a partnership representative (PR) who is acting on behalf of the partnership under the Centralized Partnership Audit Regime. Refer to IRM 4.11.55, Power of Attorney Rights and Responsibilities.

    Note:

    A power of attorney (including a Form 2848) may not be used to designate a PR.

  2. The individual partnership representative (IPR) or designated individual (DI), (if the PR is an entity) must sign the Form 2848.

  3. A new POA Form 2848 is required if the PR is changed (e.g., a new PR is designated, the PR resigns, etc.). The newly appointed PR or DI (if the PR is an entity) will sign and date the new Form 2848.

    Note:

    If the partnership changes only the DI and does not change the EPR, a new Form 2848 is not required because there has been no-change to the EPR designation. If the DI resigns, a new Form 2848 must be secured. Upon DI resignation, there will be no PR designated for the partnership and the partnership will have to designate the PR.

  4. There must be a separate Form 2848 for each year because the designation of a PR is only effective for one partnership tax year and a POA is appointed by a specific PR for a specific tax return year.

  5. An individual authorized on Form 2848 must be eligible to practice before the IRS. Under IRM 4.11.55, Power of Attorney Rights and Responsibilities, you should verify the credentials and document the verification in the case file. To verify, refer to the guidance in IRM 4.11.55.2.1.2 , POA Not Authorized to Practice Before the Internal Revenue Service.

  6. For an individual to represent a partnership for matters unrelated to the centralized partnership audit regime, the individual must be authorized to do so on a separate Form 2848 signed by a partner that has authority to do so under state law. Please refer to IRM 4.31.9.7.10.2, Form 2848, for Chapter 2, 2A, 3 and 4 Income Items Outside of the BBA Regime, below. For dissolved partnerships, see 26 CFR 601.503(c)(6).

    Note:

    The partnership can designate the BBA PR to represent the partnership for any non-Chapter 1 proceeding if the PR can act before the IRS under 26 CFR 601.503 , the Form 2848 instructions, and IRM 4.11.55 , Power of Attorney Rights and Responsibilities. This will allow for efficient communication with one point of contact for the entire examination.

4.31.9.7.10.1 (05-08-2026)
Form 2848, For Items Within the Scope of the BBA Regime

  1. Part I, Line 1, of Form 2848, Taxpayer Information should be completed to reflect the partnership representative name, the partnership name, the partnership address, and TIN of the partnership:

    Figure 4.31.9-4

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    Figure 4.31.9-5

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  2. Part 1, Line 3, of Form 2848, Acts Authorized

    Figure 4.31.9-6

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  3. Part 1, Line 5, of Form 2848, Additional acts authorized

    1. Though not required, under Part 1, Line 5a of Form 2848, it is a best practice to list each act the PR authorizes the POA to perform. These would be acts other than the normal authorization to work with the examiner and exchange confidential information.

      Figure 4.31.9-7

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    2. Pay attention to Part 1, Line 5b to identify any restrictions to the POA’s authority. If there are to be any restrictions on the representative’s authority, those restrictions should be clearly stated in Part 1, Line 5b of Form 2848.

      Figure 4.31.9-8

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  4. Part 1, line 7, of Form 2848, Signature. The partnership representative signs. If the partnership representative is an IPR, the form is signed by the IPR. If the partnership representative is an entity, the form is signed by the DI:

    Figure 4.31.9-9

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    Figure 4.31.9-10

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4.31.9.7.10.2 (05-08-2026)
Form 2848, for Chapter 2, 2A, 3 and 4 Items Outside the Scope of the BBA Regime

  1. A Form 2848 for Chapter 2, 2A, 3 and 4 items outside the scope of the BBA regime might be required:

    1. If a Chapter 2 (SECA) issue is pursued on a direct or indirect partner and there is a related adjustment to Sch K/K-1 L14, Form 2848 will not be required as Sch K/K-1 L14 is a PRI, thus, the agent can discuss with the PR adjustments to NESE without a non-BBA Form 2848.

    2. If a Chapter 2 (SECA) issue is pursued on a direct or indirect partner and there is no related adjustment to Sch K/K-1 L14, a Non-BBA Form 2848 will be required. A Non-BBA Form 2848 will always be required for Chapter 2A (NIIT) issues.

      Note:

      One example is Schedule K/K-1 Line 20 Code Y, any discussion about these disclosures on the Form 1065. Another example is the Analysis of Net Income section on the top of page 5 of Form 1065 , any discussion about the partnership’s classification of the partners for purposes of NIIT.

    3. If Form 1065 is not under audit and the agent is auditing only Form 1042, a non-BBA Form 2848 will be required. Please refer to Form 2848 Instructions and IRM 4.10.21, U.S. Withholding Agent Examinations – Form 1042.

  2. Part 1 of Form 2848, Line 1 would include the name, address, and TIN of the partnership.

    Figure 4.31.9-11

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    Please click here for the text description of the image.

  3. Part 1 of Form 2848, Line 3 should show that the POA is being executed for matters dealing with income including pass-through items and foreign withholding. It should also list all applicable tax forms and tax years.

    Figure 4.31.9-12

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    Please click here for the text description of the image.

  4. For a discussion of who can sign Part 1 of Form 2848, Line 7 see IRM 4.31.5.12.1.2, Entity POA, since this Form 2848 is being executed for Chapter 2, 2A, 3 and 4.

    Figure 4.31.9-13

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    Please click here for the text description of the image.

4.31.9.8 (05-08-2026)

Executing the Examination

  1. During this phase of the examination, the examiner will execute the examination plan. The examiner will consider the statute of limitations on making adjustments, gather facts and develop the potential issues, and regularly communicate with the PR.

  2. The examiner will record all activities in their activity record.

4.31.9.8.1 (05-08-2026)

Notice of Administrative Proceeding (NAP)

  1. The IRS must mail the partnership and the PR a NAP when initiating an examination of the partnership for a tax year. Issue the respective NAP letters no earlier than 30 days after the issuance of Letter 2205-D and no later than the earlier of the opening conference date or the date books and records are first inspected.

    Note:

    If the examiner fails to issue a perfected NAP letter (for example, the NAP letter contains an address to somewhere other than the partnership or PR’s last known address), contact the BBA POC. See IRM 4.31.9.7.2(11), Mandatory Referral to the BBA Point of Contact, for instructions.

  2. Prepare and mail the NAP letters via certified mail in separate envelopes. If there is a foreign address, use registered mail. The NAP letters (Letter 5893 and Letter 5893-A ) should be dated the same. The NAP letter dates should reflect the same date that the letters were mailed. The date that the NAP letters are mailed out is known as the NAP issuance date.

    1. Send Letter 5893, Notice of Administrative Proceeding - Partnership, via certified mail to the partnership’s last known address. Run INOLES for the partnership to confirm the last known address. See IRM 2.3.47 for additional INOLES guidance.

    2. Send Letter 5893-A, Notice of Administrative Proceeding - Partnership Representative, to the PR’s last known address. Run INOLES for the PR to obtain the last known address. If the PR is an EPR, send Letter 5893-A via certified mail to the EPR’s last known address with the attention to the DI. Letter 5893-A is NOT mailed to the DI’s address. If the IRS has declared there is no PR designation in effect when issuing the NAP letters, send a generic NAP Letter 5893-A, via certified mail, addressed to "PARTNERSHIP REPRESENTATIVE" at the last known address of the partnership. See below for an example of a generic NAP:

      Note:

      It is a best practice to print and save the INOLES transcripts for the partnership and the partnership representative and save the certified mail receipt (the receipt for mailing, not the green signature card) for both NAP letters and file them under Section 600 for SB/SE and SAIN 724 for LB&I.

      Reminder:

      You must use the Certified Automated Mailing System (CAMS) when processing and sending certified NAP letters (see IRM 1.22.5.12), Processing Outgoing Mail. Refer to CAMS User Guide for more instructions.

      Figure 4.31.9-14

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      Please click here for the text description of the image.

    3. The IRS return address information should be added to the upper left side of the NAP.

    4. If the partnership or PR has terminated its existence, and a current mailing address can’t be found, contact a BBA Point of Contact for assistance.

    5. Include the PR name in the "Partnership Representative on file" box. If the PR is an entity, you must include the names of both EPR and DI in the "Partnership Representative on file" box.

      Note:

      The Power of Attorney’s name never gets included in the "Partnership Representative on file" box on Letter 5893 and Letter 5893-A.

  3. If both NAP letters were mailed to the respective last known addresses, but either was returned as undeliverable, contact the PR or POA and request an alternative address for the purposes of mailing copies of notices. If both letters were returned, request an alternative address for both the partnership and the PR. Ask the Partnership Representative or POA to make the alternative address request in writing so that it can be documented for the case file. Inform the PR or POA that statutory notices will still be mailed to the last known address per IRS records; however, copies will be mailed to an address of convenience if documented in the way described here. Therefore, upon receiving the written alternative address request, you can send copies of the NAP letters to such address.

  4. A partnership cannot file an AAR, and its partners cannot amend their returns to file inconsistently from the partnership after the NAP letters have been mailed with respect to the taxable year.

  5. A separate set of NAP letters are sent for each year under examination since each year stands on its own. Do not delay issuing the NAPs.

  6. The case file should be documented to show that the partnership and PR NAP letters were issued in accordance with IRC 6231. Letter 5893 and Letter 5893-A should be filed within SAIN 724 (LB&I) or Section 600 (SB/SE).

    Note:

    If the PR requests delaying the mailing of NAP letters, document in the case file.

4.31.9.8.1.1 (05-08-2026)
NAP Date on Examination Returns Control System (ERCS)

  1. The NAP date represents the start of a BBA examination. The date the NAP is issued needs to be loaded onto ERCS as soon as the NAP is issued, but no later than 5 business days after issuance. Once input on ERCS, the date will also be reflected on AIMS and IMS.

  2. Prepare Form 5348, AIMS/ERCS Update (Examination Update) for the required information listed below:

    1. Page 1: Enter the examiner’s name (as the requestor), employee group code (EGC) and date (located on top of the form).

    2. Page 2: Enter the NAP issuance date next on line “NAP-DT” and the taxpayer information indicated on the bottom half of the form.

  3. Submit completed Form 5348 to the manager for approval.

  4. Submit the completed and approved Form 5348 to the team administrative assistant or other designated person for input on ERCS. Input of the NAP mailing date will trigger:

    1. A TC 971/AC 811 with "NAP-DT: YYYYMMDD" display. This is to flag the BMF account that a BBA examination has begun in the event an AAR is filed with the campus beyond the NAP date.

    2. The AIMS generation of an Audit Control Number (ACN) is unique to the specific partnership and tax year being examined. Care should be taken to ensure this NAP date is being input to the correct TIN and year because once generated, the ACN cannot be changed or deleted. Once the ACN is generated, TC 971 with AC 815 and "ACN: YYMMNNNNNN" display will post to BMF.

      Note:

      It may take at least 2 weeks to update AIMS and TC 971 to process.

4.31.9.8.1.2 (05-08-2026)
Withdrawal of the NAP

  1. The IRS may, without consent of the partnership, withdraw the NAP letters (Letter 5893 and Letter 5893-A ) within 60 days from the issuance of the NAP if:

    1. The examiner determined an AAR had been filed before the issuance of the NAP letters and no examination is warranted. Please refer to paragraph (4) within this section below.

    2. The examiner and manager have a reasonable cause for withdrawing the NAP letters. This could include instances where the case is not worthy of examination; time prohibits starting the examination; insufficient resources to audit the partnership or other extraordinary circumstances. Please refer to paragraph (4) or (5) within this section below, whichever is applicable.

    3. When the NAP letters were issued in error, and the case is to be worked under a different audit regime, refer to paragraph (6) within this section below.

  2. Withdrawing the NAP letters is treated as if they had never been mailed. If the IRS withdraws NAP letters with respect to a partnership tax year, the prohibition on filing an AAR after the mailing of NAP letters no longer applies with respect to that tax year.

  3. Manager must approve the withdrawal of the NAP letters.

  4. If the NAP letters (Letter 5893 and Letter 5893-A) were issued but the records have not been inspected, and there is a decision to withdraw from the exam and survey the return:

    1. Prepare and issue Letter 6047, Notice of Administrative Proceeding (NAP) Withdrawal - Partnership, and Letter 6047-A, Notice of Administrative Proceeding (NAP) Withdrawal - Partnership Representative.

      Note:

      Update ERCS/AIMS via Form 5348 to remove the NAP issuance date. To delete the NAP date, a "D" should be entered on the "NAP-DT" line of Form 5348. Take no action with respect to the audit control number. The audit control number cannot be removed.

    2. Follow the survey after assignment closing procedures in IRM 4.10.2.5.2, Procedures for Surveying Returns After Assignment, for SB/SE cases. For LB&I cases, follow IRM 4.46.3.2.2 , Decision to Survey a Return, IRM 4.46.5.11.2.4 , Exception to Paperless Case Closing to CCP, and IRM Exhibit 4.46.5-2 , Electronic Case Closing Procedures by Closure Type.

      Exception:

      Issuance of the NAP withdrawal Letter 6047 or Letter 6047-A replaced the IRM 4.10.2.5.2 requirement to issue Letter 1024 when taxpayer contact has been made and the case is being surveyed after assignment. There is no need to issue Letter 1024 for NAP withdrawals.

  5. If the NAP letters (Letter 5893 and Letter 5893-A) were issued but the records have been inspected, the NAP letters cannot be withdrawn. Please follow the no-change case closing procedures in IRM. If there are adjustments that do not result in an imputed underpayment, the NAP letters cannot be withdrawn. Proceed with the Summary Report Package to show the adjustments. See IRM 4.31.9.10.1, Summary Report Package.

  6. If the case is to be worked under a different audit regime after withdrawal of the NAP letters, the examiner will maintain control of the case file and continue with the examination based on such audit regime. Prepare and issue Letter 6047, Notice of Administrative Proceeding (NAP) Withdrawal - Partnership, and Letter 6047-A, Notice of Administrative Proceeding (NAP) Withdrawal - Partnership Representative. Update ERCS/AIMS via Form 5348 as follows:

    1. Remove the NAP issuance date. To delete the NAP Date, a "D" should be entered on the "NAP-DT" line of Form 5348.

    2. For tax years beginning on or after 2018, in the "PBBA" section of the form, locate the "ELECT-OUT-OF-BBA-CD" and request to change the value to "1" to indicate the return is not subject to the BBA regime. If the elect out code is already "1" , no action is necessary.

    3. Take no action with respect to the audit control number. The audit control number cannot be removed.

4.31.9.8.2 (05-08-2026)

Consistency Principle

  1. In general, under IRC 6222, a BBA partner’s return must be consistent with the partnership return in all respects, including:

    1. Items reported on the partnership return filed with the IRS (including amendments or supplements thereto),

    2. Any AAR filed by the partnership under IRC 6227 and the regulations thereunder, and

    3. Any push out statement, schedule or list (including amendments or supplements thereto) filed by the partnership with the IRS pursuant to IRC 6226 and the regulations thereunder.

      Note:

      The BBA consistency principles do not apply to any Ch 2/2A tax issues and therefore SECA tax and NIIT cannot be assessed under the math error procedures as described under IRC 6222.

  2. Also, a partner is bound by any action taken by the partnership representative and any final decision in a proceeding with respect to the partnership under the BBA regime.

    Example:

    A partnership subject to the BBA regime elects to push out the adjustments to its reviewed year partners. Each partner must take into account the adjustments consistently with how the adjustments are reflected on the push out statement issued by the partnership. Otherwise, it’s considered a failure to treat a PRI in a manner which is consistent with the partnership return.

  3. If the treatment of an item on the partner’s return is consistent with how the item was treated on a schedule (e.g., Schedule K-1) or other information furnished to the partner by the partnership but inconsistent with the treatment of the item on the partnership return that is filed with the IRS, the partner’s reporting is considered inconsistent with the partnership return.

    • Upon receipt of notice of such inconsistency, a partner may file an election under IRC 6222(c)(2)(B). A partner will be treated as being consistent if the partner makes an election under IRC 6222(c)(2)(B).

  4. A partner’s treatment of a PRI attributable to a partnership that did not file a return is always treated as being inconsistent.

    Example:

    A foreign partnership is required to file a return under IRC 6031 but failed to file one for calendar year 2018. A domestic partner claimed losses arising from the foreign partnership in calendar year 2018. The domestic partner’s reporting of the losses is inconsistent with the partnership return.

  5. The consistency principle applies to all pass-through partners. For a pass-through partner that is a partnership (PTPP), the consistency principle applies whether the PTPP is subject to the centralized partnership audit regime or has made an election out pursuant to IRC 6221(b). For a BEO PTPP, the examination math error procedures would apply to the BEO PTPP individual partner level inconsistencies. For a pass-through partner that is a S corporation, the examination math error procedures would apply to the individual shareholder level inconsistencies.

  6. A carve out provision in the regulations does exist whereby a BBA PTPP or a BEO PTPP can resolve an inconsistency prior to math error assessment by filing an AAR or amended return, respectively. For details, see IRM 4.31.9.8.2.3(3), Notify the Partner of an Assessment on Account of Mathematical Error.

4.31.9.8.2.1 (05-08-2026)
Partner Fails to Report a PRI Consistently

  1. When a partner fails to report an item on its return consistently with the partnership, whether intentionally or not, there are two treatment streams depending on whether the partner has provided notice of the inconsistently reported PRI to the IRS.

  2. As a procedural matter when an examiner makes a math error correction or clerical adjustment to a partner’s return based upon IRC 6222, this generally will not afford the partner any appeal rights or rights to a tax protest but instead these math adjustments are considered as automatic.

    1. Generally, if the partner files inconsistently and does not provide notice, math error correction will apply, and the IRS may adjust the partner’s reporting to make it consistent with the partnership’s reporting and assess any resulting tax to make the partner consistent. Deficiency procedures will not apply to such assessment.

    2. If the partner files inconsistently but provides notice of the inconsistency (via Form 8082, Notice of Inconsistent Treatment or Administrative Adjustment Request), math error correction will not apply. However, there is an exception to this general rule noted below.

      Exception:

      The notice provision only applies to items reported on the partnership return filed with the IRS (including amendments or supplements thereto) and PRIs reported on an AAR filed by the partnership under IRC 6227 and the regulations thereunder. The notice provision expressly does not include any push out statements from an audit or from the final determinations of a tax court.

4.31.9.8.2.2 (05-08-2026)
Math Error Correction

  1. The IRS may adjust the inconsistently reported item on the partner’s return to make it consistent and assess the underpayment of tax that results from that adjustment to correct the mathematical or clerical error when:

    1. A partner filed inconsistently with the partnership return and did not provide notice to the IRS of such inconsistent treatment by filing Form 8082, Notice of Inconsistent Treatment or Administrative Adjustment Request (AAR), with the IRS.

    2. A partner filed inconsistently with items reported on an AAR push out statement received by the partner under IRC 6227 and the regulations thereunder and did not provide notice to the IRS of such inconsistent treatment by filing Form 8082 with the IRS.

    3. A partner filed inconsistently with any audit push out statement, schedule or list (including amendments or supplements thereto) filed by the partnership with the IRS pursuant to IRC 6226 and the regulations thereunder regardless of whether the partner provided notice of inconsistent treatment.

      Note:

      A distinction exists in that a BBA partner may file a notice of inconsistent treatment (Form 8082) for a push out statement from an AAR to avoid a math error assessment. This differs from a push out statement from an audit result or FPA for which the math error procedures will always apply when the partner’s reporting is inconsistent with the exam results.

  2. As stated in IRC 6222(b), the procedures under IRC 6213(b)(2) for requesting abatement of an assessment made on the basis of a math error do not apply.

  3. The underpayment of tax is the amount by which the correct tax, as determined by making the partner’s return consistent with the partnership return, exceeds the tax shown on the partner’s return. Except as provided in (a), this does not include any taxes under Chapters other than Chapter 1.

    1. For any partnership-partner that is subject to the BBA regime, the underpayment of tax is determined in accordance with 26 CFR 301.6225-1 (imputed underpayment) and may be assessed at the partnership-partner level.

      Note:

      The math error correction is not considered an FPA under IRC 6231(a)(3) and the partnership-partner cannot file a petition for readjustment under IRC 6234.

    2. For any PTPs that are BEO partnerships, the math error correction must be assessed to the individual reviewed year partners (or indirect partners) and shareholders, respectively.

      Note:

      For details, see IRM 4.31.9.8.2.3(3), Notify the Partner of an Assessment on Account of Mathematical Error.

    3. Math error correction is a mandatory contact with the BBA POC to help compute the underpayment of tax under either Chapter 1 or under the rules for calculating an imputed underpayment.

4.31.9.8.2.3 (05-08-2026)
Notify the Partner of an Assessment on Account of Mathematical Error

  1. If the examiner determines to make an assessment on account of a math error, they must contact the BBA POC to help determine the most effective and efficient way to maximize taxpayer compliance based on facts and circumstances.

  2. The examiner will prepare Letter 6202, Notice of Partner’s Inconsistency, which identifies the adjustment(s) with respect to inconsistent treatment and the underpayment of tax on account of math or clerical error, including any penalty and interest as provided by law.

    1. Letter 6202, Notice of Inconsistency, is mailed to the partner’s last known address.

      Note:

      Letter 6202 instructs examiners to prepare and issue Form 4549-A (for individuals) or Form 15624 (for BBA partnership partners) to show the adjustments, underpayment, or imputed underpayment resulting from these corrections to the return.

    2. If the partner, within 60 days of being notified, corrects the inconsistency or qualifies and makes a valid election to be treated as having provided notice under IRC 6222(c)(2)(B), then a math error correction will not apply.

      Note:

      If the partner’s treatment is inconsistent with a push out statement from an audit, this election is not available.

  3. Only a partnership-partner may correct the inconsistency by filing an AAR under IRC 6227 (AAR filing rule applies to a PTPP subject to the BBA) or by filing an amended partnership return (amended return filing applies to a PTP not subject to the BBA regime) prior to assessment.

    1. If correction (via filing of AAR or amended return) of the inconsistency is made within 60 days from the issuance of Letter 6062, the partnership-partner has complied with the requirements.

    2. If no correction is made or can be made within the 60-day period, an assessment due to math error will be made. Contact with the BBA POC is required in these circumstances.

  4. If the inconsistency is due to the partner filing consistently with a statement, schedule or other form prescribed by the IRS and furnished to the partner by the partnership (e.g., Schedule K-1) but differs from what the partnership actually filed with the IRS, then the partner has 60 days from the issuance of Letter 6202 to file a written election under IRC 6222(c)(2)(B) with the examiner. The written election must demonstrate that the treatment of such item on the partner’s return is consistent with the treatment of that item on the statement, schedule, or other form prescribed by the IRS as furnished by the partnership. The written election must have the following contents:

    1. Clearly identify as an election under IRC 6222(c)(2)(B).

    2. Signed by the partner making the election.

    3. Accompanied by a copy of the statement, schedule, or other form furnished to the partner by the partnership and a copy of the IRS notice that notified the partner of the inconsistency.

    4. Include any other information required in forms, instructions, or other guidance prescribed by the IRS.

  5. The examiner should understand how the treatment of such item on the statement, schedule, or other form furnished by the partnership is consistent with the treatment of the item on the partner’s return, including with respect to the characterization, timing, and amount of such item. If a valid election is filed timely, the election will be treated as having provided notification of the inconsistent treatment and the assessment based on math error correction will not apply (instead, deficiency proceedings will apply). If a partner fails to timely file a valid election within 60 days, contact the BBA POC to help with the assessment based on math error.

  6. If the examiner disagrees with the identified inconsistent treatment, they may adjust the identified, inconsistently reported item in a proceeding with respect to the partner as follows:

    1. To make the item consistent with the treatment of that item on the partnership return, or

    2. To determine the correct treatment of such item, notwithstanding the treatment of that item on the partnership return.

4.31.9.8.2.4 (05-08-2026)
A Partner Files Inconsistently with the Partnership Return and Provides Notice of the Inconsistent Treatment

  1. When a partner reports a PRI inconsistently with the treatment of such item on the partnership return and provides notice to the IRS (via Form 8082), assessment based on math error correction does not apply. Otherwise, the adjustment and corresponding assessment are considered as based on math error.

  2. The partner is protected only to the extent of the items identified as being treated inconsistently. Assessments resulting from the adjustments to the unidentified, inconsistent PRI on the partner’s return are treated as being based on math error.

    Example:

    If the partner files Form 8082 that shows only 2 PRIs that are treated inconsistently, yet the partner return filing has 3 items that are treated inconsistently, then the inconsistently reported PRI that was not included on the notice given to the IRS is subject to math error proceedings.

  3. If the IRS disagrees with the identified inconsistent treatment, the IRS may adjust the identified, inconsistently reported item in a deficiency proceeding with respect to the partner as follows:

    1. To make the item consistent with the treatment of that item on the partnership return, or

    2. To determine the correct treatment of such item, notwithstanding the treatment of that item on the partnership return.

  4. Any final decision with respect to an inconsistently treated PRI in a proceeding to which a partnership is not a party is not binding on the partnership.

4.31.9.8.3 (05-08-2026)

Informal Claims (LB&I Taxpayers)

  1. As discussed in IRM 4.31.9.7.7.1, Basic Configurations for AARs, after you issue the NAP letters, an AAR cannot be filed. However, for LB&I taxpayers, the partnership may submit informal claims within 30 days from the opening conference which is consistent with the LB&I Examination Process (LEP), see IRM 4.46.3.7.1.1, The 30-day Window Exception. An informal claim is a request to change any PRI that may result in a negative adjustment.

    Note:

    LB&I examiners must address the informal claim procedures with the partnership consistent with the LEP.

  2. Informal claims timely submitted by a BBA partnership must meet the standards of 26 CFR 301.6402-2, which provides that a valid claim must:

    1. Set forth in detail each ground upon which credit or refund is claimed;

    2. Present facts sufficient to apprise the IRS of the exact basis for the claim; and

    3. Contain a written declaration that it is made under penalties of perjury.

  3. A BBA partnership must submit or mail the informal claim to the person whose name appears on Letter 2205-D within 30 days from the opening conference.

  4. If the informal claim complies with the above requirements the informal claim issue(s) must be included in the exam plan. Develop the issue(s) and prepare Form 886-A accordingly.

    1. For each adjustment allowed in full or in part, make a negative adjustment in the amount that’s allowed on Form 886-A. The adjustment will be reflected in the applicable grouping and subgrouping per purposes of Form 14791 and Form 14792.

    2. For each adjustment disallowed in full, notate the adjustment as being disallowed in full and show a zero amount on Form 886-A. The adjustment will be reflected in the “Other Information” section of Form 14791 and Form 14792.

      Example:

      PR provides a claim with two adjustments; decrease gross receipts by $100 and increase supplies by $200. Examiner partially agrees that gross receipts should be decreased by $50 but that’s it. Adjustments would be shown as follows:

      Description Amount
      SCH K, line 1, Supplies $0
      SCH K, line 1, Gross Receipts -$50 (negative amount)
      Form 886-A should provide detailed information about the adjustments, including but not limited to, what was reported on the return, the claim the PR is requesting, analysis of why the adjustment is disallowed or allowed, etc.

  5. Do not accept any informal claim after the 30-day window has lapsed unless certain exceptions are met as provided under the LEP. LB&I examiners refer to the LEP and Pub 5125, LB&I Examination Process, for details.

  6. If the examination of the return resulted in a no-change and you disallowed the informal claim submitted by the partnership in full, follow the procedures described in IRM 4.31.9.9.1(4), No-Change Exam.

4.31.9.8.4 (05-08-2026)

Statute of Limitations (SOL) on Making Adjustments

  1. Statute control is usually the number one priority in all programs. Refer to IRM 25.6, Statute of Limitations Handbook.

  2. Under the centralized partnership audit regime, the statute is controlled at the partnership level. The examiner must ensure the case has sufficient amount of time remaining on the statute when received by Technical Services or CCP based on the table below. Otherwise, the examiner must follow IRM 4.31.9.11.6, BBA Imminent Statute Procedures.

    Types of Cases Required Time Remaining on Statute When Received by Technical Services or CCP Close case to
    No-change (no adjustment and no PCS linkage) 4 months CCP
    No-change (with adjustments and/or PCS linkage) 6 months Technical Services
    With adjustments (no Appeals) 12 months Technical Services
    With adjustments (to Appeals) 18 months Technical Services

  3. Utilize Form 15271, Bipartisan Budget Act (BBA) Partnership Adjustment Statute Extension Check Sheet, for BBA statute extensions.

    Reminder:

    Partner statutes for assessment of Ch 2/2A SECA/NIIT taxes are not controlled by BBA IRC 6235(a) statutes.

  4. If a case has been referred to Criminal Investigation (CI) or is under joint investigation with CI, written agreement from CI must be obtained before a request is made to extend the statute. See IRM 25.6.22.2.1(6), Assessment Statute Extension.

4.31.9.8.4.1 (05-08-2026)
Overview of IRC 6235(a)

  1. The statute of limitations under IRC 6235 is applicable to the time allowed to make partnership adjustments instead of time to assess. The general rule is that no partnership adjustment for any partnership tax year may be made after the later of three specified dates:

    1. IRC 6235(a)(1) date,

    2. IRC 6235(a)(2) date, or

    3. IRC 6235(a)(3) date.

  2. The notice of proposed partnership adjustment must be issued prior to the expiration of the IRC 6235(a)(1) date.

  3. The examiner is responsible for the IRC 6235(a)(1) date, which is the later of:

    1. 3 years after the date the return was due;

    2. 3 years after the date the return was filed; or

    3. 3 years after an Administrative Adjustment Request (AAR) is filed.

      Note:

      Generally, the IRC 6235(a)(1) date (see "SECTION6235A1-PPA-DEADLINE-DT" field) will match with the ASED field on AIMS.

  4. If an AAR (or any subsequent return) was filed, the examiner will need to make a mandatory referral to the BBA POC. See IRM 4.31.9.7.2, Mandatory Referral to the BBA Point of Contact (POC). Only a subsequent filing that is a valid AAR will affect the IRC 6235(a)(1) date.

  5. The IRC 6235(a)(1) date can be extended by executing Form 872-M.

  6. Under IRC 6235(c), the general 3-year period is expanded in situations where no return is filed, there is fraud, and other specified reasons as shown in the table below:

    Special rules for: Period of limitations
    IRC 6235(c)(1): False return or fraudulent partnership tax return with the intent to evade tax. Adjustments can be made at any time
    IRC 6235(c)(2): Substantial omission of income in excess of 25 percent of the amount of gross income per IRC 6501(e)(1)(A) [or omission from gross income of amounts properly includible under IRC 951(a) per IRC 6501(e)(1)(C).] 6 years
    IRC 6235(c)(3): Failure to file a partnership return.

    Note:

    Under IRC 6235(c)(4), a return executed by the Secretary under IRC 6020(b) on behalf of the partnership shall not be treated as a return of the partnership.

    		Adjustments can be made at any time
    IRC 6235(c)(5) : Reportable foreign transactions – failed to report information described in IRC 6501(c)(8). Date that is determined under IRC 6501(c)(8)
    IRC 6235(c)(6) : Listed Transactions – failure to include any information with respect to a listed transaction as described in IRC 6501(c)(10). Date that is determined under IRC 6501(c)(10)
4.31.9.8.4.2 (10-29-2021)
When to Extend the IRC 6235(a)(1) Statute

  1. The examiner should request an extension if the IRC 6235(a)(1) statute will expire within 14 months presuming the case is not a no-change. If the partnership refuses to extend the IRC 6235(a)(1) statute, the examiner needs to begin the process of closing the examination.

  2. The manager must approve the solicitation of the extension, and this approval should be documented in the activity record.

  3. Follow IRM 25.6.22, Extension of Assessment Statute of Limitations by Consent, for general guidelines for soliciting extensions.

4.31.9.8.4.3 (05-08-2026)
Form 872-M

  1. Form 872-M, Consent to Extend the Time to Make Partnership Adjustments, is used to extend the period of limitations (SOL) on making adjustment for any of the following:

    1. IRC 6235(a)(1) date

    2. IRC 6235(a)(2) date

    3. IRC 6235(a)(3) date

    Note:

    At the field exam level, the IRC 6235(a)(1) date must be selected.

  2. The examiner may contact the BBA POC for guidance on preparation and issuance of Form 872-M. If the partnership includes any additional restrictive language on the form, consult with local counsel before the IRS countersigns the extension.

  3. The PR or DI (for the EPR) must sign the form before the expiration of the IRC 6235(a)(1) date. The team or group manager must countersign the form prior to the expiration of the IRC 6235(a)(1) date.

  4. Prepare two copies of the most current version of the Form 872-M. See IRM 25.6.22.5.2(4), Preparation of Consents.

    Note:

    The following procedures within this subsection direct you to fill out all fields of the Form 872-M so that the partnership representative (PR) or the designated individual (DI) (if the PR is an entity) only have to sign the Form 872-M.

    Note:

    For situations with unfamiliar circumstances and/or complex tax situations, contact the case manager and consider possible Counsel involvement. If the partnership includes any additional restrictive language on the form, the examiner must consult with local counsel before the IRS countersigns the extension.

  5. Include examiner’s identification (i.e., office symbols & employee initials) in the “in reply refer to” box of Form 872-M.

  6. Verify and enter the correct taxpayer identification number on Form 872-M. See IRM 25.6.22.5.9, Taxpayer's SSN or EIN.

  7. The partnership name should match the name on the filed return. If there was a name change, consult with Counsel. If there is a mismatch between the partnership name as shown on the return or the transcript or the partnership agreement, or if there is any other concern about the partnership name, consult with Counsel.

  8. Verify and enter the current address on the Form 872-M. See IRM 25.6.22.5.5, Taxpayer's Address.

    Note:

    The current address should be determined based on the best information available. The use of the address shown on the return will not render the consent invalid.

  9. Verify and enter the tax period to be extended. State tax period in full - e.g., December 31, 2020. See IRM 25.6.22.5.6, Tax Period.

    Note:

    Secure one Form 872-M for EACH separate tax year. This is important as each year may have a different partnership representative (PR) designated to sign the Form 872-M associated with that specific tax year. For appropriate signature, please refer to paragraph 13 within this section below.

  10. Verify and enter the statute expiration date. State date in full - e.g., March 15, 2025. See IRM 25.6.22.5.7, Expiration Date.

    Note:

    On the Form 872-M, make use of the calendar drop down menus and information buttons to ensure the proper formatting of the date.

  11. Verify and enter the applicable IRC section to be extended using the drop-down menu on the Form 872-M. Acceptable entries are 6235(a)(1), 6235(a)(2) and 6235(a)(3). See a, b, and c below.

    1. The IRC 6235(a)(1) date is generally extended by the field examiner before a notice of proposed partnership adjustment (NOPPA) has been issued. The field examiner solicits an extension under this code section or paragraph to allow timely issuance of the NOPPA by Technical Services or Appeals before the expiration of the IRC 6235(a)(1) date. In some cases, Technical Services or Appeals may solicit an extension under IRC 6235(a)(1).

    2. The IRC 6235(a)(2) date can only be extended after a NOPPA has been issued and a modification request has been submitted. Generally, BBA Operations solicits (not field examiners) an extension under this code section or paragraph when additional time is required to consider the modification request, to transfer the case to Appeals or to issue the notice of final partnership adjustment (FPA).

    3. The IRC 6235(a)(3) date can only be extended after a NOPPA has been issued. Generally, Technical Services or BBA Operations solicits an extension under this code section or paragraph when additional time is required to issue the notice of FPA.

  12. On the top of page 2 of the Form 872-M, enter the name of the partnership representative (PR) in the field under “Name of Partnership Representative.” If the PR is an entity, enter the name of the designated individual (DI) in the field under “Name of the Designated Individual (if applicable).”

  13. Signature block: The partnership representative (PR) signs the Form 872-M. If the partnership representative is an individual partnership representative (IPR), the form is signed by IPR. If the partnership representative is an entity partnership representative (EPR), the appointed designated individual (DI) must sign Form 872-M on behalf of the EPR.

    Note:

    The Power of Attorney (POA) should not sign the extension. The current Form 872-M does not have a line for a POA to sign.

    1. Form 872-M signed by Individual Partnership Representative

      Figure 4.31.9-15

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    2. Form 872-M signed by Designated Individual for Entity Partnership Representative

      Figure 4.31.9-16

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  14. Generate, complete and date the most current Letter 907-M, Request to Extend Limitation Period to Make Partnership Adjustments.

  15. Mail or present two unsigned original Form 872-Ms along with Letter 907-M to the PR. Both Letter 907-M and Form 872-M include a notification of rights. When soliciting a Form 872-M extension, provide the PR or POA with an explanation of the partnerships' rights and options, why the extension is being requested, and any other relevant information to allow the PR to make an informed decision. Document this communication in the case file - see IRM 25.6.22.4.2(4), Letters and Publications Sent with Consents.

    Note:

    Do not include Pub 1035, Extending the Tax Assessment Period, when soliciting statute extensions for BBA partnerships. This publication does not address IRC 6235 adjustment statutes.

  16. If there is a POA, issue Letter 937 and provide courtesy copies of both Letter 907-M and Form 872-M.

    Note:

    The POA should not sign the extension. The Form 872-M does not have a line for the POA to sign.

  17. Retain a copy of letter(s) and Form 872-M in case file, update activity record for all actions taken.

  18. If the Form 872-M is not timely returned, issue Letter 928-M to the PR.

4.31.9.8.4.3.1 (05-08-2026)
Form 872-M, Examiner Actions Upon Receipt of Signed Form 872-M

  1. Ensure the receiving office properly date stamped Form 872-M . See IRM 25.6.22.5.12(1)a, Examiner's Responsibility after Receipt of Consent. If you are date stamping the form electronically, refer to Exam Procedures Knowledge Base - Instructions for Electronic Date Stamp.

  2. Ensure the partnership representative (PR) properly signed Form 872-M. See IRM 25.6.22.5.12(1)b, Examiner's Responsibility after Receipt of Consent, and IRM 25.6.22.5.2(4), Preparation of Consents. Raise concerns of any obvious discrepancies with signatures to the manager.

    • Forms 872-M received via fax are acceptable only if it contains an original signature (not digital). Certain procedures apply, see IRM 25.6.22.5.1, Fax Signatures, and IRM 4.10.1.3.7, Policy for Use of Fax in Taxpayer Submissions.

    • Forms 872-M received via email and Taxpayer Digital Communication (TDC) are acceptable with either an original signature or digital signature. See IRM 10.10.1.6.1, Accepting Images of Signatures and Digital Signatures in Certain Taxpayer Interactions.

      Note:

      If the DI signs Form 872-M on behalf of an entity partnership representative (EPR), ensure the EPR is still in existence at the time the form is signed. Additionally, if anyone other than the PR or the DI on behalf of an EPR (such as the power of attorney) signs Form 872-M, seek Counsel’s approval before countersigning.

  3. Ensure the signed Form 872-M does not contain any alterations, deletions or impose any restrictions – See IRM 25.6.22.5.12(1)b, Examiner's Responsibility after Receipt of Consent. A Form 872-M which was signed by a PR must not be unilaterally altered by the IRS.

  4. If the PR requests a restricted consent and the IRS agrees (which includes securing Counsel’s approval), follow IRM 25.6.22.8, Restricted Consents.

    Note:

    Restricted consents should be avoided, if possible, until all potential issues have been identified – See IRM 25.6.22.8.2(2), Situations Permitting Taxpayer's Request for Restricted Consent.

  5. If you receive a Form 872-M but cannot execute the Form 872-M, contact the PR or POA to explain the problem. Document this discussion in the activity record. Mail or present to the PR two unsigned original Forms 872-M (updated with corrections if necessary) along with Letter 1817-M. Begin a new Form 15271 check sheet. Retain all Forms 15271 in the case file for documentation of actions taken to this point.

  6. Prepare Form 5348 for managerial approval. The new expiration date must be entered for the specific section being extended; the IRC 6235(a)(1) date, the IRC 6235(a)(2) date, or the IRC 6235(a)(3) date. The field examiner is responsible for the IRC 6235(a)(1) date. See IRM 4.31.9.8.4.1(3), Overview of IRC 6235(a).

    1. To update the IRC 6235(a)(1) statute date, prepare Form 5348 as follows:

      Figure 4.31.9-17

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      Figure 4.31.9-18

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    2. Form 5348 requires manager approval before processing.

    3. Updates to IRC6235A1- PPA-DEADLINE-DT will automatically update the ASED field.

    4. Do not update the ASED field.

  7. Prepare or update Form 895 for manager’s approval. See IRM 25.6.23.5.1.4, Initiation of Controls by Examiner or Specialist - Area Offices and Campus Operations, and IRM 25.6.23.5.2, Completion of Form 895 by Area Office Examiner or Specialist.

  8. Submit Form 15271, Bipartisan Budget Act (BBA) Partnership Adjustment Statute Extension Check Sheet with consent package (i.e., Form 872-M, Form 5348, Form 895, IDRS research and tax return) to the manager for review. If applicable, include Form 8979 and any workpapers used to track changes to the PR or other items bearing on validity of consent.

4.31.9.8.4.3.2 (05-08-2026)
Form 872-M, Group Manager Actions

  1. Ensure the consent is valid (See IRM 25.6.22.5.13, Manager's Responsibilities When Signing Consents), then countersign and date Form 872-M.

    Note:

    If Form 872-M is signed by an acting manager, attach a copy of the acting manager designation to the consent - See IRM 25.6.22.5.11(4) & (5), Delegation of Authority to Sign for Commissioner and Date.

  2. Verify accuracy of Form 5348 and Form 895, and then initial and date them. See IRM 25.6.22.5.13(1)i, Manager's Responsibilities When Signing Consents.

  3. Ensure the data field for the applicable section being extended is updated on ERCS/AIMS.

    Note:

    Do not update the statute (ASED) field. The new expiration date must be entered on Form 5348 for the specific section being extended: the IRC 6235(a)(1) date, the IRC 6235(a)(2) date, or the IRC 6235(a)(3) date.

  4. Verify accuracy of applicable section or paragraph update on ERCS/AIMS and then approve the update. See IRM 25.6.22.5.13(1)i, Manager's Responsibilities When Signing Consents.

  5. Place a signed copy of Form 895 in the Form 895 log file. See IRM 25.6.23.5.3(1)e, Form 895 Completion Requirements for Area Office Managers and Applicable Campus Operations Managers, and IRM 25.6.23.5.2(1)h, Completion of Form 895 by Area Office Examiner or Specialist.

  6. Manager completes applicable section of Form 15271, Bipartisan Budget Act (BBA) Partnership Adjustment Statute Extension Check Sheet, with consent package and returns it to the examiner.

4.31.9.8.4.3.3 (10-29-2021)
Form 872-M, Final Examiner Actions

  1. Verify the manager’s signature and date on Form 872-M. See IRM 25.6.22.5.12(1)c, Examiner's Responsibility after Receipt of Consent.

  2. Prepare and mail most current Letter 929-M, Transmittal to Partnership Representative of Copy of Signed Form 872-M Consent, with the duplicate original of the executed Form 872-M (or copy of that form if a duplicate original is not available). Update activity record regarding actions taken – See IRM 25.6.22.5.12(1)e and IRM 25.6.22.5.12(1)f.

  3. If there is a POA, issue Letter 937 with a copy of Letter 929-M and a copy of the executed Form 872-M. Update activity record regarding actions taken – See IRM 25.6.22.5.12(1)f.

  4. If using paper file procedures, attach executed Form 872-M to the back of the front page of the tax return, along with prior Forms 872-M – See IRM 25.6.22.5.12(1)d and IRM 25.6.22.5.12(1)e.

  5. Retain Form 15271, Bipartisan Budget Act (BBA) Partnership Adjustment Statute Extension Check Sheet along with copies of letter(s) in the case file and document the case activity record that this action has been accomplished – See IRM 25.6.22.5.12(1)f.

  6. If using paper file procedures, determine if the case file can be removed from the red folder (if applicable). The case file should remain in (or be placed in) a red folder if the extended statute will expire within 180 days. – See IRM 25.6.23.2(1), Components of Statute Controls.

  7. SB/SE field groups using RGS should update the statute date in RGS with the extended IRC 6235(a)(1) date.

4.31.9.9 (10-29-2021)

Resolving the Examination

  1. During this phase of the examination, the goal is to reach a mutual agreement on the tax treatment of all issues examined in a timely and efficient manner.

  2. A case may result in:

    1. A no-change (no adjustments to any PRI),

    2. Adjustments to any PRI that may or may not result in an imputed underpayment, or

    3. A Form 906 agreement (refer to IRM 8.13.1, Processing Closing Agreements in Appeals).

    Note:

    A Form 906 agreement may be entered into at the field level. An executed Form 906 agreement is the only way an examiner may secure a formal agreement at the field level. Any other agreements (such as Form 14792 or Form 15027) may be secured after the case is transferred from the field.

  3. A partnership may request to go to Appeals and protest an adjustment on a substantive issue, any penalty associated with such adjustment, and the imputed underpayment amount.

4.31.9.9.1 (05-08-2026)

No-Change Exam

  1. If the examination results in a no-change determination (also known as a “no-change” throughout the IRM), discuss the examination results with the PR. Notate the discussion in the activity record. There are 2 types of no-change examinations:

    • No-change (no adjustment and no PCS linkage). See IRM 4.31.9.11.1, No-Change Case (No Adjustment and No PCS Linkage), for more instructions.

    • No-change (with adjustments and/or PCS linkage). See IRM 4.31.9.11.2, No-Change Case (With Adjustments and/or PCS Linkage), for more instructions.

  2. If the PR agrees with the no-change (no adjustment and no PCS linkage) or if the PR is unresponsive, the examiner will prepare and issue the no-change letters to the partnership (Letter 6099 , BBA No Change - Partnership) and PR (Letter 6099-A , BBA No Change - Partnership Representative). The no-change (no adjustment and no PCS linkage) case is closed paperless electronically to CCP.

    Caution:

    For a no-change (no adjustment and no PCS linkage), there should be at least 4 months remaining on the IRC 6235(a)(1) date. Otherwise, refer to the imminent statute procedures in IRM 4.31.9.11.6, BBA Imminent Statute Procedures.

  3. If the PR agrees with the no-change (with adjustment and/or PCS linkage), Technical Services will prepare and CCP will issue the no-change letters to the partnership (Letter 6099, BBA No Change - Partnership) and PR (Letter 6099-A, BBA No Change - Partnership Representative). The examiner will not prepare a summary report package or NOPPA package for an agreed no-change. Go to IRM 4.31.9.11, Case Disposition Procedures, for next steps.

    Caution:

    For a no-change (with adjustment and/or PCS linkage), there should be at least 6 months remaining on the IRC 6235(a)(1) date. Otherwise, refer to the imminent statute procedures in IRM 4.31.9.11.6, BBA Imminent Statute Procedures.

  4. If it is an LB&I case and the PR doesn’t agree with the no-change because the PR presented an informal claim, a no-change determination will not apply to this scenario. This applies to a fully disallowed claim. Prepare and issue a summary report (see IRM 4.31.9.10.1, Summary Report Package) and a 30-day letter package (see IRM 4.31.9.10.2, 30-day Letter Package) if there is sufficient time on the IRC 6235(a)(1) date. The following procedures must be followed:

    1. Prepare a Form 886-A (and Form 5701) with a $1 IRS favorable adjustment to Schedule K, Line 11 Other Income.

    2. Prepare the IUA workbook treating the $1 adjustment as a net positive adjustment (residual grouping) for purposes of computing the IU.

    3. The TCS will prepare Form 14791 and Form 14792 that show a $1 adjustment with a $0 imputed underpayment amount.

    Example:

    The partnership provided an informal claim where unagreed issues were present and the claim was disallowed. There are no other adjustments. Although the disallowed claim doesn’t impact the filed return (no-change to the filed return), reflect the informal claim adjustments in the summary report package. A no-change letter will not apply in this scenario.

  5. LB&I will not require a formal claim if an issue has been identified for examination, unless IRS published guidance specifically requires formal claims to be filed for an issue (e.g., Notice 2008-39 for research credit claims).

4.31.9.9.2 (05-08-2026)

Partnership Adjustments and Imputed Underpayment (IU)

  1. A partnership does not compute and pays an income tax upon filing Form 1065 but instead passes through any profits and losses to its partners. However, when a partnership is examined under the BBA regime, any partnership adjustment resulting in an imputed underpayment and the applicability of any penalty, addition to tax, or additional amount (plus interest as provided by law) that relate to such an adjustment are determined, assessed and collected at the partnership level.

  2. The IRS communicates the partnership adjustments to the partnership in accordance with the existing report writing procedures for LB&I and SB/SE. In general, LB&I uses Form 886-A, Explanation of Items, to convey each adjustment; SB/SE uses lead sheets to convey each adjustment. In addition to preparing a Form 886-A or lead sheet for each substantive issue, prepare a Form 886-A or lead sheet for each applicable penalty, and for the imputed underpayment calculation.

  3. An imputed underpayment may reflect an amount that is larger than the cumulative amount of tax the partners would have paid as a result of the partnership adjustments. This is not an attempt to maximize tax revenue. The imputed underpayment is calculated under IRC 6225, which has its own specific computation. The partners’ individual tax circumstances are not taken into account when computing the imputed underpayment under IRC 6225. The imputed underpayment is a partnership-level tax that is not based on the amount of tax the partners would have owed if the PRIs had been correctly reported by the partnership.

  4. There are two types of imputed underpayments: a general imputed underpayment and a specific imputed underpayment. Each type of imputed underpayment is based solely on partnership adjustments with respect to a single tax year and is separately calculated.

    1. General imputed underpayment: Normally, the field level will only calculate a general imputed underpayment. There can only be one general imputed underpayment in any administrative proceeding which is determined at the field level. The general imputed underpayment is calculated based on all partnership adjustments (other than adjustments that do not result in an imputed underpayment, and any adjustments taken into account in a specific imputed underpayment calculation).

    2. Specific imputed underpayment: Generally, at the field level, there is no specific imputed underpayment. However, per IRS discretion, it may be determined that partnership adjustments for the same partnership tax year result in more than one imputed underpayment (i.e., a specific imputed underpayment). One or more specific imputed underpayments may be determined to be appropriate at the field level (or could be requested by the taxpayer during the exam) based on the facts and circumstances and the nature of the partnership adjustments. For example, adjustments to PRIs that were allocated to one partner or a group of partners that had the same or similar characteristics, or that participated in the same or similar transaction, may be determined to be appropriate for a specific imputed underpayment. A specific imputed underpayment, if requested by the taxpayer, will generally be done by requesting modification of the imputed underpayment amount after the NOPPA has been issued. However, a specific imputed underpayment being considered at the field level due to a taxpayer request, is a mandatory BBA POC referral.

  5. The examiner must prepare, complete, and follow the instructions within the IUA Computation Workbook to compute the imputed underpayment. Provide the completed workbook to the tax computation specialist (TCS).

4.31.9.9.2.1 (05-08-2026)
Imputed Underpayment (IU)

  1. The formula for computing the imputed underpayment (IU) is as follows:

    Figure 4.31.9-19

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  2. The process of taking the proposed audit adjustments to partnership-related items and inputting those adjustments into the above formula requires an understanding of the unique BBA concepts of grouping, subgrouping and netting.

    1. Grouping: Grouping involves placing each proposed audit adjustment into one of four groupings: reallocation, credit, creditable expenditure and residual. Each of these groupings will be explained in more detail below.

    2. Subgrouping: After an adjustment is placed into a grouping, then you must determine the adjustment’s subgrouping. Subgrouping is the process of further sorting that adjustment into a subgrouping, generally in accordance with how that adjustment would be required to be taken into account separately under IRC 702(a) or any other provision of the IRC, regulations, forms, instructions, or other guidance prescribed by the IRS applicable to the adjusted PRI. This is necessary to keep adjustments that are similar in nature together while keeping adjustments that are different apart in order to comply with the requirements for computing the IU amount under IRC 6225(b)(2) through (4). These subgroups generally follow the line items on Schedule K/K-1 or other separate and distinct line items on Form 1065 and schedules.

      Note:

      A negative adjustment is any adjustment that is a decrease in an item of gain or income, an increase in item of loss or deduction, or an increase in an item of credit or creditable expenditure, a decrease in an item of tax, penalty, addition to tax, or additional amount for which the partnership is liable under Chapter 1, or a decrease to an imputed underpayment calculated by the partnership for the taxable year. A positive adjustment is any adjustment that is not a negative adjustment.

    3. Netting: Generally, netting is the process of summing all adjustments together within each grouping or subgrouping, as appropriate. The specific rules and limitations of netting will be discussed later.

  3. Once you have grouped, subgrouped and netted all adjustments, you can determine the total netted partnership adjustment (TNPA) and enter it into the formula stated in paragraph (1) above. The TNPA is the sum of all net positive adjustments in the reallocation grouping and the residual grouping. If, after netting, either the reallocation or residual grouping summed total is less than or equal to zero, it is not included in calculating the TNPA.

    1. A net positive adjustment means an amount that is greater than zero which results from netting adjustments within a grouping or subgrouping. A net positive adjustment also includes a positive adjustment that was not netted with any other adjustment.

    2. A net negative adjustment means any amount which results from netting adjustments within a grouping or subgrouping that is not a net positive adjustment. A net negative adjustment also includes a negative adjustment that was not netted with any other adjustment.

  4. Multiply the TNPA by the highest rate of federal income tax in effect for the reviewed year under IRC 1 or IRC 11 and increase or decrease the product by:

    1. The net positive adjustments from the creditable expenditure grouping. Treat a net decrease to creditable expenditures as a net positive adjustment to credits that increases the product of the TNPA multiplied by the highest tax rate in effect. A net increase to creditable expenditures is treated as a net negative adjustment that is excluded from the calculation of the TNPA and is an adjustment that does not result in an IU.

    2. The net positive adjustments from the credit grouping. Treat a net decrease to credits as a net positive adjustment to credits. A net positive adjustment in the credit grouping includes a net decrease in an item of credit. A net positive adjustment in the credit grouping increases the product of the TNPA multiplied by the highest tax rate in effect for the reviewed year.

    3. The net negative adjustment from the credit grouping may be included in the calculation of the IU at the discretion of the IRS, only if the IRS determines that it is appropriate to allow the net negative credit adjustments to be used in calculating the IU. If the IRS determines that a net negative credit adjustment should be used in calculating the IU, then the net negative adjustment decreases the product of the TNPA multiplied by the highest tax rate in effect for the reviewed year.

      Note:

      The examiner should contact the BBA POC when considering taking into account the net negative adjustment to credits to reduce the product of the TNPA multiplied by the highest tax rate in effect.

    4. A net negative adjustment to tax, penalty, addition to tax, or additional amount for which the partnership is liable under Chapter 1, or an adjustment to any imputed underpayment calculated by the partnership for the taxable year is not an adjustment that does not result (ATDNR) in an imputed underpayment. The net negative adjustment to tax, penalty, addition to tax, or additional amount for which the partnership is liable under Chapter 1, or an adjustment to any imputed underpayment calculated by the partnership for the taxable year, reduces the product of the TNPA multiplied by the highest tax rate, but not below zero.

      Note:

      If the adjustments to PRIs include a net negative adjustment to tax, penalty, addition to tax, or additional amount for which the partnership is liable under Chapter 1, or a net negative adjustment to any IU calculated by the partnership for the taxable year, then special rules may apply for the IU calculation. See IRM 4.31.9.9.2.7.1, Special IU Recalculation Rules.

  5. For purposes of determining the IU at the field level;

    1. Only the net positive adjustment in each grouping will be used to compute the IU, unless the exam team and BBA POC determine that it is appropriate to allow a net negative adjustment in the credit grouping to be included in the IU computation, or unless the special IU recalculation rules in IRM 4.31.9.9.2.7.1, Special IU Recalculation Rules, apply.

    2. A net negative adjustment does not result in an IU; thus, such adjustment must be taken into account by the partnership in the adjustment year. That is, the adjustment is included on the partnership’s tax return for the year in which such adjustment becomes final.

    3. The adjustment year is the tax year in which: the notice of final partnership adjustment (FPA) is mailed or when a waiver of the FPA is executed by the IRS, or if a petition under IRC 6234 is filed, the date when the court’s decision becomes final.

4.31.9.9.2.2 (05-08-2026)
First Step in Computing the Imputed Underpayment (IU)

  1. Computing the IU requires up to 7 steps. The first step in computing an IU involves the placing of each proposed adjustment into one of four groupings: reallocation, credit, creditable expenditure and residual groupings.

  2. Each of the four groupings is explained in the following subsections below.

4.31.9.9.2.2.1 (10-29-2021)
Reallocation Grouping

  1. Reallocation grouping - In general, any adjustment that allocates or reallocates a PRI to and from a particular partner or partners is a reallocation adjustment, except for a reallocation adjustment of a credit or to a creditable expenditure. Adjustments involving a reallocation of a credit are placed in the credit grouping. Adjustments involving a reallocation of a creditable expenditure are placed in the creditable expenditure grouping. Each reallocation adjustment generally results in at least two separate adjustments, each of which become a separate subgrouping. See step 2 (IRM 4.31.9.9.2.3, Second Step in Computing the IU), which discusses the concept of subgrouping.

    1. One leg of the reallocation adjustment reverses the effect of the improper allocation of a PRI and will result in a negative adjustment. This adjustment must be taken into account by the partnership in the adjustment year and cannot generally be netted against other adjustments. See step 3 (IRM 4.31.9.9.2.4, Third Step in Computing the IU) which discusses the concept of netting.

    2. The other leg of the reallocation adjustment makes the proper allocation of the PRI and will result in a positive adjustment.

4.31.9.9.2.2.2 (05-08-2026)
Credit Grouping

  1. Any adjustment to a PRI that is reported or could be reported by a partnership as a credit on the partnership’s return, including a reallocation adjustment to such PRI, is placed in the credit grouping. Generally, a decrease in credits is treated as a positive adjustment, and an increase in credits is treated as a negative adjustment.

  2. A reallocation adjustment relating to the credit grouping is placed into two separate subgroupings and will not be netted together or netted with other credit adjustments (except for other credit reallocation adjustments allocable to that partner or group of partners).

    1. Treat a decrease in credits allocable to one partner or group of partners as a positive adjustment generally in its own subgrouping.

    2. Treat an increase in credits allocable to another partner or group of partners as a negative adjustment generally in its own subgrouping that does not result in an IU and must be taken into account by the partnership in the adjustment year.

  3. Adjustments to any tax, penalty, addition to tax, or additional amount for the taxable year for which the partnership is liable under Chapter 1 are placed in the credit grouping. Examples of a partnership’s Chapter 1 liabilities are qualified opportunity fund liabilities under IRC 1400Z-2 and a real estate mortgage investment conduit’s (REMIC) liability under IRC 860F or IRC 860G.

  4. Each adjustment to an imputed underpayment (IU) calculated by the partnership is placed in the credit grouping. An example of an IU calculated by the partnership would be an IU calculated and reported by a partnership in an AAR.

4.31.9.9.2.2.3 (05-08-2026)
Creditable Expenditure Grouping

  1. Any adjustment to a PRI where any person could take the item that is adjusted (or item as adjusted if the item was not originally reported by the partnership) as a credit (i.e., creditable foreign tax expenditure or qualified research expense), including a reallocation adjustment to a creditable expenditure, is placed in the creditable expenditure grouping.

  2. Generally, treat a decrease in creditable expenditures as a positive adjustment to credits, and an increase in creditable expenditures as a negative adjustment. The two legs of a reallocation adjustment related to the creditable expenditure grouping are placed into two separate subgroupings and will not be netted together.

    1. Treat a decrease in creditable expenditures allocable to one partner or group of partners as a positive adjustment to credits.

    2. Treat an increase in creditable expenditures allocable to another partner or group of partners as a negative adjustment that does not result in an IU and must be taken into account by the partnership in the adjustment year.

      Example:

      If the adjustment is a reduction of qualified research expenses, the adjustment is to a creditable expenditure grouping because any person allocated the qualified research expenses by the partnership could claim a credit with respect to their allocable portion of such expenses under IRC 41, rather than a deduction under IRC 174.

4.31.9.9.2.2.4 (05-08-2026)
Residual Grouping

  1. Place any adjustment to a PRI that doesn’t belong in the reallocation, credit, or creditable expenditure grouping in the residual grouping.

  2. The residual grouping also includes any adjustment to a PRI that derives from an item that would not have been required to be allocated by the partnership to a reviewed year partner under IRC 704(b), such as an adjustment to a liability amount on the balance sheet.

4.31.9.9.2.2.5 (05-08-2026)
Recharacterization Adjustments and Zero Adjustments

  1. Any adjustment that changes the character of a PRI is a recharacterization adjustment. Examples of a recharacterization adjustment are an adjustment that changes a loss from ordinary to capital or from active to passive. A recharacterization adjustment will generally result in at least two separate adjustments in the appropriate grouping (reallocation, credit, creditable expenditure, or residual).

    1. One adjustment reverses the improper characterization of the PRI and will result in a negative adjustment.

    2. The other adjustment makes the proper characterization of the PRI and will result in a positive adjustment.

    3. The adjustments that result from a recharacterization adjustment are generally placed into two separate subgroupings.

  2. An adjustment can be treated as a zero adjustment (solely for purposes of computing the IU), if the effect of such partnership adjustment is already reflected in one or more other partnership adjustments.

    Example:

    During an examination of ABC, LP it was established that Partners A, B, and C were allocated an equal share of a $900 capital gain realized from a sale of real property that had been previously contributed by Partner A. Examination determined that the entire gain of $900 should have been allocated exclusively to Partner A under the rules of IRC 704(c). Therefore, an adjustment is proposed to reallocate $600 of gain from Partners B and C to Partner A. This issue results in two adjustments: A positive adjustment of $600 to allocate gain to Partner A; and a negative adjustment of ($600) to reverse the allocation of gain to Partners B & C. In addition to the reallocation issue, it was established that the total gain of $900 was treated entirely as capital gain. Examination determined that $450 of the $900 gain was attributable to prior depreciation claimed and represents unrecaptured IRC 1250 gain. Therefore, a recharacterization of $450 is proposed to recharacterize $450 of capital gain to unrecaptured IRC 1250 gain. The recharacterization issue results in two adjustments: A positive adjustment of $450 to unrecaptured IRC 1250 gain; and a negative adjustment of ($450) to reverse a portion of the capital gain. However, solely for purposes of computing the IU, the positive recharacterization adjustment of $450 and the negative recharacterization adjustment of ($450) are both treated as zero adjustments because both adjustments are already reflected in whole by the two reallocation adjustments pertaining to the capital gain. Treating both recharacterization adjustments as zero adjustments ensures that the adjustments are not counted twice since the tax effect of such adjustments is already reflected by the reallocation adjustments being made. See IRM 4.31.9.9.2.9, Consistent Application of IRS Discretion to Treat an Adjustment as Zero for Computing an IU.

4.31.9.9.2.3 (05-08-2026)
Second Step in Computing the IU

  1. The second step in computing an IU is to determine if any proposed adjustment, within one of the four groupings, needs to be subgrouped. While per the regulations, subgrouping is only necessary when any proposed adjustment within a grouping is a negative adjustment, a subgrouping must be determined for each positive and negative adjustment. The subgrouping determination is a requirement for the operation of the IUA Calculator which is used by the tax computation specialists for the exam report preparation. In addition, determining the subgrouping for all adjustments (positive, negative, and zero) is considered a best practice because there may be subsequent disputes regarding subgroupings at the field level and/or requests to change the subgrouping during the modification phase (after the field exam). Each of the proposed adjustments will need to be subgrouped according to the following rules.

  2. Each adjustment is subgrouped according to how the adjustment would be required to be taken into account separately under IRC 702(a) or any other provision of the IRC, regulations, forms, instructions, or other guidance prescribed by the IRS applicable to the adjusted PRI. For purposes of creating subgroupings, if any adjustment could be subject to any preference, limitation, or restriction under the IRC (or not allowed, in whole or in part, against ordinary income) if taken into account by any person, the adjustment is placed in a separate subgrouping from all other adjustments within the grouping.

    1. Generally, each separate line item of Schedule K/K-1 or return schedule (i.e., Schedule L, etc.), represents a separate and distinct subgrouping. The format for Schedule K/K-1 generally follows the requirement of IRC 702(a) that each partner is required to take into account separately their distributive share of each class or item of partnership income, gain, loss, deduction or credit. Thus, adjustments to ordinary income must be placed in a different subgrouping as capital gain income or interest income since each of those items is required to be separately stated under IRC 702(a).

    2. Separate line items on Schedule K/K-1 (or other schedules on Form 1065) may include multiple components making up the total shown. If any line item on Schedule K/K-1 or other schedules consists of multiple items and the components are required to be taken into account separately under the Code, regulations, forms, instructions, or other guidance prescribed by the IRS, then such line item must be further subgrouped.

      Example:

      If there is more than one type of income to be included on Schedule K/K-1, line 11, Other Income/(loss), the partnership is required to attach a statement to Form 1065 that separately identifies each type and amount of income for each distinct category and each of those would constitute a separate subgrouping.
      As another example, if the Schedule K/K-1, line 1 ordinary income/(loss) entry includes income or loss from more than one trade or business activity, the partnership must identify on an attached statement to Schedule K/K-1 the amount from each separate activity. Accordingly, the income or loss from each separate activity from Schedule K/K-1, line 1 would constitute a separate subgrouping.

    3. The ordinary income or loss amount reflected on line 1 of Schedule K/K-1, is sourced from Form 1065, page 1 and is a net amount consisting of various Form 1065, page 1 line items of income and expenses. Although those separate page 1 line items are distinct items of income and expense, if they are appropriately netted and included on line 1, Schedule K/K-1, the net amount will be considered a single subgrouping, unless such amount is required to be separately delineated, such as when the partnership has more than one trade or business as previously noted.

    4. If there are negative adjustments along with positive adjustments in the same line item of Schedule K/K-1, consider whether they may be properly netted at the partnership level and whether they are required to be taken into account separately by any partner because they may be subject to a limitation or preference under the IRC before placing them in the same subgrouping.

    5. A negative adjustment that is not otherwise required to be placed in its own subgrouping must be placed in the same subgrouping as another adjustment if the negative adjustment and the other adjustment would have been properly netted at the partnership level and such netted amount would have been required to be allocated to the partners of the partnership as a single item for purposes of IRC 702(a) or other provision of the IRC and regulations.

  3. A partnership may request to subgroup adjustments in a manner other than the manner described above. Such request is generally done by requesting modification of the imputed underpayment amount under 26 CFR 301.6225-2 after the issuance of the NOPPA. Examination has the discretion to review and grant such request based on the facts and circumstances, but the examiner must contact the BBA POC before agreeing to any such request.

    Note:

    Any request must be supported by the facts and circumstances, such as partner-level information that a negative adjustment is not subject to a presumed preference, limitation, or restriction under the IRC, or in fact allowed in full against ordinary income.

4.31.9.9.2.4 (10-29-2021)
Third Step in Computing the IU

  1. The third step in computing the imputed underpayment is to appropriately net all the proposed adjustments within each of the groupings and subgroupings. Netting means summing all adjustments together within each grouping or subgrouping, as appropriate.

    Note:

    Positive adjustments and negative adjustments may only be netted against each other if they are in the same grouping or subgrouping. An adjustment in one grouping or subgrouping may not be netted against an adjustment in any other grouping or subgrouping. Adjustments from one tax year may not be netted against adjustments from another tax year.

  2. If any grouping only includes positive adjustments (i.e., there are no subgroupings for that grouping), all adjustments in that grouping are added together to come up with a sum of all net positive adjustments.

  3. All adjustments within a subgrouping are netted to determine whether there is a net positive adjustment or net negative adjustment for that subgrouping.

    1. A net positive adjustment means an amount that is greater than zero which results from netting adjustments within a grouping or subgrouping. A net positive adjustment is also a positive adjustment that was not netted with any other adjustment. A net positive adjustment includes a net decrease in an item of credit.

    2. A net negative adjustment means any amount which results from netting adjustments within a grouping or subgrouping that is not a net positive adjustment. A net negative adjustment is also a negative adjustment that was not netted with any other adjustment.

4.31.9.9.2.5 (10-29-2021)
Fourth Step in Computing the IU

  1. The fourth step is to compute the TNPA. The TNPA is the sum of all net positive adjustments in the reallocation grouping and the residual grouping.

  2. Each net positive adjustment with respect to a particular grouping or subgrouping in the residual or reallocation groupings that results after netting the adjustments is included in the calculation of the TNPA.

  3. Each net negative adjustment with respect to a residual or reallocation grouping or subgrouping that results after netting the adjustments is excluded from the calculation of the TNPA because those adjustments do not result in an imputed underpayment.

4.31.9.9.2.6 (10-29-2021)
Fifth Step in Computing the IU

  1. The fifth step is to determine the highest tax rate in effect for the reviewed year under IRC 1 or IRC 11.

4.31.9.9.2.7 (05-08-2026)
Sixth Step in Computing the IU

  1. The sixth step is to determine the sum of net positive adjustments and net negative adjustments to creditable expenditure and credit groupings that will increase or potentially decrease the product of the TNPA multiplied by the highest rate in effect.

    Note:

    If the adjustments to PRIs include a negative adjustment (decrease) to tax, penalty, addition to tax, or additional amount for which the partnership is liable under Chapter 1, or include a negative adjustment (decrease) to any imputed underpayment calculated by the partnership for the taxable year, see IRM 4.31.9.9.2.7.1, Special IU Recalculation Rules.

  2. On a case-by-case basis with facts and circumstances supporting such determination along with BBA POC involvement, a net negative adjustment in the credit grouping may be allowed to decrease the product of the TNPA multiplied by the highest rate in effect; however, the default treatment of a net negative adjustment in the credit grouping is that it is an adjustment that does not result in an imputed underpayment and is therefore excluded from the calculation of the IU, unless there is a net negative adjustment (decrease) to tax, penalty, addition to tax, or additional amount for which the partnership is liable under Chapter 1, or a net negative adjustment (decrease) to any IU calculated by the partnership for the taxable year. Then special rules may apply for the IU calculation (see IRM 4.31.9.9.2.7.1, Special IU Recalculation Rules).

  3. A net decrease to creditable expenditures is treated as a net positive adjustment to credits and increases the product of the TNPA multiplied by the highest tax rate in effect. A net increase to creditable expenditures is treated as a net negative adjustment that is excluded from the calculation of the TNPA and is an adjustment that does not result in an imputed underpayment.

  4. For the credit grouping, a net positive adjustment will increase the product of the TNPA multiplied by the highest tax rate in effect. A net negative adjustment, including net negative adjustments resulting from a credit reallocation adjustment, will be treated as an adjustment that does not result in an imputed underpayment, unless:

    • The examination team determines that it is appropriate to allow the net negative adjustment in the credit grouping to reduce the product of the TNPA multiplied by the highest tax rate in effect, or

    • Special IU recalculation rules apply because there is a net negative adjustment to tax, penalty, addition to tax, or additional amount for which the partnership is liable under Chapter 1, or there is a net negative adjustment to any IU calculated by the partnership for the taxable year and due to the inclusion of the net negative adjustment, the initial IU calculation results in an amount that is less than or equal to zero. See IRM 4.31.9.9.2.7.1, Special IU Recalculation Rules.

    Note:

    In all cases, the examiner must contact the BBA POC if they are taking into account any net negative adjustment in the credit grouping to reduce the product of the TNPA multiplied by the highest tax rate in effect.

4.31.9.9.2.7.1 (05-08-2026)
Special IU Recalculation Rules

  1. The special imputed underpayment (IU) recalculation rules within this subsection are applicable to partnership taxable years ending on or after November 20, 2020.

  2. Special IU recalculation rules may apply if you are proposing a net negative adjustment that includes either of the following:

    1. A decrease to any item of any tax, penalty, addition to tax, or additional amount for the taxable year for which the partnership is liable under Chapter 1, which is a negative adjustment placed in the credit grouping. Examples of a partnership’s Chapter 1 liabilities are qualified opportunity fund liabilities under IRC 1400Z-2 and a real estate mortgage investment conduit’s (REMIC) liability under sections IRC 860F or IRC 860G, or

    2. A decrease to an imputed underpayment calculation by the partnership, which is a negative adjustment placed in the credit grouping. An example of an IU calculated by the partnership would be an IU calculated and reported by the partnership in an AAR.

  3. The special IU recalculation rules will apply if the IU calculation results in an amount that is equal to or less than zero due to the inclusion of a net negative adjustment to any tax, penalty, addition to tax, or additional amount for the taxable year for which the partnership is liable under Chapter 1, or a net negative adjustment to an imputed underpayment calculated by the partnership for the taxable year.

  4. IU Recalculation: If paragraph (3) applies, then recalculate the IU without regard to the net negative adjustment described in paragraph (2)(a) and (2)(b). The net negative adjustment that was excluded from the IU recalculation is then treated in one of two ways, depending on the results of the IU recalculation, as detailed in paragraph (5) below.

  5. Result of IU Recalculation: If the result of the IU recalculation described in paragraph (4) above is:

    If the result of IU recalculation is: Then:
    Greater than zero The IRS may apply the portion of the net negative adjustment(s) that was excluded from the IU recalculation to reduce the IU to zero, but not below zero.

    In this case:

    1. The IU is zero; and

    2. The adjustments included in the IU recalculation and the remaining net negative adjustment(s) excluded from the IU recalculation are not adjustments that do not result in an IU (ATDNR).
    Less than or equal to zero

    1. The IU is zero;

    2. Treat the adjustments included in the IU recalculation as adjustments that do not result in an IU; and

    3. The net negative adjustment(s) excluded from the IU recalculation is not an adjustment that does not result in an IU.
4.31.9.9.2.8 (05-08-2026)
Seventh Step in Computing the IU

  1. The seventh and final step is to compute the IU based on the results of steps 4 through 6 by inserting those results into the IU formula identified in Figure 4.31.9-19 above.

    Example:

    The AB Partnership’s 2019 return is under examination. Form 1065, page 1 consists of gross receipts of $1,000 and COGS of $250 for a net ordinary business income of $750 from a single activity. The $750 of net ordinary business income was included on Schedule K, line 1. The revenue agent proposes to increase gross receipts by $100 and increase COGS by $30. The $100 increase in gross receipts represents a positive adjustment while the increase in COGS represents a negative adjustment. Both of these adjustments are placed in the residual grouping since neither is properly classified as an adjustment within the reallocation, credit or creditable expenditure groupings. Since one of the adjustments is negative, subgrouping is required. The agent verified that AB Partnership netted the gross receipts and COGS as a single partnership-related item on Schedule K, line 1, and therefore, the negative adjustment for COGS will be subgrouped with the positive gross receipts adjustment. After netting these adjustments, the result is a net positive adjustment of $70 in the Schedule K, line 1 subgroup as well as a net positive adjustment in the residual grouping. The $70 will be included in the total netted partnership adjustment for purposes of computing the imputed underpayment.

    Example:

    The facts are the same as the previous example, except the partnership’s operations included two distinct activities (“Activity A” and “Activity B”). The net income from each activity were separately stated on a statement attached to Form 1065. The audit adjustment to gross receipts of $100 (increase) was identified as being related to Activity “A” while the adjustment to COGS of $30 (increase) was identified as being related to Activity “B.” Again, both the positive adjustment to gross receipts of $100 and the negative adjustment of $30 to COGS are placed in the residual grouping. Since the separate net income from each activity are required to be separately stated on line 1 of Schedules K/K-1 (via an attached schedule), those amounts were not treated as a single partnership-related item for purposes of IRC 702(a) and were not allocated as a single item on the filed tax return as was proper. Therefore, each adjustment must be placed into a separate subgroup within the residual grouping. The two subgroups (within the residual grouping) could be identified as “Schedule K, line 1, Activity A” and “Schedule K, line 1, Activity B” or similar. Under the netting rules, netting adjustments across subgroups is not permitted and the positive $100 adjustment and the negative $30 adjustment may not be netted. Thus, the residual grouping contains a net positive adjustment of $100 (netting rules only allow positive adjustments to be added together in each grouping to arrive at a net positive adjustment). This amount will be included in the total net partnership adjustment for purposes of computing the imputed underpayment. The net negative adjustment of $30 is an adjustment that does not result in an imputed underpayment and must be included on the partnership’s tax return for the year in which such adjustment becomes final.

4.31.9.9.2.9 (05-08-2026)
Consistent Application of IRS Discretion to Treat an Adjustment as Zero for Computing an IU

  1. The IRS’s mission is to provide U.S. taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all. When given discretionary authority, the IRS must apply that authority consistently with integrity and fairness to all. This IRM section provides guidance as to when an examiner may exercise the IRS’s discretionary authority consistently to treat any adjustment as zero solely for purposes of calculating the IU when it is reflected in one or more other adjustments, or when it is a positive adjustment that is related to, or results from, a positive adjustment to another item. This section also provides when other issued guidelines require such an adjustment to be included in the computation of the IU.

  2. 26 CFR 301.6225-1(b)(4) grants the IRS the discretion to treat a partnership adjustment as zero solely for purposes of calculating the IU if the effect of the partnership adjustment is reflected in one or more other partnership adjustments. In addition, if a positive adjustment to an item is related to, or results from, a positive adjustment to another item, one of the positive adjustments will generally be treated as zero solely for purposes of calculating any IU unless the IRS determines that an adjustment should not be treated as zero in the calculation of the IU.

  3. IRS discretion is interpreted broadly. Examples include:

    • There is no requirement that the adjustment being treated as zero for purposes of computing the IU be the same amount, or the same character, as the positive or negative adjustment to which it is related.

    • The IRS may treat multiple adjustments as zero for purposes of computing the IU if the effect of the multiple adjustments is reflected in at least one other partnership adjustment.

    • When the IRS is examining multiple reviewed years simultaneously, there is no requirement that the adjustment being treated as zero for purposes of computing the IU be related to another adjustment in the same reviewed year.

    • The IRS may treat a negative adjustment as zero if at least one partnership adjustment, treated as a positive (resulting in an IU) or negative (resulting in an ATDNR) is included in a BBA report.

  4. The IRS may not utilize its discretion to treat one or more partnership adjustments, treated as positive, as zero unless at least one other partnership adjustment, treated as positive (resulting in an IU) or negative (resulting in an ATDNR) is included in a BBA report. See examples below.

    Example:

    ABC, LLC provides legal services. All three partners, A, B and C, provide legal services on behalf of ABC, LLC. ABC, LLC’s operating agreement provides that each partner is paid a guaranteed payment based on a combination of their gross revenues and net realization with the remaining firm profit allocated based upon average capital account balances. ABC, LLC reported guaranteed payments as net earnings from self-employment but not the partnership’s ordinary business income (the remaining firm profit). During an examination of ABC, LLC, the IRS determined that ABC, LLC’s ordinary business income should be characterized as net earnings from self-employment (Schedule K, line 14a). The sole adjustment of the audit, to increase net earnings from self-employment, is treated as positive for purposes of computing the IU and may not be treated as zero for purposes of computing the IU because it is the sole adjustment made in the examination.

    Example:

    ABC, LLC provides legal services. All three partners, A, B and C, provide legal services on behalf of ABC, LLC. ABC, LLC’s operating agreement provides that each partner is paid a guaranteed payment based on a combination of their gross revenues and net realization with the remaining firm profit allocated based upon average capital account balances. ABC, LLC reported guaranteed payments and the partnership’s ordinary business income – the remaining firm profit - as net earnings from self-employment. During an examination of ABC, LLC, the IRS determined that ABC, LLC’s ordinary business income should be reduced (Schedule K, line 1). Correlatively, the IRS determined that net earnings from self-employment (Schedule K, line 14) should be reduced. Since the adjustment to net earnings from self-employment is reflected in the adjustment to ordinary business income, the IRS may treat the adjustment to net earnings from self-employment as zero solely for purposes of computing the IU.

  5. Guidance, training and issued job aids provide consistent direction as to which adjustments should not be treated as zero, such as the BBA IRC 199A Adjustments Map guide. See example below.

    Example:

    DEF, LLC manufactures and sells widgets solely within the US, so its trade or business is a qualified trade or business activity for purposes of IRC 199A. During an examination of DEF, LLC, the IRS proposed two adjustments to income, 1) a $100,000 decrease in depreciation expense because an asset was not placed in service by year end, and 2) a $100,000 decrease in wage expense. Accordingly, the IRS also adjusts DEF, LLC’s IRC 199A disclosure to increase QBI by $200,000, decrease the qualified wages disclosure by $100,000 and decrease unadjusted basis immediately after acquisition (UBIA) by $100,000. The two adjustments increasing income by $200,000 will be included in the computation of the imputed underpayment. The existing 199A job aid allows the IRS to treat the QBI disclosure adjustment of $200,000 as zero for purposes of computing the IU but it requires the IRS to include the $100,000 positive adjustments to both the IRC 199A wage disclosure and UBIA disclosure in the computation of the IU. See figure below.

    Figure 4.31.9-20

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    Please click here for the text description of the image.

    Note:

    This guidance is still applicable if the structure is too large to identify terminal partners for review or if a review of terminal partner returns results in even some of the partners subject to QBI wage or UBIA limitations.

  6. If the examiner has reviewed a material percentage of the impacted partner(s) based on allocations to the terminal partner returns, and determined that their second or subsequent positive adjustments are adjustments to non-income items that would have no effect on or an immaterial effect on the Chapter 1 liability of the reviewed partner return, then the examiner may treat the non-income adjustments as zero for purposes of computing the IU regardless of other guidance, training, or job aids that require inclusion of the adjustment in the computation of the IU. See example below.

    Note:

    The material percentage threshold may be met by either the examiner performing required filing checks (see IRM 4.10.5, Required Filing Checks and IRM 4.46.3.5, Compliance Checks Summary) or by the partnership representative (or POA) providing the partner information to the examiner.

    Example:

    DEF, LLC manufactures and sells widgets solely within the US, so its trade or business is a qualified trade or business activity for purposes of IRC 199A. During an examination of DEF, LLC the IRS proposed two adjustments to income, 1) a $100,000 decrease in depreciation expense because an asset was not placed in service by year end, and 2) a $100,000 decrease in wage expense. Accordingly, the IRS also adjusts DEF, LLC’s IRC 199A disclosure to increase QBI by $200,000, decrease the qualified wages disclosure by $100,000 and decrease UBIA by $100,000. The examiner is also examining all the partners’ 1040s. The two adjustments increasing income by $200,000 will be included in the computation of the imputed underpayment. The BBA IRC 199A Adjustments Map allows the IRS to treat the QBI disclosure adjustment of $200,000 as zero for purposes of computing the IU but it requires the IRS to include the $100,000 positive adjustments to both the IRC 199A wage disclosure and UBIA disclosure in the computation of the IU. However, the examiner notes that none of the partners are subject to the QBI Wage Limitation or the UBIA Limitation on their original distributive shares and would not be if the same QBI Wage Limitation or the UBIA Limitation adjustments were made directly on the partners’ 1040s. As such, the examiner may notate in the IUA workbook that the examiner reviewed 100% of the partners’ Form 1040s and notes that none would be subject to tax on the adjustments to QBI Wage Limitation or the UBIA Limitation. Therefore, the examiner chooses to exercise IRS’ discretion to treat the adjustments to QBI Wage Limitation and the UBIA Limitation as zero for purposes of computing the IU.

    Figure 4.31.9-21

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    Please click here for the text description of the image.

  7. The examiner should document their review of partners’ returns for purposes of applying this IRM section in accordance with IRM 4.10.5.2.4(4), Case File Documentation and IRM 4.46.3.5, Compliance Checks Summary, which explains how to document related return information in the case file. A workpaper describing the review of the partners’ returns should be placed in SAIN 724 (LB&I) or Section 600 (SB/SE), footnoted and referenced in the IUA workbook.

    Caution:

    Examiners must exercise caution when documenting consideration of partners’ returns. The examiner should document what research was completed but should not include the results of the research of the partners’ return in the BBA partnership’s case file. The information about the partners’ returns should not be available to the BBA partnership.

4.31.9.9.2.10 (05-08-2026)
Partnership Treatment and Allocation of Adjustments that do not Result in an Imputed Underpayment

  1. Adjustments that do not result in an IU are:

    1. Partnership adjustments that result in net negative adjustments after grouping, subgrouping and netting; and

    2. All partnership adjustments when the calculation of the IU results in zero or less than zero.

      Note:

      Net negative adjustments in the credit grouping resulting from adjustments to a tax, penalty, addition to tax, or additional amount for which the partnership is liable under Chapter 1, or resulting from an adjustment to any imputed underpayment calculated by the partnership for the taxable year, are not considered adjustments that do not result in an imputed underpayment. If the imputed underpayment calculation results in an amount that is zero or less than zero due to the inclusion of a net negative adjustment to tax, penalty, addition to tax, or additional amount for which the partnership is liable under Chapter 1, or due to the inclusion of an adjustment to any imputed underpayment calculated by the partnership for the taxable year, then special recalculation IU rules apply. See IRM 4.31.9.9.2.7.1, Special IU Recalculation Rules, and contact your BBA POC for guidance on the imputed underpayment calculation.

  2. Treatment of adjustments that do not result in an imputed underpayment:

    1. In general, any partnership adjustment (from a BBA audit) that does not result in an imputed underpayment is taken into account by the partnership in the adjustment year.

    2. Modification - If requested by the partnership and approved by the IRS, partnerships can modify adjustments that do not result in an imputed underpayment only with respect to the following modification types: Partner modification of amended return (PMAR); Partner alternative procedure (PAP); Number and composition of IUs; Closing agreements; or as appropriate, other modifications.

    3. Partnerships that have both an IU and adjustments that do not result in an IU can choose to push out all adjustments under IRC 6226 (see “other options” within paragraph 7 below). However, partnerships that only have adjustments that do not result in an IU must take the adjustments into account in the adjustment year return.

    4. Partnerships that file an AAR must push out all adjustments that do not result in an IU following procedures under IRC 6226 and IRC 6227.

      Exception:

      There is an exception to the treatment of partnership adjustments that do not result in an IU. A net negative adjustment to a tax, penalty, addition to tax, or additional amount for which the partnership is liable under Chapter 1, or a net negative adjustment to any imputed underpayment calculated by the partnership for the taxable year is not an adjustment that does not result in an IU. See 26 CFR 301.6225-1(e)(3)(ii), 26 CFR 301.6225-1(f), and IRM 4.31.9.9.2.7.1, Special IU Recalculation Rules.

  3. The treatment of the partnership adjustments (other than reallocation adjustments and adjustments to PRIs that were reported or could have been reported by the partnership as a credit on its reviewed year return) by the partnership in the adjustment year return is dependent upon whether the partnership adjustment item is a non-separately stated item, or whether the PRI is a separately stated item of income or loss as defined under IRC 702.

    1. The partnership adjustment can increase or decrease non-separately stated income or loss unless it is an adjustment to a PRI that is required to be separated stated under IRC 702 .

      Example:

      Partnership reports ordinary business income of $100 and ordinary business deductions of $70. In a BBA administrative proceeding with respect to the partnership’s 2019 tax year, the IRS determines that ordinary business income was $105 ($5 adjustment) and ordinary business deductions were <$80> (<$10> adjustment). Both adjustments are classified in the residual grouping and in the Ordinary business income or loss subgrouping. The IRS determines that netting is appropriate, therefore the <$10> adjustment can be netted with the $5 adjustment for a net negative adjustment in the amount of <$5> in the residual grouping. Such netting results in a net negative adjustment in the amount of <$5>, an adjustment that does not result in an imputed underpayment. Since the adjustment does not result in an imputed underpayment, the underlying partnership adjustments are reported and taken into account by the partnership in the adjustment year return. The partnership adjustments are determined to be non-separately stated items of income or loss. The adjustments are taken into account and reported by the partnership on Form 1065 and related Schedule K Line 1 as non-separately items of ordinary business income or loss.

    2. If the partnership adjustment is to a PRI that is required to be separately stated under IRC 702, the partnership adjustment is taken as a reduction in such separately stated item or as an increase in such separately stated item depending on whether the adjustment is a reduction or an increase to the separately stated item. In the case of adjustments to credits, the adjustments are taken into account as separately stated items.

      Example:

      Partnership reports contributions of $100, long term capital loss of $25 and a low-income housing credit of $20. In a BBA administrative proceeding with respect to the partnership’s 2019 tax year, IRS determines that contributions made were $200 (<$100> adjustment), long term capital loss was <50> (<$25> adjustment) and the low-income housing credit was $30 (<$10> adjustment). All of the partnership adjustments, except the credit adjustment, are classified in the residual grouping, each adjustment is classified in a separate subgrouping since netting of the partnership adjustments is not appropriate. The credit adjustment is classified in the credit grouping. Each one of the partnerships adjustments is an adjustment that does not result in an imputed underpayment. The underlying contribution adjustment of <$100>, long term capital loss adjustment of <$25> and the additional low-income housing credit of $10 are reported and taken into account by the partnership in the adjustment year as separately stated items since each of these adjustments is separately stated under IRC 702(a). Therefore, contributions, long term capital loss and credit on Form 1065, Schedule K for the partnership’s adjustment year are increased to reflect these adjustments which are adjustments not resulting in an imputed underpayment.

    3. Negative adjustments that are placed in separate subgroupings in the reallocation grouping are disregarded for purposes of calculating the imputed underpayment because they are adjustments that do not result in an imputed underpayment. Such adjustments are taken into account by the partnership in the adjustment year as a separately stated item or a non-separately stated item as required by IRC 702.

    4. If the partnership elects push out with respect to an IU, as per 26 CFR 301.6226-1, all reallocation related negative adjustments will follow the push out election for the IU associated with the positive reallocation adjustments. For example, if the partnership chooses to pay the IU, any adjustments that do not result in an IU will be reported on the adjustment year return. But if the partnership elects push out with respect to an IU, then any partnership adjustments that do not result in an IU associated with the IU for which a push out election was made must also be pushed out to the reviewed year partners in accordance with 26 CFR 301.6226-3 .

    5. Reallocation partnership adjustments that are reported on the adjustment year return should be allocated to the adjustment year partners who were also reviewed year partners with respect to the amount that was reallocated.

    6. Adjustments that do not result in an IU due to the application of credits. If the calculation of the imputed underpayment results in zero or less than zero, after the application of credits (other than a net negative adjustment pertaining to decreases to a tax, penalty, addition to tax, or additional amount for which the partnership is liable under Chapter 1, or a net negative adjustment to any imputed underpayment calculated by the partnership for the taxable year), then all adjustments are considered adjustments that do not result in an IU and all such partnership adjustments are taken into account in the adjustment year of the partnership. The adjustments are reported as non-separately stated items or as separately stated items, depending upon the nature of the adjustments and IRC 702.

      Example:

      Example: Partnership reports ordinary business income of $1500, advertising expenses of $400, ordinary business expenses of $900, long term capital loss of $250, a low-income housing credit of $10 and a research credit of $100. In a BBA administrative proceeding with respect to the partnership’s 2019 tax year, IRS determines that ordinary business income was $1700 ($200 adjustment), ordinary business expenses were $800 ($100 adjustment), long-term capital loss was $200 ($50 adjustment), low-income housing credit was $60 (<$50> adjustment) and the research credit was $190 (<90>). All of the partnership adjustments, except the credit adjustment, are classified in the residual grouping. The credit adjustments are classified in the credit grouping. The IRS has also determined that the net negative credit adjustments should be taken into account in computing the imputed underpayment. The adjustments in the residual grouping are summed for a total netted partnership adjustment of $350. The netted partnership adjustment is multiplied by 40 percent (highest tax rate in effect) which results in $140 imputed underpayment before credits and creditable expenditures. The credits in the credit grouping are netted for a total of <$140> resulting in an imputed underpayment of $0. Since the imputed underpayment computation resulted in $0, the partnership adjustments do not result in an imputed underpayment. All of the adjustments will be taken into account by the partnership in the adjustment year.

  4. Adjustments to items that are not items of income, gain, loss, deduction, or credit: The partnership will take such adjustments into account by adjusting the item on its adjustment year return but only to the extent the item would appear on the adjustment year return without regard to the adjustment. If the item is already reflected on the partnership’s adjustment year return as an item that is not an item of income, gain, loss, deduction, or credit, or on the partnership’s return for any year between the reviewed year and the adjustment year, a partnership should not create a new item in the amount of the adjustment on the partnership’s adjustment year return.

  5. Determining the adjustment year of the partnership:

    1. If the PR signs Form 14792, Partnership Examination Changes, Imputed Underpayment Computation and Partnership Level Determinations as to Penalties, Additions to Tax and Additional Amounts, the adjustment year return is determined when the IRS countersigns the agreement.

      Example:

      Partnership files a return for the calendar year 2019 and a BBA administrative proceeding is conducted for that year. The examination is concluded in June 2021. The PR signs Form 14792 in July 2021 and the IRS countersigns Form 14792 in August 2021. The adjustment year is 2021.

    2. If the PR does not sign Form 14792, a notice of Final Partnership Adjustment (FPA) will be mailed to the partnership and PR. The mailing of the FPA determines the adjustment year return (assuming that the PR does not petition the tax court).

      Example:

      Partnership files a return for the calendar year 2019 and a BBA administrative proceeding is conducted for that year. The examination is concluded in December 2021. The PR does not sign Form 14792. The IRS prepares and mails the FPA to the partnership and PR in November 2022. The adjustment year return is 2022.

    3. Final court decision: For partnership adjustments finally determined pursuant to a decision in a proceeding under IRC 6234, the adjustment year is the year in which the decision becomes final.

  6. Other options for reporting or taking into account adjustments not resulting in an imputed underpayment (Push Out, Modification, AARs)

    1. Push Out: If an IU is present and a partnership makes an election to push out the adjustments related to an IU, then it must also push out any adjustments that do not result in an IU that are associated with the IU for which the push out election was made. However, if there is no IU, then push-out cannot be elected and all adjustments, including adjustments that do not result in an IU, must be reported by the partnership in the adjustment year return. See 26 CFR 301.6226-1, Election for an alternative to the payment of the imputed underpayment, for more information.

      Regarding the adjustments included in push-out statements:

      Description Action
      Reviewed year partners that are not pass-through partners (PTPs) Use Form 8986 (push-out statement) received from the partnership to calculate the additional tax increase or decrease from the adjustments and report it on Form 8978 (which should be attached to the partner’s return that includes the date statements were issued by the top tier partnership).
      Reviewed year partners that are PTPs Account for their adjustments received on a Form 8986 (push-out statement) by calculating and paying an IU or further pushing out the adjustments. Any adjustments that do not result in an IU should be reported on the return that includes the date of payment. If a PTP chooses to push out the adjustments related to the IU, they must also push out the adjustments that do not result in an IU. A PTP that receives a push-out statement related to an AAR filing must always push out the adjustments that do not result in an IU.

      Note:

      If a PTP receives positive adjustments from a push out statement and does not pay an imputed underpayment or push out to its owners by the extended due date of the adjustment year return, the IRS can calculate and assess an imputed underpayment that includes the PTP’s share of the adjustments.

    2. Modification: The partnership can request, under 26 CFR 301.6225-2(e), to modify the adjustments not resulting in an imputed underpayment. If such adjustments are approved to be modified, they will not be reported by the partnership in the adjustment year.

    3. Filing of an AAR: Adjustments from an AAR that result in an IU calculation amount that is less than or equal to zero or the adjustments do not result in an IU must be pushed out by the partnership under the rules similar to IRC 6226. Those adjustments will be reported by the reviewed year partners for the tax year that includes the date they are furnished Form 8986 (reporting year). An AAR partnership may not place adjustments that do not result in an IU on its adjustment year return.

      Note:

      Pass-through partners (PTPs) that receive a statement from an AAR filing have the same options as PTPs that receive a statement from an audited partnership, except, adjustments that do not result in an IU should always be pushed out to the affected partners, which are the partners of the PTP in the reviewed year.

4.31.9.9.3 (05-08-2026)

Making Adjustments on either Form 886-A or Lead Sheets

  1. BBA requires some additional language to be added to substantive adjustment explanations as well as an explanation of how the imputed underpayment was computed.

  2. Add specific language to the Form 886-As or lead sheets issued for substantive issues and another Form 886-A or lead sheet dedicated to the computation of the IU.

4.31.9.9.3.1 (05-08-2026)
Form 886-A or Lead Sheets for Substantive Issues Including Penalties

  1. For each adjustment to a PRI, consider and document the following:

    1. The description and corresponding line item on Schedule K and/or any other schedule included with Form 1065;

    2. The proper grouping (reallocation, credit, creditable expenditure, or residual). See IRM 4.31.9.9.2.2, First Step in Computing the Imputed Underpayment (IU);

    3. The proper subgrouping. See IRM 4.31.9.9.2.3, Second Step in Computing the Imputed Underpayment (IU);

    4. The treatment of the adjustment (whether it is positive, negative, or zero).

  2. After finalizing and issuing all Form 886-As or lead sheets, proceed with computing the preliminary imputed underpayment. Reach out to the tax computation specialist (TCS).

    1. For SB/SE, this is when you should make first contact with TCS. Submit the TCS request through the SRS.

  3. Examiners must also consider if other adjustments to partnership-related items are required, such as adjustments related to IRC 199A. See the BBA IRC 199A Adjustments Map for report writing guidance on adjustments made relating to IRC 199A.

4.31.9.9.3.2 (05-08-2026)
Form 886-A or Lead Sheets for Imputed Underpayment Amount (IUA)

  1. Once all Form 886-As or lead sheets have been issued for each substantive issue, and each penalty being proposed, prepare one more Form 886-A or lead sheet to show the preliminary general IU calculation, showing all the partnership adjustments, and penalties (if any). The preliminary IU calculation must show the following components:

    1. Total Netted Partnership Adjustment (TNPA).

    2. Highest tax rate in effect under IRC 1 or IRC 11 .

    3. Sum of net positive adjustment from creditable expenditure grouping.

    4. Sum of net positive adjustment from credit grouping.

    5. Sum of net negative adjustment from credit grouping if appropriate.

    6. Details of the IU recalculation, if applicable. See IRM 4.31.9.9.2.7.1, Special IU Recalculation Rules.

    Note:

    You can use the Imputed Underpayment Amount 886-A Template when preparing Form 886-A for the IUA.

  2. Use the IUA Workbook to compute the preliminary IU. Complete the IUA Workbook in accordance with the workbook instructions, inputting all the proposed adjustment amounts from all substantive issues and penalties (if applicable).

    • Upon receipt of an IU computation from the TCS, verify and reconcile any differences between the IU based on the IUA Workbook with the IU determined by the TCS.

  3. Attach to the Form 886-A (or lead sheet) for the imputed underpayment amount (IUA) the following tabs listed below from the IUA Workbook spreadsheet in order to show the preliminary IU calculation and summary of all the partnership adjustments. You can alternatively include the information from the IUA workbook listed below within the body of Form 886-A.

    1. “IU Computation” tab, and

    2. “Adjustment Input Summary” tab

  4. Similar to any substantive issue, examiners and the PR will have discussions concerning the preliminary IU prior to formally issuing the Form 886-A. During those communications, the PR may propose that adjustments be subgrouped and/or netted in a manner different from the procedures set forth above. If so, examiners must contact the BBA POC for further guidance.

    Note:

    PR must provide a written request detailing the appropriate facts and circumstances to support such request.

  5. Issue Form 886-A for the preliminary imputed underpayment. If the PR is not in agreement with the preliminary IU calculation and provides a written response detailing additional facts and applicable law for the examiner to consider using a different method of subgrouping or netting, contact the BBA POC for further guidance. Otherwise, inform the PR that the IU can be appealed once the 30-day letter package is issued. In addition, the PR can request modification after Technical Services or Appeals issues the NOPPA package.

    Reminder:

    Update Form 886-A to document all facts, including any request to change the preliminary IU and/or discussions after the issuance of Form 886-A and conclusion.

4.31.9.9.3.3 (05-08-2026)
Penalties and Interest

  1. Under BBA, the partnership is liable for any interest and penalties associated with any imputed underpayment unless they elect the alternative to payment of imputed underpayment under IRC 6226.

  2. Under BBA, the partnership is liable for any penalties associated with any partnership adjustment with respect to the reviewed year. Penalties and interest are determined at the partnership level. Refer to IRM 20.1.5.21, Bipartisan Budget Act of 2015 - Penalties with Respect to Partnership Adjustments. The imposition of the accuracy related penalty and the fraud penalty will require special coordination. Therefore, special rules will apply when the following penalties are imposed and computed for the partnership’s reviewed year:

    • IRC 6662, Imposition of Accuracy-Related Penalty on Underpayments

    • IRC 6663, Imposition of Fraud Penalty

    • IRC 6662A, Imposition of Accuracy-Related Penalty on Understatements with Respect to Reportable Transactions

  3. Compute the applicable penalties and consider reasonable cause and good faith defenses only with respect to the partnership:

    1. For purposes of computing the penalty, the partnership is treated as an individual subject to tax under Chapter 1 of subtitle A of the IRC.

    2. The imputed underpayment is treated as an actual underpayment or understatement of tax for the reviewed year.

    3. A partner-level defense may not be raised at the partnership level.

  4. Computing the penalties may require coordination with the Office of Servicewide Penalties (OSP) and/or the Penalties Practice Network.

    1. Refer to the Penalties Knowledge Base homepage and IRM 20.1.5.21, Bipartisan Budget Act of 2015 - Penalties with Respect to Partnership Adjustments, for penalty considerations and computations.

    2. Managers, including immediate supervisors or for LB&I examinations, the immediate supervisor or a designated higher-level official, must review and approve in writing whether any penalties should be imposed as part of the examination. See IRC 6751(b) and IRM 20.1.1.2.3, Approval Prerequisite to Penalty Assessments.

    3. A Form 886-A or lead sheet must be prepared for each penalty proposed.

    4. The calculation for each penalty must be included as part of the summary report package (30-day letter package, if applicable) and as part of the NOPPA report package.

    5. The computation of the substantial understatement penalty under IRC 6662(d) for a BBA partnership requires the application of special rules to determine if the penalty applies. For purposes of this penalty, the imputed underpayment is treated as an understatement of tax for the reviewed year and the rules under IRC 6662(d)(1)(A) are applicable. To determine if there is a substantial understatement of tax, the “amount of tax required to be on the return” must be computed.

      Note:

      Use Job Aid for Calculation of IRC 6662(d) Penalty for BBA Partnership (2018-2023) to determine if there is a substantial understatement of tax as described under IRC 6662(d) and to compute the substantial understatement penalty.

  5. If the partnership fails to pay an imputed underpayment by the date prescribed for payment, the partnership is liable under IRC 6651(a)(2) for any penalty, addition to tax or additional amount. The penalty also applies to pass-through entities which elect to pay the IU (under 26 CFR 301.6226-3 ) and a partnership filing an AAR.

  6. The penalty under IRC 6698(a) is on the failure to file a PTP return or a partnership adjustment tracking report. The failure to file (FTF) penalty under IRC 6698(a) provides for a penalty if any partnership is required to file a return under IRC 6031, or a partnership adjustment tracking report under IRC 6226(b)(4)(A), and fails to timely file such return or report, or files a return or a Form 8985, Pass-Through Statement-Transmittal/Partnership Adjustment Tracking Report, which fails to show all of the information required.

    1. The IRC 6698(a) penalty is not on an adjustment to a PRI. Therefore, the IRC 6698(a) penalty is determined outside of BBA and would not be on the NOPPA, which contains adjustments to PRIs and any penalties on those adjustments.

    2. The penalty shall be assessed against the partnership and deficiency procedures do not apply with respect to the assessment or collection of the penalty under IRC 6698(a), IRC 6698(c), and IRC 6698(d). The FTF penalty under IRC 6698 is not a penalty asserted under BBA and is not shown on Form 14791 or Form 14792. Therefore, the failure to file penalty should be imposed where a partnership return has not been filed and an SFR package is prepared by Exam, or when Exam receives a delinquent return for processing.

      Example:

      The 2019 partnership return is under examination. However, the 2018 partnership return was not filed. The examiner is charged with preparing a substitute for return (SFR) package for the 2018 partnership return. The 2018 return was due 03/15/2019, and there was no automatic extension on the IDRS transcript. The examiner prepares the SFR package on 8/15/2020. The partnership return is 17 months late. Therefore, the examiner should assess the FTF penalty under IRC 6698 in the amount of $2,400 determined by taking $200 (at time of drafting) per month (or fraction thereof) x 12 months (but not to exceed 12 months). See IRM 20.1.2.4.4, Procedures for Assessment or Abatement Prior to 01/01/2022.

  7. Examiners have two options for the computation of interest to be included on Form 14791:

    1. Compute their own interest using approved interest computation tools such as IDRS command code (CC) COMPA and COMPAD or ACT/DMI or,

    2. Request an interest calculation from the Centralized Case Processing (CCP) campus.

4.31.9.9.3.3.1 (09-22-2022)
Computing Interest Using Command Codes (CC) COMPA and COMPAD

  1. See IRM 2.3.29.5, Command Code COMPA and COMPAD

    Field Field Title Length Description
    1 Definer 1 character - v D (Debit Interest)
    2 Master File Tax (MFT) Code 2 characters - nn N/A for BBA Form 14791 Interest Calculations
    3 Tax Period 6 characters - yyyymm N/A for BBA Form 14791 Interest Calculations
    4 From Date 8 characters - mmddyyyy Identifies the date to compute interest or penalty from
    5 To Date 8 characters - mmddyyyy Identifies the date to compute interest or penalty to
    6 Amount 14 characters - nnn.nnn.nnn.nn Amount - two decimal positions (cents) are required

    Note:

    The BBA IU and penalties may be combined as a single input for the purpose of computing estimated interest.

    Example:

    COMPA input for an audit of a 2018 BBA Partnership with an IU of $37,000 and an accuracy related penalty of $7,400 (combined BBA IU and penalty = $44,400) with BBA Form 14791 to be issued on January 1, 2021:

    Field Field Title Length Description
    1 Definer 1 character - v D
    2 Master File Tax (MFT) Code 2 characters - nn N/A
    3 Tax Period 6 characters - yyyymm N/A
    4 From Date 8 characters - mmddyyyy 03162019
    5 To Date 8 characters - mmddyyyy 03152022
    6 Amount 14 characters - nnn.nnn.nnn.nn 44,400.00

    Note:

    The COMPA report returns total interest of $5,593.38. The COMPAD report returns the computation of interest as follows:

    Figure 4.31.9-22

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    Please click here for the text description of the image.

4.31.9.9.3.3.2 (05-08-2026)
Requesting an Interest Calculation from the Centralized Case Processing (CCP) Campus

  1. Contact the Centralized Case Processing (CCP) campus and request an interest computation after the TCS prepares Form 14791. In general:

    • For LB&I, send the request to *CCP Ogden e-mail box.

    • For LB&I PBC 330, send the request to the Cincinnati campus.

    • For SB/SE located in Areas 201 through 207, send the request to the Memphis campus via efax 1-855-688-9549.

    • For SB/SE located in Areas 212, 213, 214, or 330, send the request to Memphis campus via efax 1-855-386-5122.

    • CCP will respond within 2 weeks.

    • IRS employees may find contacts at the Interest Computations for Payoffs page.

  2. Work with CCP and provide the following data:

    1. A copy of the Form 14791,

    2. Starting date, which is the due date of the reviewed year return (without extension),

    3. Ending date (e.g., the date of issuance of the summary report package plus 75 days),

    4. Penalties (see IRM 4.31.9.9.3.3(2) and (3), Form 886-A: Interest and Penalties), and

    5. Imputed underpayment amount.

      Note:

      For Form 14792, Appeals or Technical Services will request the interest computation.

4.31.9.9.4 (05-08-2026)

Communicate Adjustments to Tax Computation Specialist (TCS)

  1. Provide the TCS the following information for all proposed adjustments in sequential numbers with the following information:

    1. Description of the adjustment.

    2. Amount of the adjustment (positive, negative, or zero). For any adjustment that is zero, provide an explanation as to why the adjustment is treated as zero for purposes of calculating the IU.

      Example:

      Note for $0 Adjustment: This adjustment is an increase to Section 199A Qualified Business Income in the amount of $400,000 and is already reflected in the imputed underpayment as an adjustment to Net Rental Real Estate Income (Loss).

    3. Grouping (reallocation, residual, creditable expenditure, or credit). For any reallocation adjustment, include the name and TIN of the impacted partner and whether the allocation is “to” or “from” such partner.

    4. Subgrouping (Schedule K/K-1 line item or other Form 1065 schedule line item).

      Note:

      If you use the IUA Workbook to compute the preliminary imputed underpayment, forward the completed workbook to the TCS, in lieu of the above listing.

4.31.9.9.5 (05-08-2026)

Available Alternative Dispute Resolutions (ADRs) for BBA Partnerships

  1. A primary objective of the IRS is to resolve tax differences at the earlier stages of the BBA examination without sacrificing the quality and integrity of the examination. Alternative dispute resolutions (ADRs) available for BBA partnerships are listed below:

    1. Fast Track Settlement (FTS) - Provides IRS and taxpayers an opportunity to resolve their disputes with an Appeals official using mediation skills and settlement authority. Normal FTS procedures will apply. See IRM 4.51.4, LB&I/Appeals Fast Track Settlement Program (FTS).

    2. Early Referral - Allows taxpayers to request the transfer of a developed but unagreed issue to Appeals while other issues in the case continue to be developed during the BBA examination. For LB&I, see IRM 4.46.5.4.2.5, Early Referral to Appeals. For SB/SE, see IRM 4.10.1.2.1.5(2)(c), Right to Appeal an IRS Decision in an Independent Forum.

4.31.9.10 (01-24-2024)

Report Writing

  1. A tax computation specialist (TCS) will prepare Form 14791 and Form 14792. A TCS is requested through the SRS as follows:

    1. For LB&I, follow existing procedures and request the TCS at the beginning of the examination.

    2. For SB/SE, the SRS request should be made after all Forms 886-A or lead sheets (for substantive issues) have been finalized and issued to the PR.

    Note:

    If there are relevant partner Ch 2/2A issues, refer to those specific reporting writing procedures. See IRM 4.31.9.6.6, Non-PRI Report Writing.

4.31.9.10.1 (05-08-2026)

Summary Report Package

  1. If the PR clearly indicates a desire to go to Appeals, in the interest of time, you may skip issuance of the summary report package and issue only the 30-day letter package (see IRM 4.31.9.10.2, 30-day Letter Package). Document this decision in the activity record.

  2. After all Form 886-As are finalized and issued, proceed with the summary report package, which includes:

    1. Letter 5895, Preliminary Partnership Examination Changes and Imputed Underpayment,

    2. Form 14791, Preliminary Partnership Examination Changes, Imputed Underpayment Computation and Partnership Level Determinations as to Penalties, Additions to Tax and Additional Amounts, and

    3. Form 886-A, Explanation of Adjustments, or lead sheets, for each substantive issue, each penalty (if applicable), and the imputed underpayment amount.

    4. Form 4605-A, Partnerships, Fiduciaries, S Corporations, and Interest Charge Domestic International Sales Corporations, and Form 886-S, Partners' Share of Income, Deduction and Credits (if applicable) for Ch 2/2A issues.

  3. Request and work with the TCS to prepare Form 14791.

    1. TCS will provide Form 14791 within 2 weeks from the date of the request.

    2. After Form 14791 is received from the TCS, review the form to verify the presentation of all adjustments (positive, negative, and zero adjustments) and the resulting IU computation.

      Note:

      Each adjustment must be shown in the body of the exam report.

    3. In addition to the presentation of all adjustments in the body of the report, ensure that all adjustments not resulting in an IU are reflected in the “Other Information” section auto-populated footnote. The following is an example of the IUA calculator auto-populated note regarding adjustments not resulting in an IU:

      Example:

      The following adjustments were considered in the calculation of the imputed underpayment but were determined to be adjustments that do not result in an imputed underpayment. These adjustments should be taken into account by the partnership in the adjustment year in accordance with IRC 6225(a)(2) and 26 CFR 301.6225-3 , unless they are included in a request for modification and ultimately approved by the IRS under modification, or unless the partnership makes an election under IRC 6226 with respect to that imputed underpayment:
      Grouping: Residual
      Subgrouping: Sch K - Guaranteed Payments
      Guaranteed payments $(20,000)

    4. Ensure that any zero or duplicative adjustments are also properly presented in the “Other Information” section auto-populated footnote, inclusive of any explanation to be provided to the TCS for input. (See IRM 4.31.9.9.4, Communicate Adjustments to Tax Computation Specialist (TCS)). The following is an example of the IUA Calculator auto-populated note:

      Example:

      The following adjustments are considered zero adjustments because such adjustments are already reflected in one or more other partnership adjustments. Therefore, solely for purposes of calculating the imputed underpayment, such adjustments are treated as zero pursuant to Treas. Reg. 301.6225-1(b)(4):
      Grouping: Residual
      Subgrouping: Sch K - Qualified Business Income (QBI) Deduction - IRC 199A QBI (code Z); Schedule K, Line 20c
      This adjustment is an increase to IRC 199A Qualified Business Income in the amount of $100,000 and is already reflected in the imputed underpayment as an adjustment to Ordinary Business Income (Loss).

  4. Contact the appropriate CCP campus and request an interest computation. See IRM 4.31.9.9.3.3, Penalties and Interest. Update Form 14791 and incorporate the following:

    1. The date the interest is computed to “MMDDYYYY”, and

    2. The interest amount on line 20.

    3. See IRM 4.31.9.9.3.3.1, Computing Interest Using Command Codes (CC) COMPA and COMPAD, regarding using IDRS command code COMPA to obtain a similar computation of interest.

  5. Prepare Letter 5895 and remember to include the audit control number (ACN) in the header. The ACN is system generated and can be found on AIMS, BMF and IMS.

  6. Issue the summary report package to the PR no later than 14 months prior to the IRC 6235(a)(1) date. A summary report (or a 30-day letter) should be issued on every case unless there is a case specific reason why it cannot be issued. The PR can request a conference within 2 weeks of the issuance of the summary report package. If the statute is imminent, the field agent can issue a summary report with Letter 5895, utilizing selectable paragraph B and give the partnership a minimum of 2 days to request a conference. The conference is not a statutory requirement.

    1. The package does not need to be sent by certified mail.

    2. The PR may request a conference to discuss audit results no later than two weeks from the issuance of Letter 5895.

    3. A separate summary report package is required for each year under examination since each year stands on its own unless it’s a no-change.

    4. Use judgement in issuing the summary report when the PR has made it clear it would like to pursue Appeals. See paragraph (1) within this subsection above.

4.31.9.10.2 (05-08-2026)

30-day Letter Package

  1. A partnership may protest and want to go to Appeals for any unagreed partnership adjustment, including the substantive issues, imputed underpayment amount and penalty.

  2. If the partnership requests to go to Appeals, there must be at least 18 months remaining on the IRC 6235(a)(1) date when Technical Services receives the case. A statute extension via Form 872-M should be requested if necessary.

  3. If there are at least 20 months left on the statute, prepare and issue the 30-day letter package to the PR. The package does not need to be sent by certified mail.

  4. The 30-day letter package includes the following:

    1. Letter 5891, 30-Day Letter,

    2. Form 14791, Preliminary Partnership Examination Changes, Imputed Underpayment Computation and Partnership Level Determinations as to Penalties, Additions to Tax and Additional Amounts, and

    3. Form 886-A, Explanation of Adjustments, or lead sheets, for substantive issues, penalties (if applicable), and the imputed underpayment.

    4. Form 4605-A, Partnerships, Fiduciaries, S Corporations, and Interest Charge Domestic International Sales Corporations, and Form 886-S, Partners' Share of Income, Deduction and Credits (if applicable) for Ch 2/2A issues.

  5. After the issuance of the 30-day letter package, update the case status to 13.

  6. Follow existing procedures for responding to the 30-day letter package, including the protest letter.

    Note:

    The 30-day letter package must also include the NOPPA package when transferring to Technical Services.

  7. Upon receiving the protest, the examiner must review it for compliance with Pub 5, Your Appeal Rights and How to Prepare a Protest if You Disagree, and provide a rebuttal, if necessary. Perform the following actions based on the scenarios as described in the table below:

    If... Then...
    The protest is valid by complying with the requirements of Pub 5, Your Appeal Rights and How to Prepare a Protest if You Disagree, and the IRS is not changing its position. Close the case to Technical Services for disposition to Appeals.

    See IRM 4.31.9.11.4, Case With Adjustments (to Appeals), for additional procedures.
    The protest is invalid because it does not comply with the requirements of Pub 5, Your Appeal Rights and How to Prepare a Protest if You Disagree. You should return the protest and grant additional time to the partnership to perfect the protest. If the partnership does not provide a valid protest, close the case to Technical Services for issuance of NOPPA as a case with adjustments (no Appeals).

    See IRM 4.31.9.11.3, Case with Adjustments (No Appeals), for additional procedures.
    The valid protest addresses all unagreed adjustment(s), the examiner agrees with the partnership’s position on those issues, and no adjustment(s) remain. Close the case to Technical Service or CCP as a no-change case.

    See IRM 4.31.9.11.1, No-Change Case (No Adjustment and No PCS Linkage), or IRM 4.31.9.11.2, No-Change Case (With Adjustments and/or PCS Linkage), for additional procedures.
    The valid protest addresses one or more unagreed adjustment(s), the examiner agrees with the partnership’s position on those issues and there are still remaining agreed issues, then a corrected Form 14791 must be prepared. Do not issue a new 30-day letter. If sufficient time remains on the statute of limitation, attach the corrected Form 14791 to the rebuttal by performing the following steps below before closing the case with adjustments (no Appeals). See IRM 4.31.9.11.3, Case With Adjustments (No Appeals), for additional procedures.

    1. You must prepare a corrected Form 14791 to reduce the IU and supersede the previously issued Form 14791.

    2. Across the top of the corrected report, write “Corrected Form 14791.”

    3. In the Other Information or Remarks section, write “This Form 14791 supersedes report dated [Insert date of the original report].”

    4. Across the top of the original report, write “This Form 14791 superseded by report dated [Insert date of the corrected report].”
    The valid protest addresses unagreed adjustment(s) but the examiner does not agree with partnership’s positions on those issues. Do not revise Form 14791 because it was not changed. Close the case to Technical Services as a case to Appeals. See IRM 4.31.9.11.4, Case With Adjustments (to Appeals), for additional procedures.
    The valid protest raises new issue(s), or you determine the IU should be increased. Determine if there is sufficient time on the statute of limitation.

    If sufficient time remains on the statute of limitation, issue a new 30-day letter package. Prepare and include a corrected Form 14791 by performing the following:

    1. Across the top of the corrected report, write “Corrected Form 14791.”

    2. In the Other Information or Remarks section, write “This Form 14791 supersedes report dated [Insert date of the original report].”

    3. Across the top of the original report, write “This Form 14791 superseded by report dated [Insert date of the corrected report].”



    If no sufficient time remains and the PR is not willing to extend the statute, close the case with adjustments (no Appeals). See IRM 4.31.9.11.3, Case With Adjustments (No Appeals), for additional procedures.
4.31.9.10.3 (05-08-2026)

Notice of Proposed Partnership Adjustment (NOPPA) Package

  1. The NOPPA package is required in any administrative proceeding (examination) under the BBA regime, including an administrative proceeding with respect to an administrative adjustment request (AAR) filed by a partnership under IRC 6227. A separate NOPPA package is prepared for each partnership tax year unless it’s a no-change.

  2. Prepare the NOPPA package no later than:

    1. 13 months from the IRC 6235(a)(1) date if the case is not going to Appeals, or

    2. 19 months from the IRC 6235(a)(1) date if unagreed and going to Appeals.

  3. The NOPPA package includes the following:

    1. Form 14792, Partnership Examination Changes, Imputed Underpayment Computation and Partnership Level Determinations as to Penalties, Additions to Tax and Additional Amounts,

    2. Letter 5892, Notice of Proposed Partnership Adjustments-Partnership,

    3. Letter 5892-A, Notice of Partnership Adjustments-Partnership Representative, and

    4. Form 886-A, Explanation of Adjustments, or lead sheets, for both substantive issues and imputed underpayment amount.

  4. Contact and work with the TCS to prepare Form 14792.

    1. TCS will provide the report within 2 weeks from the date of the request.

    2. There is no need to request an interest amount since Technical Services or Appeals will be issuing the NOPPA package.

  5. Prepare Letter 5892 and Letter 5892-A leaving the following fields blank:

    1. The IRS person point of contact (name, ID, contact info);

    2. Date of issuance;

    3. 270-day submission period expiration date; and

    4. Response due date.

      Note:

      The field manager does not sign the Letter 5892 and Letter 5892-A because the letters will be issued by Technical Services.

  6. The examiner does not issue the NOPPA package. Technical Services or Appeals will issue the NOPPA package to the partnership and PR.

  7. The manager must review and approve the NOPPA package. This managerial review and approval should be documented in the case file activity record.

  8. Include the NOPPA package and 30-day letter package (if applicable) in the case file.

4.31.9.11 (05-08-2026)

Case Disposition Procedures

  1. Close no-change cases that are not PCS-linked to CCP. Transfer all other BBA cases to Technical Services. Refer to IRM 4.10.9.12, Case File Assembly for Closing Physical Administrative Case Files, for case file assembly information.

    Note:

    Address all freeze codes that may prevent case closure or transfer. If applicable, obtain approval from the designated contact to release the freeze code.

    Note:

    For SB/SE cases in RGS, BBA partnerships must be worked separately in RGS. Multi-year cases cannot be linked together in the same folder. BBA cases require splitting multi-year cases because each year may require different processing. Each year stands on its own.

  2. For cases that transfer to Technical Services, a TSPC will perform a cursory review of the case file, prepare and issue relevant letters, issue the NOPPA package (if applicable), and forward the case to either Centralized Case Processing (CCP), Appeals or BBA Operations, as appropriate.

  3. Ensure the case has the following periods of time remaining on the IRC 6235(a)(1) statute when received by CCP or Technical Services.

    Types of Cases Required Time Remaining on the 6235(a)(1) Statute When Received by Technical Services or CCP Close Case to:
    No-change (no adjustment and no PCS linkage) 4 months CCP
    No-change (with adjustment and/or PCS linkage) 6 months Technical Services
    With adjustment (no Appeals) 12 months Technical Services
    With adjustments (to Appeals) 18 months Technical Services

  4. For cases with less time on the statute than reflected in the chart above, see IRM 4.31.9.11.6, BBA Imminent Statute Procedures.

  5. Electronic Closing: BBA cases requiring mandatory review by Technical Services can paperless close electronically for the following case closing scenarios:

    • No-change cases (with adjustments and/or PCS linkage)

    • Case with adjustments (no Appeals)

    • Case with adjustments (to Appeals)

    Note:

    No-change BBA cases that are not PCS-linked can close directly to CCP. See IRM 4.31.9.11.1, No-Change Case (No Adjustment and No PCS Linkage)

    , for procedures.

    Exception:

    Examiners cannot close a case using paperless procedures if there is a “return requested” indicator ‘RET-REQ’ on AIMS. Refer to Completing Form 5345-D for more information on locating the indicator on the AMDISA.

  6. Refer to Exhibit 4.31.9-6, BBA Case Closing Document IMS SAIN and RGS Section Reference Chart, for more information on the storage of certain electronic documents and workpapers in IMS and RGS.

4.31.9.11.1 (05-08-2026)

No-Change Case (No Adjustment and No PCS Linkage)

  1. No-change cases with no adjustments that are not PCS-linked for Chapter 2/2A issues close to CCP within 10 days from the approval of the no-change determination.

    Reminder:

    You cannot close PCS-linked cases to CCP. These cases should be transferred to Technical Services. See IRM 4.31.9.11.2, No-Change Case (With Adjustments and/or PCS Linkage).

    Reminder:

    The return should have at least 4 months remaining on the IRC 6235(a)(1) date when received by CCP.

  2. To qualify for paperless closing, the examiner must verify that AIMS does not display a “return requested” indicator ‘RET-REQ’, on AMDISA, page 2, field 27. For LB&I cases, ensure the case does not involve an unagreed, disallowed informal claim. See IRM 4.31.9.9.1(3), No-Change Exam.

    Note:

    If the case does not qualify for paperless closing, LB&I examiners will refer to IRM 4.46.5.11.2.4, Exception to Paperless Case Closing to CCP. For SB/SE cases, refer to IRM 4.10.15.12.2, Examined Closures - Manager Responsibilities.

  3. Follow the paperless case closing procedures based on your BOD for a no-change (no adjustments and no PCS linkage) in the table below:

    BODs Action Required:
    LB&I examiners Refer to IRM 4.46.5.11.2.2, General Information for all Paperless Case Closures and IRM 4.46.5.11.2.3, General Procedures for Paperless Case Closing to CCP (LB&I Exam Areas 320-328, 330 (FPP only)), for general paperless closing procedures. Save applicable BBA check sheets to SAIN 724, and attach the following case closing documents to Form 15292, Case Closing Cover Sheet:

    • TXMODA (dated within 30 days)

    • Form 5344, Examination Closing Record

    • Form 3198, Special Handling Notice for Examination Case Processing
    SB/SE or LB&I International Individual Compliance (IIC) examiners Refer to IRM 4.10.15.12.1, Examined Closures - Examiner Responsibilities, for general electronic case file procedures and ensure applicable BBA check sheets are saved to Case File Documents (CFD) using a 600 series reference code.

  4. Follow existing procedures to complete Form 5344, Examination Closing Record. See Exhibit 4.31.9-5 (No-change column) for line items required to be completed. For paperless closings, verify the blocking series number in the “P38-40” field shows 40X.

  5. Complete Form 3198 and follow existing procedures except as otherwise provided below:

    • In the bottom section of page 1, check the “Forward to CCP - Update to Status 51” box, input disposal code 02 and leave the adjustment amount blank.

    • In the middle section of page 2, under “Letter Instructions for CCP”, select “No letter required to be sent by CCP”.

  6. Examiners prepare and issue no-change Letter 6099, No Change Under Centralized Partnership Audit Regime - Partnership, and Letter 6099-A, No Change Under Centralized Partnership Audit Regime - Partnership Representative, to taxpayers when the case is closed from the group to CCP.

4.31.9.11.2 (05-08-2026)

No-Change Case (With Adjustments and/or PCS Linkage)

  1. A no-change BBA case with adjustments is a case where no partnership adjustments (adjustments to PRIs) are being made, but partner returns are adjusted due to:

    • Non-Chapter 1 adjustments made outside the scope of BBA, such as NIIT adjustments made at the partner level, or

    • When no changes are made to the partnership’s ordinary income or loss, or separately stated items reflected on the return of Schedule K-1 and a partner’s return is adjusted as a result of the flow-through examination. This would include adjustments to basis, at-risk, or passive activity rules; taxable distributions or taxable loan repayments; or adjustments made to include the amount(s) reported on the investor’s Schedule K-1.

    • A no-change BBA case with adjustments would not apply when adjustments to Schedule K/K-1, Line 14, Net Earnings from Self-Employment (NESE) are being made as adjustments to NESE have been deemed a partnership adjustment.

    • If the examiner has AIMS control over both the BBA partnership and partners, reference the examples in IRM 4.31.9.6.5, Processing Partner Non-Pass-Through Adjustments, for procedures depending on whether the partners agree or disagree with their individual non-BBA adjustments.

  2. The examiner must prepare and submit a closing package to Technical Services with the following documents for a Chapter 2A NIIT case to resolve the linkage for the linked partners:

    • Form 4605-A (Chapter 2A issues only).

    • Form 886-S (if Chapter 2A partner level adjustments are to be made).

    • Copies of relevant workpapers that support the Chapter 2A issues (if applicable).

    • Copy of Form 2848 for Chapter 2A issues (if applicable).

  3. The examiner should transfer the case file to Technical Services within 30 days from the approval of the no-change determination.

    • The return should have at least 6 months remaining on the IRC 6235(a)(1) date when received by Technical Services.

    • Follow existing procedures for completing Form 5344, Examination Closing Record. See also Exhibit 4.31.9-5 (No-change with adjustments column) for line items required to be completed.

  4. Complete Form 3198, Special Handling Notice for Examination Case Processing, and follow existing procedures except as otherwise provided below:

    1. In the "Forward to Technical Services" section of the Form 3198 , check the "BBA P/S No Change" box. If applicable, also indicate that Ch 2/2A linkage needs to be addressed.

    2. In the bottom section of page 1 of the form: separately check the box "Forward to Technical Services - Update to Status 21." The adjustment amount should be left blank, and the disposal code should be 01.

  5. Campaigns, projects, initiatives or other workstream assignments may provide direction to use disposal code 01 in other scenarios consistent with expanded definitions in Document 6036.

  6. Follow the paperless case close procedures based on your BOD for a no-change (with adjustments and/or PCS linkage) in the table below:

    BODs Action Required:
    LB&I examiners Refer to IRM 4.31.9.11.5, LB&I Paperless Case Closing to Technical Services, for general procedures for closing BBA cases paperless to Technical Services.

    Check the SAIN 090 box on the document header in TWS to identify case closing documents already created and uploaded under a different SAIN as part of step 2 in IRM 4.31.9.11.5(2):

    • Form 3198, Special Handling Notice for Examination Case Processing

    • Form 5344, Examination Closing Record

    • Form 4605-A, Examination Changes - Partnerships, Fiduciaries, S Corporations, and Interest Charge Domestic International Sales Corporations (Chapter 2/2A issues only)

    • Form 886-S, Partners' Share of Income, Deduction and Credits (Chapter 2/2A issues only)

    • Copy of Form 2848, Power of Attorney and Declaration of Representative (POA), for Chapter 2/2A issues (if applicable)
    SB/SE examiners Refer to IRM 4.10.15, Report Generation Software, for general electronic case file procedures.

    1. Applicable BBA check sheets must be saved to the RGS CFD folder and named using required file naming conventions. See RGS Naming Conventions job aid and IRM 4.10.15.10.1, File Naming Convention

    2. A separate miscellaneous issue with a 600 series reference code (SAIN 76XXX under “Miscellaneous Items”) must be created in RGS for BBA check sheets and indexed on Form 4318, Examination Workpaper Index. See Creating Form 4318-600 Items.

  7. Technical Services will upload the following documents to SAIN 090 (LB&I) or to CFD in RGS (SB/SE) before closing the case to CCP:

    • Form 3198, Special Handling Notice for Examination Case Processing

    • Form 5344, Examination Closing Record

    • Form 15372, Bipartisan Budget Act (BBA) Chapter 2/2A Revenue Agent Report (RAR) Package Check Sheet

    • Letter 6099, No Change Under Centralized Partnership Audit Regime - Partnership

    • Letter 6099-A, No Change Under Centralized Partnership Audit Regime - Partnership Representative

4.31.9.11.3 (05-08-2026)

Case With Adjustments (No Appeals)

  1. After the NOPPA package is prepared, transfer the case file to Technical Services within 30 days.

    Reminder:

    The return should have at least 12 months remaining on the IRC 6235(a)(1) date when received by Technical Services. If the examiner has AIMS control over both the BBA Partnership and Partners, reference the examples in IRM 4.31.9.6.5, Processing Partner Non-Pass-Through Adjustments, for procedures depending on whether the partners agree or disagree with their individual non-BBA adjustments.

  2. Technical Services will review the case. If no corrections are warranted, Technical Services will mail the NOPPA package to the partnership and PR; otherwise, the case will be returned back to the examiner and manager for corrections.

  3. If applicable, the examiner must prepare and submit a closing package with the following documents for a SECA or NIIT case to resolve the linkage for the linked partners:

    • Form 4605-A (for Ch 2/2A issues).

    • Form 886-S (for Ch 2/2A issues).

    • Copies of relevant workpapers that support the Ch 2/2A issue.

    • Copy of the Form 2848 for Ch 2/2A issues (if applicable).

  4. Follow existing procedures to complete Form 5344, Examination Closing Record. See Exhibit 4.31.9-5 (Adjustments no Appeals column) for line items required to be completed.

  5. Complete Form 3198, Special Handling Notice for Examination Case Processing, and follow existing procedures except as otherwise provided below:

    1. In the "Forward to Technical Services" section of Form 3198, check the "BBA P/S w/Adjustment (No Appeal)." If applicable, also indicate that Ch 2/2A linkage must be addressed.

    2. In the bottom section of page 1 of the form: separately check the box "Forward to Technical Services – Update to Status 21." Include the adjustment amount (same as item 34 on Form 5344). Use disposal code 08.

  6. Follow the paperless case close procedures based on your BOD for a case with adjustments (no Appeals) in the table below:

    BODs Action Required:
    LB&I examiners Refer to IRM 4.31.9.11.5, LB&I Paperless Case Closing to Technical Services, for general procedures for closing BBA cases paperless to Technical Services.

    Check the SAIN 090 box on the document header in TWS to identify case closing documents already created and uploaded under a different SAIN as part of step 2 in IRM 4.31.9.11.5(2):

    • Form 3198, Special Handling Notice for Examination Case Processing

    • Form 5344, Examination Closing Record

    • Form 4605-A, Examination Changes - Partnerships, Fiduciaries, S Corporations, and Interest Charge Domestic International Sales Corporations (Chapter 2/2A issues only)

    • Form 886-S, Partners' Share of Income, Deduction and Credits (Chapter 2/2A issues only)

    • NOPPA Package

    • Copy of Form 2848, Power of Attorney and Declaration of Representative (POA), for Chapter 2/2A issues (if applicable)
    SB/SE examiners Refer to IRM 4.10.15, Report Generation Software, for general electronic case file procedures.

    1. Applicable BBA check sheets must be saved to the RGS CFD folder and named using required file naming conventions. See RGS Naming Conventions job aid and IRM 4.10.15.10.1, File Naming Convention

    2. A separate miscellaneous issue with a 600 series reference code (SAIN 76XXX under “Miscellaneous Items”) must be created in RGS for BBA check sheets and indexed on Form 4318, Examination Workpaper Index. See Creating Form 4318-600 Items.

  7. BBA Operations will upload the “NforwardX1.zip” file to SAIN 090 via the IMS Team Web Site (TWS), if applicable.

  8. Technical Services will upload the following documents (if applicable) to SAIN 090 (LB&I) or to Case File Documents in RGS (SB/SE) before closing the case to BBA Operations or CCP:

    • Form 3198, Special Handling Notice for Examination Case Processing

    • Form 5344, Examination Closing Record

    • Form 906, Closing Agreement on Final Determination Covering Specific Matters

    • Form 15372, Bipartisan Budget Act (BBA) Chapter 2/2A Revenue Agent Report (RAR) Package Check Sheet

    • Form 15027, Partnership Summary of Approved Modifications and the Imputed Underpayments

    • Form 886-A, Explanation of Items

    • Form 8988, Election for Alternative to Payment of the Imputed Underpayment - IRC Section 6226

    • Letter 5931, Response to Partnership IRC 6226 Election

    • Letter 5933, Notice of Final Partnership Adjustment - Partnership

    • Letter 5933-A, Notice of Final Partnership Adjustment - Partnership Representative

4.31.9.11.4 (05-08-2026)

Case With Adjustments (to Appeals)

  1. After the NOPPA package is prepared, transfer the case file to Technical Services within 30 days.

    Reminder:

    The return should have at least 18 months remaining on the IRC 6235(a)(1) date when received by Technical Services. If the examiner has AIMS control over both the BBA Partnership and Partners, reference the examples in IRM 4.31.9.6.5, Processing Partner Non-Pass-Through Adjustments, for procedures depending on whether the partners agree or disagree with their individual non-BBA adjustments.

  2. Technical Services will review the case, the protest, and the examiner’s rebuttal (such as Letter 5072 or other transmittal method used). If no corrections are warranted, Technical Services will forward the case to Appeals; otherwise, the case will be returned back to the examiner and manager for corrections. Appeals will mail the NOPPA package to the partnership and PR once the Appeals process has been completed.

  3. If applicable, the examiner must prepare and submit a closing package with the following documents for a SECA or NIIT case to resolve the linkage package:

    • Form 4605-A (for Ch 2/2A issues)

    • Form 886-S (for Ch 2/2A issues)

    • Copies of relevant workpapers that support the Ch 2/2A issue

    • Copy of Form 2848 for Ch 2/2A issues (if applicable)

  4. Follow existing procedures to completing Form 5344, Examination Closing Record. See Exhibit 4.31.9-5 (Adjustments to Appeals column) for line items required to be completed.

  5. Complete Form 3198, Special Handling Notice for Examination Case Processing and follow existing procedures except as otherwise provided below:

    1. In the "Forward to Technical Services" section of Form 3198, check the box "Unagreed BBA P/S to Appeals." If applicable, also indicate that Ch 2/2A linkage needs to be addressed.

    2. In the bottom section of page 1 of the form: separately check the box "Forward to Technical Services – Update to Status 21." Include the adjustment amount (same as item 34 on Form 5344). The disposal code should be 08.

  6. Follow the paperless case close procedures based on your BOD for a case with adjustments (to Appeals) in the table below:

    BODs Action Required:
    LB&I examiners Refer to IRM 4.31.9.11.5, LB&I Paperless Case Closing to Technical Services, for general procedures for closing BBA cases paperless to Technical Services. All documents in IMS must follow the MSNC for BBA cases closing paperless to Appeals. Refer to IRM 4.46.6.3(8), Workpaper Organization and Consideration, for guidance on the naming convention.

    Check the SAIN 021 box on the document header in TWS to identify existing IMS case documents relevant to Appeals case closures. Include the following documents (as applicable) in SAIN 021:

    • Form 4665, Report Transmittal

    • Form 1065, U.S. Return of Partnership Income

    • Form 1065-X, Amended Return or Administrative Adjustment Request (AAR)

    • Form 4605-A, Examination Changes - Partnerships, Fiduciaries, S Corporations, and Interest Charge Domestic International Sales Corporations

    • Form 5891, 30 Day Letter - Bipartisan Budget Act Partnership

    • Form 5895, BBA Summary Report Cover Letter

    • Form 14791, Preliminary Partnership Examination Changes, Imputed Underpayment Computation and Partnership Level Determinations as to Penalties, Additions to Tax and Additional Amounts

    • Form 886-A, Explanation of Items, for unagreed issues

    • Workpapers for unagreed issues

    • All correspondence between parties related to unagreed issues

    • IDR responses for unagreed issues

    • Current AMDISA

    • Formal written protest

    • Examiner’s rebuttal

    • Form 872-M(s), Consent to Extend the Time to Make Partnership Adjustments

    • Form 895, Notice of Statute Expiration

    • Penalties with manager approval

    • Form 2848(s), Power of Attorney and Declaration of Representative

    • Appraisals

    • Economist reports

    • International specialist reports

    • Engineer reports

    • MITRE reports (research credit)

    • Taxpayer Digital Communication (TDC) Secure File Sharing - Secure Messaging (SFS-SM) Consent Form or Secure Email Messaging Systems (SEMS) agreement

    • Closing agreement

    Include the following documents (as applicable) in SAIN 090:

    • Form 3198, Special Handling Notice for Examination Case Processing

    • Form 5344, Examination Closing Record

    • Form 4605-A, Examination Changes - Partnerships, Fiduciaries, S Corporations, and Interest Charge Domestic International Sales Corporations (Chapter 2/2A issues only)

    • Form 886-S, Partners' Share of Income, Deduction and Credits (Chapter 2/2A issues only)

    • NOPPA Package

    • Copy of Form 2848, Power of Attorney and Declaration of Representative (POA), for Chapter 2/2A issues (if applicable)


    The case manager or examiner must complete the Appeals Electronic Case Receipt Check Sheet for each case and related case submitted. For example, one for the primary case and one for each related case to be transferred and uploaded to SAIN 090.
    SB/SE examiners Refer to IRM 4.10.15, Report Generation Software, for general electronic case file procedures.

    1. Applicable BBA check sheets must be saved to the RGS CFD folder and named using required file naming conventions. See RGS Naming Conventions job aid and IRM 4.10.15.10.1, File Naming Convention

    2. A separate miscellaneous issue with a 600 series reference code (SAIN 76XXX under “Miscellaneous Items”) must be created in RGS for BBA check sheets and indexed on Form 4318, Examination Workpaper Index. See Creating Form 4318-600 Items.

  7. Once AIMS is updated to status 71, Technical Services will open a new request and upload Form 3198 and the Appeals Electronic Case Receipt Check Sheet for each case and related case submitted to the Appeals Hub and Electronic Case Receipts SharePoint site.

  8. Technical Services will upload the following documents (if applicable) to SAIN 090 (LB&I) or to Case File Documents in RGS (SB/SE) before closing the case to Appeals:

    • Form 3198, Special Handling Notice for Examination Case Processing

    • Form 5344, Examination Closing Record

    • Form 906, Closing Agreement on Final Determination Covering Specific Matters

    • Form 15372, Bipartisan Budget Act (BBA) Chapter 2/2A Revenue Agent Report (RAR) Package Check Sheet

    • Form 15027, Partnership Summary of Approved Modifications and the Imputed Underpayments

    • Form 886-A, Explanation of Items

    • Form 8988, Election for Alternative to Payment of the Imputed Underpayment - IRC Section 6226

    • Letter 5931, Response to Partnership IRC 6226 Election

    • Letter 5933, Notice of Final Partnership Adjustment - Partnership

    • Letter 5933-A, Notice of Final Partnership Adjustment - Partnership Representative

4.31.9.11.5 (05-08-2026)

LB&I Paperless Case Closing to Technical Services

  1. Refer to IRM 4.46.5.11.2.2, General Information for all Paperless Case Closures, for general information on LB&I paperless case closures. Save applicable BBA check sheets to SAIN 724, TEFRA/BBA.

  2. See the following steps in the table below to paperless close a case electronically to Technical Services:

    Steps: Action Required:
    Step 1: Upload documents to IMS Do not print, assemble, or send the paper case file to Technical Services. All required forms and documents that would otherwise be required in a paper case file per IRM 4.10.9.8, Workpapers, and IRM 4.46.6, Workpapers and Reports Resources, must be uploaded to IMS. Refer to IRM Exhibit 4.46.6-1, Uploading Documents to IMS for Paperless Case Closing, for guidance on uploading documents to IMS for virtual case closing. Refer to Exhibit 4.31.9-6 for information on the storage of certain electronic documents and workpapers in IMS.

    Managers must do the following:

    • Review and verify their employees’ required IMS case workpapers for accuracy and completeness

    • Ensure all required documents are uploaded to IMS prior to case closing

    • Review and verify their employees’ electronic workpapers comply with the mandatory standard naming convention (MSNC)

    • Document the review in the examiner’s activity record


    For unagreed cases routed to Appeals, refer to IRM 4.31.9.11.4(6), Case With Adjustments (to Appeals), for a list of documents that must be added to SAIN 021 by checking the SAIN 021 box on the document header in IMS.
    Step 2: Close case electronically to Technical Services and remove from IMS
    Case closing documents are required under SAIN 090. Check the SAIN 090 box on the document header in TWS to identify case closing documents already created and uploaded under a different SAIN.

    The required case closing documents will depend on your case closing scenario below:

    • No-change (no adjustment and no PCS linkage) - See IRM 4.31.9.11.1(3)

    • No-change (with adjustment and/or PCS linkage) - See IRM 4.31.9.11.2(6)

    • Case with adjustments (no Appeals) - See IRM 4.31.9.11.3(6)

    • Case with adjustments (to Appeals) - See IRM 4.31.9.11.4(6)



    Once the case reaches status 21, the examiner must close and remove the case from IMS.

    Note:

    When updating ERCS to status 21, the ERCS user will be prompted if the file is an electronic case file. Answer “Y” to the question, “Is this an electronic case file (Y/N)?”. Ensure AIMS reflects status 21 before proceeding. AIMS status generally updates the day after the ERCS status updates. Form 3210 is generated via ERCS when the case is updated to status 21. Technical Services will acknowledge receipt of the electronic case file via ERCS.

    Note:

    IRM 4.10.9.12, Case File Assembly for Closing Physical Administrative Case File, provides guidance for forms and documents needed for case file assembly and closing. The forms and documents listed are not required for every case, however, there may be additional forms and documents that need to be uploaded in IMS. Review IRM 4.10.9.12 to ensure all applicable case closing forms and documents are properly uploaded in IMS. Verify all documents can be opened and are readable after upload. Once all required documents are uploaded in IMS, the case can close electronically to Technical Services Legacy and closed off IMS. The exam group must select the correct Technical Services Code for routing to the correct Technical Services Legacy group.


    Refer to IRM 4.31.9.11.6, BBA Imminent Statute Procedures, for imminent statute procedures, if applicable.
    Step 3: Upload RGS zip file (Completed by BBA Operations) BBA Operations will upload the “NforwardX1.zip” file to SAIN 090 via the IMS TWS, if applicable. The manager must review the NForwardX1.zip file to ensure all documents load properly in RGS.
    Step 4: Upload final closing forms and letters in IMS (Completed by Technical Services) Technical Services will upload any revised documents and final closing letters to SAIN 090 via the IMS TWS such as:

    • Form 3198, Special Handling Notice for Examination Case Processing

    • Form 5344, Examination Closing Record

    • Form 906, Closing Agreement on Final Determination Covering Specific Matters

    • Form 15372, Bipartisan Budget Act (BBA) Chapter 2/2A Revenue Agent Report (RAR) Package Check Sheet

    • Applicable closing letter(s)

    • Form 15292, Case Closing Cover Sheet, for cases closing to CCP
4.31.9.11.6 (05-08-2026)

BBA Imminent Statute Procedures

  1. A BBA partnership case no-change (no adjustment and no PCS linkage) with less than 4 months remaining on the IRC 6235(a)(1) statute of limitations at the time the case is received by CCP is considered imminent.

  2. A BBA partnership case no-change (with adjustments and/or PCS linkage) with less than 6 months remaining on the IRC 6235(a)(1) statute of limitations at the time the case is received by Technical Services is considered imminent. The imminent statute procedures must be followed below:

    1. Discussion between the field examiner and field exam manager concerning the circumstances surrounding the imminent statute.

    2. Document the discussion in the case activity record.

    3. The field exam manager should contact the appropriate TSPC group manager. Look at the Technical Services Pass-Through Coordinators List on Knowledge Management to locate the correct TSPC group manager. The TSPC group manager will provide the field exam manager with instructions on how to proceed. The TSPC group manager will request the field examiner to either physically ship or e-mail the case file to the TSPC to review. For paperless case files, the exam team will provide the TSPC group manager the electronic case file information (e.g., IMS case ID, TIN, etc.). The field exam will keep ERCS/AIMS control over the case until the TSPC is ready to prepare the no-change Letter 6099 and Letter 6099-A and move the case to CCP.

    4. When the TSPC authorizes transfer of the case and case controls to Technical Services, the field examiner will be instructed to physically ship the case if they previously submitted electronic records only (see item c above within this subsection) for paper case files. The field exam manager is to follow-up with the TSPC’s group manager to ensure receipt of the case.

  3. A BBA partnership case with adjustments (no Appeals) with less than 12 months remaining on the IRC 6235(a)(1) statute of limitations at the time the case is received by Technical Services is considered imminent. The imminent statute procedures must be followed below:

    1. Discussion between the field examiner and field exam manager concerning the circumstances surrounding the imminent statute.

    2. Document the discussion in the case activity record.

    3. The field exam manager should contact the appropriate TSPC group manager when the case is ready for Technical Services to start their review. Look at the Technical Services Pass-Through Coordinators List on Knowledge Management to locate the correct TSPC group manager. The TSPC group manager will provide the field exam group manager with instructions on how to proceed. For paperless case files, the exam team will provide the TSPC group manager the electronic case file information (e.g., IMS case ID, TIN, etc.). When Technical Services accepts the work, the Technical Services group manager or the TSPC will instruct the field group to update the tax return module on ERCS by completing Form 5348 , AIMS/ERCS Update (Examination Update) with the appropriate suspense code (see table below) for that Technical Services group with an action date as 5 days prior to the IRC 6235(a)(1) statute date.

      Note:

      The table below lists the appropriate suspense code for a particular Technical Services PTE group:

      Technical Services PTE Group Group Number Suspense code
      TEFRA West Grp 1935 224
      TEFRA East Grp 1931 225
      PTE Grp 1760 226
      PTE 2 Grp 1761 227

    4. The TSPC or their group manager will either: (1) Provide a list of case file documents to the field group to be emailed to the TSPC; (2) Request LB&I to provide the IMS case ID, TIN, etc. (or after 2025 IMS release, assign the TSPC as an IMS team member); or (3) Request SB/SE field group to forward the RGS case file to the TSPC’s RGS group. The field group will keep ERCS/AIMS control over the case (status 12) while the TSPC reviews the NOPPA package.

    5. Once the TSPC has issued the NOPPA, they will authorize the transfer of the case and case controls to Technical Services in status 21, then the field examiner will be instructed to physically ship the case if they previously submitted electronic records only (see item d above) for paper case files. The field exam manager is to follow-up with the TSPC’s group manager to ensure receipt of the case, monitoring the case is updated out of status 21.

  4. A BBA partnership case with adjustments (to Appeals) with less than 18 months remaining on the IRC 6235(a)(1) statute of limitations at the time the case is received by Technical Services is considered imminent. The imminent statute procedures must be followed:

    1. Discussion between the field examiner and field exam manager concerning the circumstances surrounding the imminent statute.

    2. Document the discussion in the case activity record.

    3. If there are less than 18 months remaining on the IRC 6235(a)(1) statute of limitations, the field examiner needs to inform the partnership that the case cannot go to Appeals unless a Form 872-M is secured and executed with at least 18 months remaining on the IRC 6235(a)(1) statute of limitations.

      Caution:

      If a Form 872-M cannot be secured, the case cannot go to Appeals. In this event, the field examiner will need to revise the appropriate forms (Form 3198, etc.) and close the case to Technical Services for issuance of a NOPPA. If there are more than 12 months remaining on the IRC 6235(a)(1) statute of limitations, follow normal closing procedures. If less than 12 months remain on the IRC 6235(a)(1) statute of limitations, adhere to imminent statute procedures.

4.31.9.12 (05-08-2026)

Special Enforcement Matters for Partnership-Related Items

  1. This subsection addresses special enforcement matters under IRC 6241(11) and 26 CFR 301.6241-7.

  2. IRC 6241(11) provides that, in the case of PRIs which involve a special enforcement matter, the IRS may prescribe regulations to provide that subchapter C of Chapter 63 of the IRC (or a portion thereof) does not apply to that PRI and subject the PRI to special rules, including rules related to assessment and collection. For activities that fall under special enforcement matters, see IRM 4.31.9.12.2, Conditions for Special Enforcement Activities.

  3. IRC 6241(11) allows the IRS to “turn off” the partnership-level procedures under BBA in certain situations as described below and proceed directly against a partner or indirect partner under the deficiency procedures via a partner-level examination. Consider the following on partner-level proceedings:

    • The application of IRC 6241(11) dictates that none of the other partners, or the partnership, become parties to the proceeding. No determination from a proceeding under IRC 6241(11), related to a partner or indirect partner is binding on the partnership or other partners.

    • Determinations about partnership-related items made under IRC 6241(11) and 26 CFR 301.6241-7 are not binding on any person, including the partnership, who was not a party to the proceeding.

  4. Special enforcement matters will not apply, and an item will not be adjusted at the partner level if the partner or indirect partner demonstrates the following:

    • The adjustment was included in an imputed underpayment paid by the partnership or pass-through partner for a taxable year in which the direct or indirect partner was a reviewed year partner, but only to the extent the adjustment exceeds the original amount reported by the partnership to the partner or indirect partner (that is, the partner needs to have reported the original amounts reported by the partnership to the partner).

    • The partner or indirect partner had previously taken the adjustment into account under the centralized partnership audit regime examination. The adjustment is made both in an examination of the partnership and of a partner, and the partner demonstrates that the adjustment was previously taken into account by the partner in an examination under the centralized partnership audit regime by the filing of a partner modification amended return (PMAR), partner alternative procedure (PAP), or alternatively through the reporting of a push out statement.

  5. Any special enforcement matters require a mandatory referral to the BBA POC. To request a BBA POC, see IRM 4.31.9.7.2, Mandatory Referral to the BBA Point of Contact (POC), for further instructions.

4.31.9.12.1 (05-08-2026)

Applicable Dates of Special Enforcement Matters

  1. Special enforcement provisions apply to partnership taxable years ending on or after November 20, 2020, except for the following under 26 CFR 301.6241-7:

    • 26 CFR 301.6241-7, paragraph (b), Partnership-related items underlying items that are not partnership-related items, apply to partnership taxable years beginning after December 20, 2018.

    • 26 CFR 301.6241-7, paragraph (j), Elections resulting in payments to a partnership, apply to taxable years ending on or after June 21, 2023.

  2. Upon agreement between the partner under examination and the IRS, any provisions of 26 CFR 301.6241-7 except for paragraph (b) relating to partnership-related items underlying items that are not partnership-related items, may apply to any taxable year of a partner that relates to a partnership taxable year subject to subchapter C of Chapter 63 that ended before November 20, 2020.

  3. A partnership and the IRS may agree to apply the provisions related to penalties and taxes imposed under Chapter 1 to any partnership taxable year ended before November 20, 2020, that is subject to subchapter C of Chapter 63.

4.31.9.12.2 (05-08-2026)

Conditions for Special Enforcement Activities

  1. The IRS may determine that BBA (subchapter C of Chapter 63 of the IRC) does not apply to adjustments to partnership-related items when the conditions are met under the special enforcement activities as described under IRC 6241(11)(B). Therefore, the IRS may adjust any partnership-related items which involve special enforcement matters with respect to such partner or indirect partner as described in the following paragraphs below.

  2. Partnership-related items underlying items that are not partnership-related items, if all the following conditions are met:

    1. You are conducting an examination of a person other than the partnership,

    2. A partnership-related item must be adjusted, or a determination regarding a partnership-related item must be made, as part of an adjustment to items that are not partnership-related items of the person whose return is being examined, and

    3. The treatment of the partnership-related item on the return of the partnership or in the partnership’s books and records was based in whole or in part on information provided by, or under the control of, the person whose return is being examined. The information provided by the partner that forms the basis of the reporting by the partnership must come from the partner’s own books and records, not the books and records of the partnership.

  3. Termination and jeopardy assessment: For any taxable year of a partner or indirect partner for which an assessment of income tax under IRC 6851 or IRC 6861 is made, the IRS may adjust any partnership-related item with respect to such partner or indirect partner as part of making an assessment of income tax under IRC 6851 or IRC 6861 without regard to BBA. See 26 CFR 301.6241-7(c).

  4. Criminal investigation: For any taxable year of a partner or indirect partner, the IRS can adjust a partnership-related item of a partner or indirect partner for which the partner or indirect partner is under criminal investigation without having to make an adjustment in a partnership proceeding under BBA. See 26 CFR 301.6241-7(d).

  5. Indirect methods of proof of income: For any taxable year of a partner or indirect partner for which a deficiency is determined using indirect methods of proof of income, a partnership-related item can be adjusted as part of any deficiency without having to make the adjustment in a partnership proceeding under the BBA regime if the deficiency is determined using indirect methods of proof of income. See 26 CFR 301.6241-7(e).

  6. Special relationships and the partner’s period of limitations (See 26 CFR 301.6241-7(f)): The IRS may adjust any partnership-related items that relate to any item or amount on the partner’s return in a partner-level examination if the period for making adjustments against the partnership under IRC 6235 has expired for the taxable year, the period of limitation for the partner or indirect partner has not expired and:

    1. The partner or indirect partner is related as defined under IRC 267(b) or IRC 707(b), or

    2. The period to make assessment against the partner or indirect partner is still open and the partner or indirect partner agrees to extend the period of limitations under IRC 6501(c)(4), in writing, that expressly provides that the partner is extending the time to adjust and assess any tax attributable to partnership-related items for the taxable year.

  7. Penalties and taxes imposed on the partnership under Chapter 1: Adjustments can be made to any tax, penalties, additions to tax, or additional amounts imposed on, and which are the liability of the partnership under Chapter 1 without regard to subchapter C of Chapter 63. This does not apply to any adjustments to an imputed underpayment since an imputed underpayment is a tax imposed by subchapter C of Chapter 63, not Chapter 1.

    Example:

    Partnership Chapter 1 liabilities include, but are not limited to, a real estate mortgage investment conduit (REMIC) liability under IRC 860F or IRC 860G, or a partnership that has self-certified as a qualified opportunity fund under IRC 1400Z-2(d)(1) with a related liability under IRC 1400Z-2.

  8. Elections resulting in payments to a partnership: The IRS may adjust any election that results or could result in a payment to the partnership in lieu of a federal tax credit or deduction. The IRS may also make determinations, without regard to subchapter C of Chapter 63, about the payment itself as well as any partnership-related item relevant to adjusting the election or the payment.

    Example:

    This includes but is not limited to IRC 6417, Elective payment of applicable credits.

4.31.9.12.3 (05-08-2026)

Notification Requirements When BBA Does Not Apply Due to Special Enforcement Matters

  1. If you determine that some or all the rules under subchapter C of Chapter 63 do not apply due to IRC 6241(11), you are required to provide notification in writing to the taxpayer to whom the adjustments are being made at that taxpayer’s last known address on record with the IRS. Run IDRS (INOLES) to obtain the most recent address.

    1. Provide the required notification and send to the direct or indirect partner. See 26 CFR 301.6241-7(b) thru (e), and (h).

    2. Provide the required notification and send to the partnership. See 26 CFR 301.6241-7(f) and (h).

4.31.9.13 (05-08-2026)

Early Elections

  1. This subsection addresses elections into the BBA regime by partnerships for tax periods beginning after November 2, 2015 and before January 1, 2018.

  2. Section 1101(g)(4) of the BBA regime provides that partnerships may "early elect in" to have the BBA procedures apply to partnerships with returns filed for tax periods beginning after November 2, 2015 and before January 1, 2018. Per 26 CFR 301.9100-22, this election generally may only be made within 30 days of the date the IRS first notifies a partnership in writing that its return has been selected for examination.

  3. Either the tax matters partner (TMP) or an individual authorized to sign the partnership return for the tax year under examination is authorized to make this election for any partnership return filed for tax periods beginning after November 2, 2015, and before January 1, 2018. A power of attorney (POA), in general, does not have the authority to make this election. The fact that an individual signs and dates the election statement under penalty of perjury shall be prima facie evidence that the individual is authorized to make the election on behalf of the partnership. See 26 CFR 301.9100-22(b)(2)(ii) .

  4. This election may be made within 30 days of the date the IRS first notifies the partnership in writing that the partnership has been selected for examination. This election can be made for any timely filed, late filed or non-filed partnership return as long as the election is made within 30 days from the date of written notification of the selection for examination. The date that the return is filed or a substitute for return is prepared does not matter for purposes of this election. The election must be provided to the individual identified in such notice as the IRS contact for the examination. 26 CFR 301.9100-22(a) states that partnerships may not request an extension of time for making this election.

  5. After January 1, 2018, this election may also be made when filing an administrative adjustment request (AAR) under IRC 6227 as amended by the BBA for tax periods beginning after November 2, 2015, and before January 1, 2018. See IRM 4.31.9.13.3, Early Elections Made with Administrative Adjustment Requests (AARs), for details.

  6. This election may not be made if, prior to making such election:

    • An AAR has been filed (or deemed to have been filed) on behalf of a TEFRA partnership under IRC 6227(c) (prior to amendment by the BBA regime), or

    • An amended return of a non-TEFRA partnership has been filed (or deemed to have been filed) under IRC 6227.

    For the rules regarding when an AAR or amended return is deemed to have been filed, see 26 CFR 301.9100-22(c)(4) .

  7. To make the election, the partnership can use Form 7036, Election Under Section 1101(g)(4) of the Bipartisan Budget Act of 2015. If Form 7036 is not used, the partnership may prepare its own statement:

    • The election must be in writing and include a statement that the partnership is electing to have the BBA regime apply to the partnership return for the tax year identified in IRS Letter 2205-D.

    • "Election under Section 1101(g)(4)" must be at the top of the statement.

    • The statement must be signed and dated by the TMP or an individual that has the authority to sign the partnership return for the tax year under examination.

    The Form 7036 or statement must be provided to the examiner conducting the audit within 30 days from the date of Letter 2205-D. If the election is mailed, the date of the postmark should be used to determine if timely filed.

  8. Once made, this election may only be revoked with the consent of the IRS. See 26 CFR 301.9100-22(a). Examiners should immediately contact a BBA POC if they subsequently receive a request to revoke the election. See IRM 4.31.9.7.2, Mandatory Referral to the BBA Point of Contact (POC).

4.31.9.13.1 (07-10-2020)

Information to be Included in the Election Statement

  1. Pursuant to 26 CFR 301.9100-22(b)(2)(ii), the election statement must include:

    • The partnership’s name, taxpayer identification number and tax year to which the election statement applies.

    • The name, address, daytime telephone number and taxpayer identification number of the partnership representative under IRC 6223 (as amended by the BBA) for the tax year to which the election statement applies.

    • A representation that the partnership is not insolvent and does not reasonably anticipate becoming insolvent before resolution of any adjustment for the partnership tax year for which the election is being made.

    • A representation that the partnership is not currently and does not reasonably anticipate becoming subject to a bankruptcy petition (voluntary or involuntary) under Title 11 of the United States Code.

    • A representation that the partnership has and reasonably anticipates having sufficient assets to pay a potential imputed underpayment that may be determined during the partnership examination.

    • The name, taxpayer identification number, address and telephone number of the individual who signs the election statement.

    • A representation signed under penalties of perjury that the individual signing the election statement is duly authorized to make the election and that, to the best of their knowledge and belief, the election statement is true, correct and complete.

4.31.9.13.2 (07-10-2020)

Examiner Procedures

  1. Examiners should do the following if they receive an election:

    • Immediately notify the IRS "BBA point of contact (BBA POC)" designated to monitor elections and/or provide subject matter expertise regarding the BBA.

    • Verify that no AAR or amended return was filed (or deemed to have been filed) by the partnership for the partnership tax year for which an election is being made.

    • If the taxpayer uses Form 7036 to make the election, ensure all required elements are properly completed.

    • If Form 7036 is not used, ensure the election statement complies with the requirements of 26 CFR 301.9100-22 as previously discussed.

    • If additional information is needed, and time permits, the taxpayer should be notified as soon as possible. All required information must be received within 30 days of the date of the IRS notice of selection for examination for the election to be valid. There is no extension to this 30-day period.

    • Determine whether the election statement is valid; this determination requires management concurrence. If the election is considered valid, provide a copy of the election statement to the BBA POC.

    • If the election is invalid, contact the BBA POC for next steps and follow the existing TEFRA or non-TEFRA (ILSC) procedures accordingly.

  2. The IRS must wait at least 30 days after a valid election is received before issuing a notice of administrative proceeding (NAP) in case the partnership wants to file an AAR under IRC 6227 as amended by the BBA. During this 30-day period, the examiner should conduct a cursory check to ensure that the partnership representative identified on Form 7036 or other election statement meets the requirements of 26 CFR 301.9100-22(b)(2)(ii)(D) . This cursory check will include basic research to ensure the name, taxpayer identification number, address, and daytime telephone number of the partnership representative are correct.

  3. If the election into the BBA regime is valid, the examiner should do the following relative to case file documentation and ERCS/AIMS updates:

    • Complete a second Form 15260, Determination of Pass-through Audit Regime, and retain the original determination (pre-election) Form 15260 and other check sheets in the administrative file.

    • Notate in the activity record that election was received, reviewed, etc., and that a copy was provided to the BBA POC.

    • Ensure ERCS/AIMS is updated to set the TEFRA indication to "N" for non-TEFRA.

    • If the field is currently unused, set the Aging Reason Code (ARC) to "100."

    • Ensure the value of the "EARLY-ELECT-INTO-BBA-CD" is "1" to indicate the return is subject to the BBA regime. Notate the change in the "PBBA" section of Form 5348.

    • Set the "IRC 6235A1-PPA-DEADLINE-DT" (format as "MMDDYYYY" ), which is the later of: 3 years after the date the return was due; 3 years after the date the return was filed; or 3 years after an AAR is filed.

      Note:

      Generally, the IRC 6235(a)(1) date will match the statute date (ASED) field on AIMS. (Contact the BBA POC if there are any questions about IRC 6235(a)(1) or if there is an AAR)

    • After the issuance of the NAP, update AIMS/ERCS to include the NAP date (format as "MMDDYYYY" ).

    • Associate election with related items in the flow-through administrative file or workpapers. LB&I examiners will use SAIN 724 and UIL 6221B. SB/SE examiners will use Section 600.

    • Refer to IRM 4.31.9.1.7, Related Resources, for links to additional BBA procedures.

4.31.9.13.3 (05-08-2026)

Early Elections Made with Administrative Adjustment Requests (AARs)

  1. This subsection describes procedures for examiners and managers when an AAR is filed under the BBA regime (BBA AAR) with respect to partnership tax years beginning after November 2, 2015 and before January 1, 2018, where the partnership elects to be subject to the BBA regime for such tax year. Form 15260, Determination of Pass-through Audit Regime, and Form 15262, BBA Audit Procedures Checklist, have been updated to accommodate Early Elections into the BBA.

  2. 26 CFR 301.9100-22 provides that a partnership may file a BBA AAR for an eligible tax year to have the BBA regime apply to that tax year. A partnership may not file a BBA AAR solely for the purpose of changing the designation of the partnership representative as described in IRC 6223 as amended by the BBA.

  3. Only partnerships may file a BBA AAR. A partner may file a BBA AAR on behalf of the partnership if they are acting in the capacity of a PR or the partner is the TMP filing an AAR for an eligible tax year together with an election into the BBA regime. See 26 CFR 301.9100-22(b)(2)(ii).

  4. Generally, under IRC 6227(c) as amended by BBA, a partnership may file a BBA AAR within 3 years after the later of: (1) the date of filing the partnership return, or (2) the due date of the return without regard to extensions. A partnership that receives a notification of selection for examination (Letter 2205-D) for partnership tax years beginning after November 2, 2015 and before January 1, 2018, may elect to apply the BBA regime to the partnership return filed for that tax year within 30 days from the date of Letter 2205-D. Once a valid election is made, the partnership has an additional 30 days to file a BBA AAR.

  5. In no event, may a partnership file a BBA AAR after a notice of administrative proceeding (NAP Letter 5893 and Letter 5893-A) has been mailed by the IRS for that partnership tax year.

  6. A BBA AAR should be filed with the IRS service center where the original return was filed. In the case of a BBA AAR filed for a tax year after being selected for examination (but before the NAP has been issued), the partnership should also provide a copy of the BBA AAR to the examiner.

  7. If the AAR is filed electronically, the partnership uses Form 1065, U.S. Return of Partnership Income (marking the amended return box), and Form 8082, Notice of Inconsistent Treatment or Administrative Adjustment Request (AAR) (marking the BBA AAR box in Part 1 and completing the appropriate items a-e). The partnership also includes a statement, "Election under Section 1101(g)(4)," with the required information. The January 2019 through December 2024 instructions to Form 8082 provide details on requirements.

  8. If the AAR is filed on paper, the partnership uses Form 1065-X, Amended Return or Administrative Adjustment Request (AAR), marks the BBA AAR box in Part I, completes the appropriate items a-e in Section 2, and completes Part IV (if necessary). The phrase "Election under Section 1101(g)(4)," should be written across the top of the Form 1065-X and a statement attached with the required information. The January 2019 through August 2023 instructions to Form 1065-X provide details on requirements.

  9. For information regarding eligibility to elect into the BBA regime and for how to make an election, see 26 CFR 301.9100-22.

  10. If an examiner is assigned a BBA AAR for examination that was filed with the service center on or after January 1, 2018, they should immediately notify the BBA POC. The BBA POC will assist the examiner on how to:

    • Confirm that the BBA AAR is valid and includes all of the information required by the statute and applicable regulations.

    • Ensure that the BBA AAR was filed before the issuance of the NAP.

    • Discuss if an update to the statute of limitations (SOL) on making adjustments under IRC 6235(a)(1)(C) is appropriate and if so, how to update that SOL.

    • Proceed with the examination.

  11. If an examiner receives a BBA AAR directly from the taxpayer they are auditing, they should immediately notify the BBA POC. The BBA POC will assist the examiner on how to do the following and determine next steps:

    • Confirm whether the BBA AAR was filed with the service center and if so, assist the examiner with requesting a copy from the service center for reconciliation purposes. If the taxpayer files the original BBA AAR directly with the examiner, the examiner should date stamp the AAR, make a copy for the case file and forward the AAR to the service center where the original return was filed.

    • Confirm that the BBA AAR is valid and includes all the information required by the statute and applicable regulations.

    • Confirm that the BBA AAR is timely filed. Ensure that the BBA AAR was filed before the issuance of the NAP when the tax year is under examination.

    • Discuss if an update to the statute of limitations (SOL) on making adjustments under IRC 6235(a)(1)(C) is appropriate, and if so, how to update that SOL.

Exhibit 4.31.9-1

Example 1 - $1,000,000 Adjustment to Sch K, line 1 Ordinary Income and $1,000,000 Adjustment to Sch K, line 14 NESE - IRC 6501(c)(12) applies

Facts:

  • The IRS is auditing ABC, LLC, a partnership subject to the BBA, for 2021.

  • ABC, LLC is in the trade or business of manufacturing widgets.

  • ABC, LLC reported $2,000,000 of net income on its originally filed return.

  • ABC, LLC has 4 members.

ABC LLC’s Form 1065, Schedule K and K-1s report the following:

Line Description Schedule K Ptnr 1 - GP Ptnr 2 - GP Ptnr 3 - GP Ptnr 4 - GP
1 Ordinary business income (loss) $2,000,000 $500,000 $500,000 $500,000 $500,000
14 Net earnings from self-employment $2,000,000 $500,000 $500,000 $500,000 $500,000
20c Code Z 199A QBI $2,000,000 $500,000 $500,000 $500,000 $500,000

Audit Results

The IRS proposes the following adjustments:

  • Adjustment to Line 1 $1,000,000

  • Adjustment to Line 14 $1,000,000

  • Adjustment to Line 20c Code Z $1,000,000

BBA Audit Reports - Form 14791 and Form 14792:

The BBA Partnership adjustments included in the IU calculation:

  • Adjustment to Line 1 $1,000,000

  • Adjustment to Line 14 $0, duplicative - IRS discretion

  • Adjustment to Line 20c Code Z $0, duplicative - IRS discretion

All adjustments are included in the residual grouping and individually sub-grouped by Sch K reporting line.

Note:

The BBA Imputed Underpayment is $370,000 (the sole adjustment to Line 1 in the amount of $1,000,000 multiplied by the highest tax rate in effect under IRC 1 or IRC 11)

.

The BBA Form 14791 and Form 14792 would include the following footnotes about the two adjustments treated as zero for purposes of computing the IU:

Other information: The following adjustments are considered zero amount adjustments because such adjustments are already reflected in one or more other partnership adjustments. Therefore, solely for purposes of calculating the imputed underpayment, such adjustments are treated as zero pursuant to 26 CFR 301.6225-1(b)(4) :

Grouping: Residual

  • Subgrouping: Sch K - Net Earnings from Self Employment;

  • Sch K/K1 Line 14c NESE $1,000,000

Grouping: Residual

  • Subgrouping: Sch K - Qualified Business Income (QBI) Deduction - Section 199A QBI (code Z);

  • Sch K/K1 Line 20c Code Z 199A Qualified Business Income $1,000,000

BBA Ch 2/2A Procedures:

Deficiency adjustment(s) made Partnership F4605-A Ptnr 1 - GP F886-S Ptnr 2 - GP F886-S Ptnr 3 - GP F886-S Ptnr 4 - GP F886-S
Sch K/K-1 Line 1, Ordinary business income (loss) $1,000,000 $250,000 $250,000 $250,000 $250,000
Sch K/K-1 Line 14, NESE $1,000,000 $250,000 $250,000 $250,000 $250,000
Sch K/K-1, Line 20c Code Z, 199A QBI Amount $1,000,000 $250,000 $250,000 $250,000 $250,000

Explanation (write in other information section of the Form 4605-A):

  • In a correlative audit of this partnership under the BBA Regime, the above partnership adjustments were made.

  • IRC 6241(9) states that partnership adjustments determined under Subchapter C of Chapter 63 of the IRC shall be taken into account for purposes of determining any such tax under Chapter 2 and/or 2A of the IRC to the extent such adjustment is relevant to such determination.

Form 886-A - SECA Tax at the Form 1065 level for the adjustment to line 14a and separately attach to Form 4605-A :

  • Fact: the partnership originally reported all 4 partners’ distributive share of the partnership's trade or business as NESE on Sch K/K-1, line 14.

  • Law: IRC 6241(9) states that any partnership adjustment made in a BBA audit shall be taken into account for purposes of determining any such tax under Ch 2/2A to the extent that such adjustment is relevant to such determination.

  • Determination: The IRS is computing NESE in the same manner as the partnership, and is adjusting Sch K/K-1 by the same amount as the partnership’s adjustment made in the BBA proceeding to Sch K L1 for the 4 partners to which the partnership did

Field BBA Ch 2/2A Procedures:

  • Simultaneously issue BBA Summary Report and Form 4605-A, Examination Changes. Both summary reports can be issued to a PR since an adjustment to line 14 is an adjustment to a PRI.

  • There is no cover letter for the partnership Form 4605-A; notate on Letter 5895 at the bottom that Form 4605-A is included as an enclosure.

BBA Ch 2/2A Team BBA Ch 2/2A Procedures (General Information for Field Exam Reference):

  • Issue partner Forms 4549 and cover letters (Letter 525-D 30-day letter or campus equivalent).

  • The BBA Ch 2/2A Team will assess SECA tax to each partner based on their adjustment to Sch K/K-1, line 14.

Exhibit 4.31.9-2

Example 2 - $1,000,000 Adjustment to Sch K Portfolio Income Items - IRC 6501(c)(12) applies

Facts:

  • The IRS is auditing ABC, LLC, a partnership subject to the BBA, for 2021.

  • ABC, LLC is an investment partnership.

  • ABC, LLC reported $1,000,000 of interest, dividends and capital gains on its originally filed return.

  • ABC, LLC reported dividend equivalents and investment income.

  • ABC, LLC has 4 members.

ABC LLC’s Form 1065, Schedule K and K-1s report the following:

Line Description Schedule K Ptnr 1 - GP Ptnr 2 - GP Ptnr 3 - LP Ptnr 4 - LP
5 Interest Income $200,000 $50,000 $50,000 $50,000 $50,000
6 Dividends and dividend equivalents $400,000 $100,000 $100,000 $100,000 $100,000
6b Qualified dividends $400,000 $100,000 $100,000 $100,000 $100,000
9a Net LTCG $400,000 $100,000 $100,000 $100,000 $100,000
20a Investment Income $600,000 $150,000 $150,000 $150,000 $150,000

BBA Audit Results:

BBA Partnership adjustments made:

  • Adjustment to Line 6 $300,000

  • Adjustment to Line 6b $300,000

  • Adjustment to Line 9a $700,000

  • Adjustment to Line 20a $300,000

BBA Audit Reports - Form 14791 and Form 14792:

The BBA Partnership adjustments included in the IU calculation:

  • Adjustment to Line 6 $300,000

  • Adjustment to Line 6b $0, duplicative - IRS discretion

  • Adjustment to Line 9a $700,000

  • Adjustment to Line 20a $0, duplicative - IRS discretion

All adjustments are included in the residual grouping and individually sub-grouped by Sch K reporting line.

Note:

The BBA Imputed Underpayment is $370,000 (the sum adjustments to Line 6 in the amount of $370,000 and to Line 7a in the amount of $700,000 multiplied by the highest tax rate in effect under IRC 1 or IRC 11)

.

The BBA Form 14791 and Form 14792 would include the following footnotes about the two adjustments treated as zero for purposes of computing the IU:

Other information: The following adjustments are considered zero amount adjustments because such adjustments are already reflected in one or more other partnership adjustments. Therefore, solely for purposes of calculating the imputed underpayment, such adjustments are treated as zero pursuant to 26 CFR 301.6225-1(b)(4) :

Grouping: Residual

  • Subgrouping: Sch K - Qualified dividends;

  • Sch K/K1 Line 6bc Qualified dividends $300,000

Grouping: Residual

  • Subgrouping: Sch K - Investment income;

  • Sch K/K1 Line 20a Investment income $300,000

BBA Ch 2/2A Procedures:

Deficiency adjustments made Partnership F4605-A Ptnr 1 - GP F886-S Ptnr 2 - GP F886-S Ptnr 3 - LP F886-S Ptnr 4 - LP F886-S
Sch K/K-1 Line 6, Dividends and dividend equivalents $300,000 $75,000 $75,000 $75,000 $75,000
Sch K/K-1 Line 6b, Qualified dividends $300,000 $75,000 $75,000 $75,000 $75,000
Sch K/K-1, Line 9a, Net LTCG $700,000 $175,000 $175,000 $175,000 $175,000
Sch K/K-1, Line 20a, Investment income $300,000 $75,000 $75,000 $75,000 $75,000

Explanation (write in other information section of the Form 4605-A):

  • In a correlative audit of this partnership under the BBA Regime, the above partnership adjustments were made.

  • IRC 6241(9) states that partnership adjustments determined under Subchapter C of Chapter 63 of the IRC shall be taken into account for purposes of determining any such tax under Chapter 2 and/or 2A of the IRC to the extent such adjustment is relevant to such determination.

Form 886-A - NIIT to be attached to Form 4605-A :

  • Fact: the partnership is an investment partnership.

  • Law: IRC 6241(9) states that any partnership adjustment made in a BBA audit shall be taken into account for purposes of determining any such tax under Ch 2/2A to the extent that such adjustment is relevant to such determination.

  • Determination: All partners are subject to NIIT (IRC 1411) on interest, dividends and portfolio capital gains. All Sch K/K-1 reported amounts would be subject to NIIT in the hands of all partners, general or limited.

Field BBA Ch 2/2A Procedures:

  • Issue BBA summary report to PR.

  • Issue Form 4605-A to the partnership when issuing the summary report package. The PR cannot receive Form 4605-A since NIIT is not a PRI.

BBA Ch 2/2A Team BBA Ch 2/2A Procedures (General Information for Field Exam Reference):

  • Issue partner Forms 4549 and cover letters (Letter 525-D 30-day letter or campus equivalent).

  • The BBA Ch 2/2A Team will assess NIIT tax to each partner per the Form 886-A - NIIT.

Exhibit 4.31.9-3

Options for Partnership Representative Notices

Form 8979 Part I Box Combinations Selected Submitted by the Determined to be VALID - Issue Letter(s) Determined to be INVALID - Issue Letter(s)
(1)

See footnote 1 below.		 The partnership is designating an individual or entity partnership representative (PR) and appointing a designated individual (DI) if the PR is an entity.

Note:

A valid designation of a PR automatically revokes an existing PR designation (and DI appointment).

  1. Letter 6053, paragraph A

  2. Letter 6007, paragraph A (if there was a PR designation in effect at the time the Form 8979 was received)

  3. Letter 6008, paragraph A



See footnote 2 below. 		If there was a PR designation in effect at the time the Form 8979 was received:

  1. Letter 6053, paragraph D ln 2

  2. Letter 6007, paragraph B



If there was no PR designation in effect at the time the Form 8979 was received, see footnote 3 below.
(2) The partnership representative or designated individual is resigning.

Note:

If an entity partnership representative validly resigns, the appointment of the DI is also terminated.

  1. Letter 6053, paragraph C ln 4 for PR, and ln 5 for DI, see footnote 4 below.

  2. Letter 6007, paragraph A

  1. Letter 6053, paragraph D ln 1

  2. Letter 6007, paragraph B

Note:

You may encounter combinations of resignations, designations with or without revocations, and appointments with or without revocations not contemplated by this guidance. Additionally, you may have questions prior to making any determinations about a PR or DI, if the PR is an entity. If so, contact a BBA POC.

Footnote 1: If you receive multiple Form 8979 designations within a 90-day period, you may (but are not obligated to) declare that “no partnership representative designation is in effect” if you determine that the repetitive designations result in a negative impact on achieving an efficient and effective audit. See IRM 4.31.9.7.6.3, Multiple Designations by the Partnership Within the 90-day Period, for these procedures.

Footnote 2: If Form 8979 is received after the IRS has made a designation of the partnership representative, see IRM 4.31.9.7.6.8(7), IRS’s Selection of a PR, for the notice requirement instructions. Otherwise, follow the notice instructions in the table.

Footnote 3: Form 8979 was for an attempted designation:

  • If the IRS had previously declared no PR designation in effect, issue Letter 6053, paragraph C, and check box 7 (“other reason”) and explain an invalid Form 8979 was received after notification by the IRS that no PR designation in effect. For example, “The partnership attempted to designate a partnership representative, but we determined that it was a designation failure. Accordingly, we will designate a new partnership representative.” Then the IRS can proceed to designate the PR. Refer to IRM 4.31.9.7.6.8, IRS’s Selection of a PR.

  • If the IRS had not previously declared no PR designation in effect, you should follow IRM 4.31.9.7.6.6, Opportunity for the Partnership to Timely Designate a PR.

Footnote 4: Form 8979 was for a PR or DI resignation:

  • In the case of a valid Form 8979 received for a PR or DI resignation, the examiner will have to declare “no PR designation in effect.” For purposes of notifying the partnership, issue Letter 6053 with paragraph C, line 4 or line 5 (as appropriate). For purposes of notifying the PR (of a valid resignation), issue Letter 6007, paragraph A. IRM 4.31.9.7.6.6, Opportunity for the Partnership to Timely Designate a PR, is not applicable because the valid resignation automatically results in no PR designation in effect.

Exhibit 4.31.9-4

Audit Regime Scenarios

Scenario Tax Periods Beginning Filing Date IRS Audit Regime
1. AAR/Amended Return filed without an election into the BBA centralized partnership audit regime After 11/2/15 and Before 1/1/18 On or After 1/1/2018 TEFRA/NonTEFRA regime
2. AAR filed with a valid election into the BBA centralized partnership audit regime and tax year has not received a notification of selection for examination After 11/2/15 and Before 1/1/18 On or After 1/1/2018 The BBA centralized partnership audit regime
3. AAR filed by a partnership that made a valid election into the BBA centralized partnership audit regime upon notification of selection After 11/2/15 and Before 1/1/18 Before the Notice of Administrative Proceeding is mailed The BBA centralized partnership audit regime
4. AAR filed by a partnership that did not elect out of the BBA centralized partnership audit regime under IRC 6221(b) On or After 1/1/2018 On or After 1/1/2018 The BBA centralized partnership audit regime
5. Amended return filed by a partnership that validly elected out of the BBA centralized partnership audit regime under IRC 6221(b) On or After 1/1/2018 On or After 1/1/2018 The BEO/ILSC* partnership audit regime Taxpayer cannot file an AAR, they must file amended returns.

*Investor level statute control
Exhibit 4.31.9-5

Case Disposition - Form 5344

This exhibit provides instructions for completing Form 5344, Examination Closing Record, for no-change cases and cases with adjustments. These Form 5344 entries must be completed by examiners prior to transferring the case to Technical Services.

Form 5344 item No-change (DC 02) No-change with adj. (DC 01) Adjustments no Appeals (DC 08) Adjustments to Appeals (DC 08)
TIN X X X X
MFT X X X X
Tax Period X X X X
Name Control X X X X
Name X X X X
08 - Agreement Date n/a n/a leave blank n/a
12 - Transaction Codes TC-300 with $0 TC-300 with $0 n/a n/a
13 - Disposal Code 02 - See A below 01 - See B below 08 - See C below 08 - See C below
18 -Unagreed Amount n/a n/a n/a leave blank
28 -Examiner’s Time X X X X
30 -Examination Technique Code X X X X
31 -Examiner’s Grade X X X X
32 - Grade of Case X X X X
Related Return Alpha Code if applicable if applicable if applicable if applicable
33 - Examiner’s Name X X X X
34 - Adjustment Amount leave blank leave blank See D below See D below
36 - Hash Total X X See E below See E below
408 - Related Return Alpha Code If S, then items 405-407 are required If S, then items 405-407 are required If S, then items 405-407 are required If S, then items 405-407 are required
411 - Payment Code N N “N” if No Payment, “F” or “P” if Full or Partial Payment received. “N” if No Payment, “F” or “P” if Full or Partial Payment received.
412 - Installment Agreement Code N N “N” if no Installment agreement, “I” if Installment Agreement was received, “C” if coordinated with Collection “N” if no Installment agreement, “I” if Installment Agreement was received, “C” if coordinated with Collection
Note n/a n/a Other entries required on the Form 5344 will be completed by either Technical Services or BBA Operations when the case is being prepared for final closure to Status 90. The form should remain in the case file throughout the BBA process. Other entries required on the Form 5344 will be completed by either Technical Services or BBA Operations when the case is being prepared for final closure to Status 90. The form should remain in the case file throughout the BBA process.

X = applicable

A. Item 13, Disposal Codes should be 02 - No-change. No proposed adjustments; no affirmative issues; no unagreed issues; no summary report; no IU amount; no protest; no notice of proposed partnership adjustment (NOPPA). No adjustments under Ch 2/2A. Requires issuance of No-Change Letter 6099 and Letter 6099-A only.

B. Item 13, Disposal Code should be 01 - No-change with Adjustments. No Chapter 1 adjustments, and no IU amount. Only non-Chapter 1 adjustments made (outside the scope of BBA) such as Net Investment Income Tax (NIIT) adjustments at the partner level.

C. Item 13, Disposal Code should be 08 - Final disposition is not yet known. Final disposal code cannot be determined until after the NOPPA is issued by either Technical Services or Appeals. DC 08 is for use in ERCS, RGS and IMS only, and will be changed later in the BBA process before the case is closed to status 90.

D. Item 34, Adjustment Amount - This entry should reflect the amount of total changes to ordinary and separately stated income, loss and deduction items, plus a factor when credits are adjusted.

  • The items included should be the components of Analysis of Net Income (Loss) Line 1.

  • Do not include adjustments to balance sheet items, changes to net earnings from self-employment tax, credits, alternative minimum tax items, or other information items.

  • Any credit adjustments must then be divided by 30% and added to the total income, loss and deduction items.

    Example:

    If the examination resulted in a $4,000 increase to income, loss and deduction items, and a disallowance of $10,000 in credits, the adjustment amount should reflect $37,333 (4,000 + 33,333 (10,000 divided by .3)).

E. Example how to compute Item 36, Hash total.

TSPC Reference for Hash Total Computation

Line reference Enter amount shown on Form 5344 Number used for Hash Total Note
P24-29 201812 201812  
12 135,790.00 13579000 ignore decimal
15 2,354.00 235400 ignore decimal
18   0  
21   0  
22   0  
23   0  
28 318.5 3185 ignore decimal
34 122,850 122850 net of positive and negative net income adjustments; plus 30% of credit adjustments.
35   0  
44   0  
46   0  
402   0  
403   0  
404c   0  
404d   0  
404e   0  
414   0  
415   0  
418   0  
  Hash Total 14142247  

Exhibit 4.31.9-6

BBA Case Closing Document IMS SAIN and RGS Section Reference Chart

This exhibit provides instructions for the IMS SAIN and RGS Section locations for certain electronic workpapers.

Description IMS SAIN RGS Section
Lead sheets and Form 886-A(s) for substantive issues Issue SAIN Issue Section
Form 886-A for penalties Issue SAIN Issue Section
Form 886-A for the IUA (or comment if printed IUA workbook instead) 724 600
Penalty approval form or lead sheet 011 300
Form 886-A(s) for duplicative adjustments (if applicable) 724 600
Appeals unagreed issue documents 021 Issue Section
Letter 5892 and Letter 5892-A (and Letter 937, if applicable) 090 CFD
Form 3198 090 CFD
Form 5344 090 CFD
NOPPA package (Form 14792*, Letter 5892, Letter 5892-A)

*Confirm it ties to IU; Penalties are consistent.		 090 CFD
Appeals Electronic Case Receipt Check Sheet (for cases to Appeals) 090 CFD
Copy of original return and any amended, AAR or subsequent filings 724 600
Letter 2205-D 724 600
NAP Letters (Letter 5893 and Letter 5893-A) 724 600
IU Workbook*

*Confirm workbook ties to the Form 14791 and Form 14792.		 724 600
Form 14792*

*Confirm it ties to IU; Penalties are consistent.		 724 600
Interest computation 724 600
IDRS transcripts (INOLES - Partnership & PR, AMDISA, CFINK, TXMODA) 724 600
Form 872-M (if applicable) 724 600
Form 2848 (if applicable) 724 600
Summary Report Form 14791 724 600
Summary Report Letter 5895 724 600
Form 7036 (if applicable) 724 600
Form 8979 (if applicable) and appropriate letters (e.g., Letter 6053, Letter 6007, Letter 6008) 724 600
Form 15416 (if applicable) 724 600
Form 15264 (if applicable) 724 600
Ch 2/2A Form 4605-A or Form 886-S (if applicable) 724 600
Documentation of sources of all addresses used, including whether they were obtained from the return, INOLES, or provided by the PR. 724 600
Guidance received from BBA POC or Counsel (if applicable) 724 600
Form 15260, Form 15262, Form 15263 724 600