File an administrative adjustment request for a BBA partnership

To correct errors to partnership-related items, partnerships under the Bipartisan Budget Act (BBA) of 2015 must file an administrative adjustment request (AAR) instead of an amended return. An AAR may be filed only after an original return is filed for the tax year.

This applies to partnerships that have not elected out of the BBA regime for taxable years beginning after 2017 and partnerships that elect into the BBA regime for taxable years beginning after Nov. 2, 2015, and before Jan. 1, 2018.

Partnerships cannot file an AAR for the sole purpose of designating or changing a partnership representative (PR) designation.

About the BBA centralized partnership audit regime

Who files and signs an AAR

Only the reviewed year partnership representative (PR) or designated individual (DI), if the PR is an entity, can file and sign an AAR on behalf of the partnership. A partner can only file and sign an AAR on behalf of the partnership if they are also the PR or DI.

The PR/DI is designated/appointed on the originally filed return or with a validly filed AAR. If no PR designation is in effect, including because of a failure to designate a PR on the originally filed Form 1065, the partnership (through an authorized person for the tax year) may submit Form 8979 to designate a PR. If the Form 8979 is submitted with an administrative adjustment request (AAR), the designation is treated as occurring prior to the filing of the AAR and effective on the date the AAR is filed.

You can designate or change a PR when you file an AAR. The designation or change is effective on the date the AAR is filed. However, an AAR may not be filed for the sole purpose of designating or changing the PR.

How to file an AAR

For electronically filed returns, file the following:

• Form 8082, Notice of Inconsistent Treatment or Administrative Adjustment Request (AAR)
• Form 1065, U.S. Return of Partnership Income, check box G(5) 'Amended return' section [required for transmission purposes]
• If making a push out election or if the AAR contains adjustments that do not result in an IU, also include the following forms with the AAR submission (links to forms and instructions):
  • Form 8985, Pass-Through Statement – Transmittal/Partnership Adjustment Tracking Report (Required under Sections 6226 and 6227)
  • Forms 8986, Partner's Share of Adjustments(s) to Partnership-Related Items (Required Under Sections 6226 and 6227)

If a BBA partnership files an AAR and it needs to make its partners aware of their allocable share of adjustments, it will furnish to each reviewed year partner a Form 8986 reflecting the partner’s share of the adjustments (and should not provide amended Schedules K-1 or K-3). The partnership is also required to file with the AAR any Forms 8986 required to be furnished to partners along with Form 8985. See links above for Forms 8985 and 8986 and related instructions.

Note: For tax years prior to 2022, certain tax software required two Schedules K-1 to be transmitted electronically with any Form 1065. These Schedules K-1 were for electronic submission only, not to be taken into account by the partnership's partners or by the Service.

• We recommend that you complete the following fields:
  • Schedule K-1 Part I - Information about the Partnership
  • Schedule K-1 Part II Line E – Enter all zeros
  • Schedule K-1 Part II Line F – Enter "Required eFile K-1 for transmission purposes only" and use the partnership's address, city, state, and ZIP
  • Schedule K-1 Part II Line H1 – Check "Domestic partner" checkbox
  • Schedule K-1 Part II Line I1 – Enter "Corporation"
  • Schedule K-1 Part II Line M – Select "No"

For Paper Filed Returns, file the following:

• Form 1065-X, Amended Return or Administrative Adjustment Request (AAR)
• If making a push out election or if the AAR contains adjustments that do not result in an IU, also include the following forms with the AAR submission (links to forms and instructions):
  • Form 8985, Pass-Through Statement – Transmittal/Partnership Adjustment Tracking Report (Required under Sections 6226 and 6227)
  • Forms 8986, Partner's Share of Adjustments(s) to Partnership-Related Items (Required Under Sections 6226 and 6227)

Filing deadline

The deadline to file an AAR is the date 3 years from the later of:

• The date the partnership return was filed or
• The last day for filing the partnership return. ("Due date" not including extensions.)

Exception: A partnership may not file an AAR after a Notice of Administrative Proceeding has been issued except for in certain, specified circumstances, such as when there is a foreign tax redetermination as described in Treas. Reg. § 1.905-4(b)(2)(ii).

Figure and report an imputed underpayment (IU)

A BBA partnership must always include a computation of the IU, even when the IU is zero or less than zero and even when the only adjustments are adjustments that do not result in an IU.

The partnership should include documentation with the AAR that supports the computation

How to figure an imputed underpayment

If the result of the IU computation is greater than zero

A partnership must either:

• Pay the IU and push out adjustments that do not result in an IU to the reviewed year partners or
• Push out all adjustments to the reviewed-year partners by making an AAR push out election.

Adjustments that do not result in an IU (ATDNR). If, after grouping, subgrouping, and netting, the amount in any grouping or subgrouping is a net negative or the calculation of the IU is zero or less than zero, then the adjustments in those net negative groups or the adjustments in the calculation that resulted in the IU of zero or less than zero are adjustments that don’t result in an IU. Any adjustments that don’t result in an IU are pushed out and taken into account by the reviewed year partners in accordance with Regulations section 301.6227-3.

If the result of the IU computation is zero or less than zero

A partnership must push out all adjustments that do not result in an IU to the reviewed year partners.

Pay an imputed underpayment

Where the IU computation results in an amount greater than zero and a push out election is not made, a partnership must pay the IU and any applicable interest or penalties at the same time the AAR is filed.

• Pay by EFTPS or debit or credit card. (Direct Pay is not available for this payment.)
  • Select BBA AAR Imputed Underpayment from the list of payment types.
  • Apply payment to: Form 1065.
• Pay by check or money order.
  • Make payable to "United States Treasury."
  • Include the following information: the name of the partnership, Form 1065, the tax identification number of the partnership, the tax year, and "BBA AAR Imputed Underpayment."

How to make an AAR push out election

If the partnership elects AAR push out it must include Form 8985 and Forms 8986 with the AAR submission. The Forms 8986 must also be furnished to the partners on the date the AAR is filed with the IRS. The partnership should not provide amended Schedules K-1 or K-3 with an AAR. Following are the relevant forms:

• AAR filing forms – Refer to instructions for Forms 1065-X or Form 8082 for details on how to elect push out on an AAR.
  • Making a push out election:
    • If filing electronically with a push out election, ensure Part 1, Line 1(b) is checked and item C1 indicates “Yes” on Form 8082. The form must be manually signed by the PR (or DI, if the PR is an entity) on item D, and a copy of this signature page filed with the 1065 as a PDF attachment.
    • If filing on paper with a push out election, ensure the checkbox for BBA AAR is checked in Part I and item C1 indicates “Yes” on Form 1065-X. The form must be signed by the PR (or DI, if the PR is an entity) on item D
• Form 8985, Pass-Through Statement – Transmittal/Partnership Adjustment Tracking Report (Required under Sections 6226 and 6227) – Should be included with the AAR submission.
• Forms 8986, Partner's Share of Adjustments(s) to Partnership-Related Items (Required Under Sections 6226 and 6227) – Should be included with the AAR submission and furnished to the reviewed year partners.

How to push out ATDNR

If partnership adjustments do not result (ATDNR) in an IU, the partnership must push out those adjustments using Form 8985 and Forms 8986 with the AAR submission. The Forms 8986 must also be furnished to the partners on the date the AAR is filed with the IRS. The partnership should not provide amended Schedules K-1 or K-3 with an AAR. Following are the relevant forms:

• AAR filing forms – Refer to instructions on Form 1065-X or Form 8082 for details on how to push out ATDNR.
  • Adjustments that do not result in an IU push out:
    • If filing electronically, on Form 8082 ensure Part I, Line 1(b) is checked and items B through C2 are answered as appropriate. The form must be manually signed by the PR (or DI, if the PR is an entity) on item D , and a copy of this signature page filed with the Form 1065 as a PDF attachment.
    • If filing on paper, on Form 1065-X ensure the checkbox for BBA AAR is checked in Part I and items B through C2 are answered as appropriate. The form must be signed by the PR (or DI, if the PR is an entity) on item D.
• Form 8985, Pass-Through Statement – Transmittal/Partnership Adjustment Tracking Report (Required under Sections 6226 and 6227) – Should be included with the AAR submission.
• Forms 8986, Partner's Share of Adjustments(s) to Partnership-Related Items (Required Under Sections 6226 and 6227) – Should be included with the AAR submission and furnished to the reviewed year partners.

How to report modification of imputed underpayment in an AAR

A partnership that does not make an AAR push out election can request certain modifications to the IU amount. Complete and attach to the AAR Form 8980-Partnership Request for Modification of Imputed Underpayments Under IRC Section 6225(c) and any related forms that apply. See Publication 5346, Instructions for Form 8980.

If a partnership makes an AAR push out election instead of paying an IU, any potential modifications that may have applied to the IU are disregarded.

Caution: If the partnership pushes out the adjustments, but the election is determined to be invalid, the partnership remains liable for the IU and such IU can potentially be assessed. In such a case where the partnership filed Form 8980 to request permitted modifications be applied to the IU calculation, those modifications will be considered in determining the IU.

When a partner receives Form 8986 as a result of an AAR (see Instructions for Form 8986):

Individuals

Individual partners (those who file Form 1040) who receive a Form 8986 as a result of an AAR will:

• Use Form 8978, Partner's Additional Reporting Year Tax to calculate and report their tax impact of adjustments pushed out to them.
• File Form 8978 with their income tax return that includes the date the partnership furnished Forms 8986 to its direct partners (reporting year return).
• The individual partner may pay in advance to stop the running of interest.
  • Pay by IOLA (Individual On-Line Account), debit or credit card, or Direct Pay.
    • Select Prepayment on BBA AAR/Exam Push Out as payment type.
    • Apply payment to: Form 1040

C corporations (and non pass-through partners other than individuals)

C corporations and non pass-through partners other than individuals (generally those who file Forms 1120 or 990T) who receive a Form 8986 as a result of an AAR will:

• Use Form 8978, Partner's Additional Reporting Year Tax to calculate and report their tax impact of adjustments pushed out to them.
• File Form 8978 with their income tax return that includes the date the partnership furnished Forms 8986 to its direct partners (reporting year return).
• The C corporation or non pass-through partner (other than an individual) may pay in advance to stop the running of interest.
  • Pay by EFTPS or debit or credit card. (Direct Pay is not available for this payment.)
    • Select Prepayment on BBA AAR/Exam Push Out as payment type.
    • Apply payment to the appropriate form, e.g. Form 1120 (except 1120S) or 990T.

Partnerships, S corporations, and trusts (pass-through partner entities) NOT individuals or C corporations

Pass-through partner entities (generally those who file Forms 1041, 1065, or 1120S) who receive Form 8986 as a result of an AAR will take one of the two actions on or before the date specified in Part II, Item F (extended due date of the adjustment year of the AAR partnership):

1. Figure and pay the IU amount (where the calculated IU amount is greater than zero)
2. Push out all adjustments to its partners, shareholders or beneficiaries (collectively referred to as partners)

Note: Whether or not an IU is paid, adjustments that do not result in an IU must be pushed out to partners.

1. Figure and pay the IU amount based on the adjustments from the F8986 received as a result of an AAR

• Complete Form 8985, Pass-Through —Statement Transmittal/Partnership Adjustment Tracking Report (Required under Sections 6226 and 6227) to report the calculation and amount paid.
• Pay by EFTPS, debit or credit card. (Direct Pay is not available for this payment.)
  • Select BBA AAR Push Out (as reported on F8985) as payment type.
  • Apply payment to: Forms 1041, 1065, or 1120S.
• Pay by check or money order.
  • Make payable to "United States Treasury."
  • Include the following information: the name of the pass-through partner, form number (1065, 1120S, or 1041), the tax identification number of the pass-through partner, the tax year, and "BBA AAR Push Out".
  • Complete Form 8985-V, Tax Payment by a Pass-Through Partner PDF: Select 'BBA AAR push out' as payment type on the form. Caution: Do not use Form 8985-V if filing Forms 1040, 1120, or 990T. Instead, see instructions pertaining to Form 8978 under Individuals or C corporations (and non-pass-through partners other than individuals), above.

  • Mail check or money order with the completed Form 8985-V to:

    Department of the Treasury

    Internal Revenue Service

    Ogden, UT 84201-0011

• Submit Form 8985 and, if applicable, Forms 8986 (only required for adjustments that do not result in an IU), to the IRS, as shown below:

* Do not batch submissions using multiple 8985s for the same source partnership and reviewed tax year. For example, Source Partnership files an AAR and furnishes Form 8986 to Pass-Through Partner. Because the IU calculation results in an amount greater than zero, Pass-Through Partner decides to report and pay an IU. However, because there are also adjustments that do not result in an IU, it prepares Form 8985 and Forms 8986 to further push out those adjustments to its 35 partners. Pass-Through Partner has a total submission of 109 pages (1 cover sheet, 1 Form 8985 and 35 Forms 8986). Because the total submission is over 100 pages, Pass-Through Partner cannot separate the 35 Forms 8986 into smaller batches and attach them to multiple 8985s to fall under the 100-page limit for faxing. Pass-Through Partner will instead need to mail all 109 pages to the mailing address as noted in the table above.

Important note: The above fax number is not for general use; use only for submitting Forms 8985/8986. Faxes containing more than 100 pages, unreadable submissions or other submissions received at this fax number will not be processed.

2. Further push out all adjustments to its partners

• Furnish a Form 8986 to each reviewed year partner of the pass-through partner.
• Submit Form 8985 and all Forms 8986 to the IRS as shown below:

* Do not batch submissions using multiple 8985s for the same source partnership and tax year. For example, Source Partnership files an AAR and furnishes Form 8986 to Pass-Through Partner. Pass-Through Partner prepares Form 8985 and Forms 8986 to further push out the adjustments to its 35 partners. Pass-Through Partner has a total submission of 109 pages (1 cover sheet, 1 Form 8985 and 35 Forms 8986). Because the total submission is over 100 pages, Pass-Through Partner cannot separate the 35 Forms 8986 into smaller batches and attach them to multiple 8985s to fall under the 100-page limit for faxing. Pass-Through Partner will instead need to mail all 109 pages to the mailing address as noted in the table above.

Important note: The above fax number is not for general use; use only for submitting Forms 8985/8986). Faxes containing more than 100 pages, unreadable submissions or other submissions received at this fax number will not be processed.

Be sure to only submit the Forms 8985/8986 to the IRS. Copies of other attachments provided to the partners should not be submitted to the IRS.