Section references are to the Internal Revenue Code unless otherwise noted.
For the latest information about developments related to Form 1065-X and its instructions, such as legislation enacted after they were published, go to IRS.gov/Form1065X.
For information pertaining to BBA partnerships filing Form 1065-X, go to IRS.gov/bbaaar.
Which revision of Form 1065–X to use.
For tax years beginning on or after January 1, 2023, use the August 2023 revision of Form 1065-X. For tax years beginning after December 31, 2020, and before January 1, 2023, use the December 2021 revision of Form 1065-X available at IRS.gov/pub/irs-prior/f1065x--2021.pdf. For tax years beginning prior to January 1, 2021, use the September 2018 version of Form 1065-X available at IRS.gov/pub/irs-prior/f1065x--2018.pdf.
Part I, Section 2—BBA AAR.
Item C2 has been added to indicate when adjustments don’t result in an imputed underpayment.
Part II, line 13, changed.
Part II, line 13a, is changed from “Contributions” to “Cash contributions.” New line 13b is “Noncash contributions.” Prior year lines 13b, 13c, and 13d are changed to 13c, 13d, and 13e, respectively. This follows similar changes on the 2023 Form 1065.
The Bipartisan Budget Act of 2015 (BBA) created a new centralized partnership audit regime generally effective for partnership tax years beginning after 2017.
The Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) generally applied to tax years beginning before 2018. BBA repealed TEFRA and the electing large partnership (ELP) rules. Consequently, former ELPs are now treated as other partnerships under the BBA regime.
Although BBA repealed the ELP rules for partnership tax years beginning after 2017, and although Form 1065-B and its instructions are obsolete for tax years beginning after 2017, Form 1065-B is referred to in these instructions to assist former ELPs filing amended returns.
Election into BBA for tax years beginning before 2018.
A partnership may make an election into the centralized partnership audit regime for tax years that begin after November 2, 2015, and before January 1, 2018, by filing an AAR. Refer to Regulations section 301.9100-22 for detailed information. If the AAR is filed on paper, the partnership uses Form 1065-X and must make the election in accordance with section 1101(g)(4) of BBA.
Note. An AAR filed with respect to a 2018 short tax period return by a partnership that is subject to the centralized partnership audit regime must meet the requirements under section 6227.
Making the election for eligible tax years on an AAR filed on paper.
To make the election, the partnership must write across the top of Form 1065-X used to file the AAR, “Election under Section 1101(g)(4)” and attach a statement to the AAR. For the statement requirement, the partnership can use Form 7036, Election Under Section 1101(g)(4) of the Bipartisan Budget Act of 2015. If Form 7036 isn’t used, the partnership may prepare its own statement with the following information.
The following representations must be made with regard to the statement attached to the election.
The statement must be signed and dated by the tax matters partner (TMP), as defined under section 6231(a)(7) (prior to amendment by BBA), and the applicable regulations, or an individual who has the authority to sign the partnership return for the tax year. The fact that an individual dates and signs the statement making the election shall be prima facie evidence that the individual is authorized to make the election on behalf of the partnership.
Increased research credit reported by a BBA partnership.
If an increased research credit is reported by a BBA partnership, the BBA partnership doesn’t file an amended return. Instead, the BBA partnership must file an AAR and attach the following five items of information to that AAR.
Because an increased research credit is being reported in this circumstance, as part of the AAR process, the BBA partnership will also submit Form 8985, Pass-Through—Transmittal/Partnership Adjustment Tracking Report, and Form 8986, Partner’s Share of Adjustment(s) to Partnership-Related Item(s), to the IRS and send Forms 8986 to its partners. The BBA partnership isn’t required to provide the five items of information again on Forms 8985 and 8986. The BBA partners don’t need to attach the five items of information to their original returns to which their Forms 8986 are attached. For more information, see Research Credit Claims (Section 41) on Amended Returns Frequently Asked Questions at IRS.gov/businesses/corporations/research-credit-claims-section-41FAQ.
Schedules K-2 and K-3.
For tax years beginning on or after January 1, 2021, filers of Form 1065-X may need to include amended Schedules K-2 and K-3 (Form 1065) according to the type of partnership (for example, BBA vs. nonBBA). See Amended Schedules K-2 and K-3 for Tax Years Beginning on or After January 1, 2021 , later.
Unless otherwise noted, references to sections 6221 through 6241 are to Internal Revenue Code sections, as amended by BBA.
Use Form 1065-X, if you aren’t filing electronically, to:
Form 1065-X can’t be used to file a notice of inconsistent treatment under section 6222 (TEFRA or BBA) or a partner-level AAR under section 6227(d) (under TEFRA proceedings). For a definition of TEFRA proceedings, see Definitions , later. Continue to use Form 8082, Notice of Inconsistent Treatment or Administrative Adjustment Request (AAR), to make those changes.
Bipartisan Budget Act (BBA).
All partnerships with tax years beginning after 2017 are subject to the centralized partnership audit regime unless eligible partnerships elect out by making a valid election under section 6221(b). For purposes of these instructions (unless otherwise noted), the centralized partnership audit regime proceedings under sections 6221 through 6241 will be referred to as “BBA proceedings.”
If you're a nonTEFRA partnership (see Definitions and Section I, Part I, items B and C, later) or a nonBBA partnership (defined under Definitions, later) filing an amended return electronically, use Form 1065 and see the related instructions. If you aren’t filing electronically, use Form 1065-X.
Form 1065-X should only be used to make a paper filing. For electronic filing, use Form 8082 in conjunction with Form 1065 or 1065-B, as applicable.
Generally, the criteria used to determine whether the original Form 1065 or Form 1065-B is required to be filed electronically are also used to determine if the amended return or AAR must be filed electronically.
For information regarding when Form 1065 is required to be filed electronically, and how to electronically file an amended return or AAR for a partnership, see the Instructions for Form 1065.
For information regarding when Form 1065-B is required to be filed electronically, and how to file an AAR for an ELP, see the Instructions for Form 1065-B.
Amended return.
Partnerships and real estate mortgage investment conduits (REMICs) that become aware of incorrect items of income, deductions, etc., use Form 1065-X to correct their previously filed partnership or REMIC return. See Specific Instructions , later, for information on completing Form 1065-X as an amended return.
AAR-Partnerships (except ELPs).
Partnerships that are subject to either BBA or TEFRA proceedings use Form 1065-X to file for an AAR. See Specific Instructions , later, for information on completing Form 1065-X as an AAR.
Protective TEFRA AARs.
Generally, a protective AAR is a request for credit or refund based on current litigation or expected changes in tax law or other legislation. The TMP or partner with authority (PWA) files a protective AAR when the right to a refund is contingent on future events and may not be determinable until after the period for filing an AAR has expired. Protective AARs are subject to AAR statutes set forth in sections 6227, 6228, and 6229 (prior to amendment by BBA). If you're a TMP filing on behalf of the partnership, the petition period described in section 6228 (prior to amendment by BBA) can be extended by using Form 9248, Agreement to Extend the Time to File a Petition for Adjustment by the Tax Matters Partner With Respect to Partnership Items. A protective AAR must clearly state that it is a protective AAR, alert the IRS to the essential nature of the adjustment, and specify the line item to be protected.
AAR under BBA.
File Form 1065-X if you're the PR or designated individual (DI) requesting an administrative adjustment to correct a previously filed partnership return on behalf of the BBA partnership. Go to IRS.gov/bbaaar for additional information.
AAR-ELPs.
ELPs that aren’t required to electronically file Form 1065-B and need to correct errors on a previously filed Form 1065-B use Form 1065-X to file for an AAR. See Specific Instructions , later, for information on completing Form 1065-X as an AAR.
AAR-REMICs.
REMICs that don’t meet the small REMIC exception under sections 860F(e) and 6231 (prior to amendment by BBA), and related regulations, or make the election described in section 6231(a)(1)(B)(ii) (prior to amendment by BBA) not to be treated as a small REMIC, use Form 1065-X to file for an AAR. See Specific Instructions , later, for information on completing Form 1065-X as an AAR.
When a partnership's or REMIC's federal return is changed for any reason, it may affect its state return. For more information, contact the state tax agency with which the state return is filed.
Generally, a pass-through entity may file an amended return or AAR to change items on its return:
If the corrected amount involves an item that must be supported with a schedule, statement, or form, attach the appropriate schedule, statement, or form to Form 1065-X. Include the entity's name and employer identification number (EIN) on any attachments. See the instructions for Form 1065, 1065-B, or 1066 (as applicable) for a list of forms that may be required.
If the attachments needed to support the corrected amount include copies of forms or schedules from previously filed tax returns, write at the top of each previously filed form or schedule, “Copy Only—Do Not Process.”
A BBA partnership must attach a schedule to Form 1065-X that supports the position(s) reported. If the partnership doesn't make the election under section 6227(b)(2) to have the adjustments taken into account by the reviewed year partners and would like to modify per section 6227(b)(1), it must attach Form 8980, Partnership Request for Modification of Imputed Underpayments Under IRC Section 6225(c), to support any modifications made to the IU, as described in sections 6225(b) and (c), and as applied to a BBA AAR under section 6227(b)(1). See Modifications to an Imputed Underpayment Included in an Administrative Adjustment Request in Pub. 5346, Instructions for Form 8980.
In addition, if the ELP or REMIC requests that the IRS electronically deposit a refund of $1 million or more, attach Form 8302, Electronic Deposit of Tax Refund of $1 Million or More.
NonTEFRA and nonBBA partnerships.
Any partner or limited liability company (LLC) member must sign the return. Form 1065-X isn’t considered to be a return unless it is signed. When a return is made for a partnership by a receiver, trustee, or assignee, the fiduciary must sign the return instead of the partner or LLC member. Returns and forms signed by a receiver or trustee in bankruptcy on behalf of a partnership must be accompanied by a copy of the order or instructions of the court authorizing the signing of the return or form.
BBA partnerships.
The PR or DI, if applicable, must sign Form 1065-X. See Partnership representative (PR) , later, for the definition of a PR.
TEFRA partnerships.
The TMP must sign Form 1065-X. See Tax matters partner (TMP) , later, for the definition of a TMP.
ELPs.
The PWA must sign Form 1065-X. See Partner with authority (PWA) , later, for the definition of a PWA.
REMICs with a startup day after November 9, 1988.
For these REMICs, Form 1065-X may be signed by any person who could sign the return of the entity in the absence of the REMIC election. Thus, the return of a REMIC that is a corporation or trust would be signed by a corporate officer or a trustee, respectively. For REMICs with only segregated pools of assets, the return would be signed by any person who could sign the return of the entity owning the assets of the REMIC under applicable state law.
REMICs with a startup day before November 10, 1988.
These REMICs may elect to apply the rules for REMICs with a startup day after November 9, 1988 (as described in Regulations section 1.860F-4(c)(2)(iii)). Otherwise, Form 1066 must be signed by a residual interest holder or, as provided in section 6903, by a fiduciary, as defined in section 7701(a)(6), who is acting for the REMIC and who has furnished adequate notice, as described in Regulations section 301.6903-1(b).
In the prior paragraph, the term “startup day” means any day selected by a REMIC that is on or before the first day on which interests in such REMIC are issued. Otherwise, the startup day is the day on which the REMIC issued all of its regular and residual interests. However, a sponsor may contribute property to a REMIC in exchange for regular and residual interests over any period of 10 consecutive days and the REMIC may designate any 1 of those 10 days as the startup day. The day so designated is then the startup day, and all interests are treated as issued on that day.
Form 1065-X must be filed with the service center where the original return was filed.
TEFRA partnership.
The consolidated audit proceedings of sections 6221 through 6234 (prior to amendment by BBA) are “TEFRA proceedings” and partnerships that are subject to TEFRA proceedings are “TEFRA partnerships.” An AAR filed by the TMP of the TEFRA partnership is a TEFRA AAR. Any partner in a TEFRA partnership may file an AAR using Form 8082. TEFRA proceedings won’t apply to partnerships with tax years beginning after 2017.
NonTEFRA partnership.
A partnership with a tax year beginning before 2018 that isn’t subject to TEFRA proceedings and didn't elect into BBA for that tax year beginning after November 2, 2015, and before January 1, 2018, is a “nonTEFRA partnership.”
Pass-through entity.
A partnership (including an ELP), S corporation, estate, trust, or REMIC.
Item.
Any item of a partnership, S corporation, estate, trust, or REMIC required to be taken into account for the pass-through entity's tax year by the partners, shareholders, beneficiaries, owners, or residual interest holders of that pass-through entity.
Tax matters partner (TMP).
If the partnership is subject to the TEFRA procedures, it can designate a partner as the TMP for the tax year for which the return is filed. The TMP is a general partner (in most cases, the TMP must also be a U.S. person) designated by the partnership to represent the partners in the consolidated audit and litigation proceedings under sections 6221 through 6234 prior to amendment by BBA (TEFRA proceedings). The designation is made by completing the Designation of Tax Matters Partner section of Form 1065 used for tax years beginning before 2018.
Additionally, a REMIC may designate a tax matters person in the same manner in which a partnership may designate a TMP under Regulations section 301.6231(a)(7)-1. When applying that section, treat all holders of a residual interest in the REMIC as general partners. The designation may be made by completing the Designation of Tax Matters Person section of Form 1066 for tax years beginning before 2018.
For an LLC, a member of the LLC is treated as a partner and a member-manager is treated as a general partner. A member-manager is any owner of an interest in the LLC who, alone or together with others, has continuing exclusive authority to make the management decisions necessary to conduct the business for which the LLC was formed. If there are no elected or designated member-managers, each owner is treated as a member-manager. For details, see Regulations section 301.6231(a)(7)-2.
BBA partnership.
A partnership that is subject to the centralized partnership audit regime is a “BBA partnership.” All partnerships with tax years beginning after 2017 are BBA partnerships unless they make a valid election out of the centralized partnership audit regime. A partner in a BBA partnership is a “BBA partner.” An AAR filed by a BBA partnership is a “BBA AAR” and must be filed by the PR. Go to IRS.gov/bbaaar for additional information.
Partnership representative (PR).
If the partnership is subject to the centralized partnership audit regime, section 6223 provides that the partnership must designate a partner or other person with a substantial presence in the United States as the PR who shall have the sole authority to act on behalf of the partnership. If the PR is an entity, the partnership must also appoint a DI to act on behalf of the entity PR. The partnership and all partners are bound by the actions of the PR in dealings with the IRS under BBA.
Partner with authority (PWA).
Each ELP must designate a partner (or other person) as the PWA who shall have the sole authority to act on behalf of the partnership. See section 6255(b)(1) (prior to amendment by BBA). If the partnership fails to designate a PWA, the IRS can select any partner to serve as the partner with such authority. The PWA has the authority to file an AAR on behalf of the partnership. The PWA does this by filing Form 1065-X.
NonBBA partnership.
Under BBA, certain partnerships with 100 or fewer eligible partners for the tax year can elect out of the centralized partnership audit regime. For additional information, see the Instructions for Form 1065. A partnership that elects out of the centralized partnership audit regime is a “nonBBA partnership.”
Partnership-related item (PRI).
For BBA partnerships, under section 6241(2)(B), a PRI is any item or amount with respect to the partnership that is relevant in determining the income tax liability of any person, without regard to whether the item or amount appears on the partnership's return. This includes an IU and an item or amount relating to any transaction with, basis in, or liability of the partnership.
Adjustment year.
For BBA partnerships, the adjustment year is the partnership tax year in which:
Reviewed year.
For BBA partnerships, the reviewed year is the partnership’s tax year to which a partnership adjustment relates.
Reviewed year pass-through partner.
For purposes of these instructions, under BBA, a reviewed year pass-through partner is a pass-through entity that held an interest in a BBA partnership at any time during the reviewed year, which is the partnership tax year to which the partnership adjustment relates. For example, if the BBA AAR is filed to make an adjustment to income for the 2023 tax year, 2023 is the reviewed year.
Schedule K-1.
Schedule K-1 is the annual schedule reporting the partner's, shareholder's, or beneficiary's share of income, deductions, credits, etc., from a partnership, S corporation, estate, or domestic trust.
Schedule K-2.
An extension of Form 1065, Schedule K, used to report items of international tax relevance from the operation of a partnership.
Schedule K-3.
An extension of Schedule K-1 (Form 1065) generally used to report to partners their share of the items reported on Schedule K-2.
Schedule Q.
Schedule Q is the quarterly schedule reporting the residual interest holder's share of taxable income or net loss from the REMIC.
If a partner or an employee of the partnership or REMIC completes Form 1065-X, the “Paid Preparer Use Only” section should remain blank. In addition, anyone who prepares Form 1065-X but doesn't charge the partnership or REMIC shouldn’t complete this section.
Generally, anyone who is paid to prepare Form 1065-X must do the following.
A paid preparer may sign original or amended returns by rubber stamp, mechanical device, or computer software program.
Interest.
Generally, interest is charged on taxes not paid by the due date, even if an extension of time to file is granted. Interest is also charged on penalties imposed for negligence, fraud, substantial valuation misstatements, substantial understatements of tax, and reportable transaction understatements. The interest is charged from the due date (including extensions) to the date of payment. The interest charge is figured at a rate determined under section 6621.
Late payment penalty.
The penalty for not paying the tax when due is usually ½ of 1% of the unpaid tax for each month or part of a month that the tax remains unpaid. The penalty can’t exceed 25% of the unpaid tax.
Other penalties.
Penalties can also be imposed for negligence, substantial understatements of tax, reportable transaction understatements, and fraud. See sections 6662, 6662A, and 6663.
Interest and penalties applicable to IU.
Except when the partnership elects to have its partners take into account the adjustments, BBA partnership interest and penalties are the following.
Election to apply the alternative to payment of the IU.
If the partners must take into account the adjustments because the BBA partnership filed an AAR and there are adjustments that don’t result in an IU, or if a BBA partnership elects the alternative to payment of the IU under sections 6227(b)(2) and 6226(c), interest shall be determined:
Judicial review of an AAR (for returns subject to the TEFRA procedures or ELPs).
If the IRS fails to act on an AAR, the TMP or PWA may file a petition for judicial review with the U.S. Tax Court, U.S. Court of Federal Claims, or U.S. District Court. The TMP or PWA must file the petition before the date that is 2 years after the date the TMP or PWA filed the AAR, but not until after the date that is 6 months from the date of such filing. The 2-year period may be extended if the IRS and the TMP or PWA agree in writing. For more details, see sections 6228 (prior to amendment by BBA) and 6252.
If, after reading the instructions, you're unable to complete an item in Part I or Part II, enter “See Part V” in the entry space for that item and provide the information there.
Enter the legal name of the entity and identifying number on the appropriate lines. Include the suite, room, or other unit number after the street address. If the Post Office doesn't deliver mail to the street address and the entity has a P.O. box, show the box number instead.
If the entity receives its mail in care of a third party (such as an accountant or attorney), enter on the street address line “C/O” followed by the third party's name and street address or P.O. box.
If the entity's address is outside the United States, or its possessions or territories, enter the information on the line for “City or town, state, and ZIP code” in the following order: city, province or state, and foreign country. Follow the foreign country's practice in placing the postal code in the address. Don’t abbreviate the country name.
An AAR can be filed by a partnership subject to TEFRA proceedings (TEFRA AAR), a partnership subject to BBA proceedings (BBA AAR), an ELP, and a REMIC.
If you're a BBA partnership that has received a notice of administrative proceeding, you may not file an AAR. Also, a partner may not file an AAR on behalf of the BBA partnership in which it is a partner unless doing so in its capacity as the PR for that partnership.
TEFRA AAR.
The consolidated audit proceedings of sections 6221 through 6234 (prior to amendment by BBA) are “TEFRA proceedings” and partnerships that are subject to TEFRA proceedings are “TEFRA partnerships.” An AAR filed by the TMP of the TEFRA partnership is a TEFRA AAR. TEFRA proceedings won’t apply to partnerships with tax years beginning after 2017.
nonTEFRA AAR.
A partnership with a tax year beginning before 2018 that isn’t subject to TEFRA proceedings is a “nonTEFRA partnership.”
ELPs/REMICs
The ELP procedures were repealed for tax years beginning after 2017. However, ELPs filing a non-e-filed AAR for a tax year that began before 2018 will use Form 1065-X.
BBA AAR.
All partnerships with tax years beginning after 2017 are subject to the centralized partnership audit regime unless an eligible partnership makes a valid election under section 6221(b) to elect out of the centralized partnership audit regime. Partnerships electing into BBA for tax years beginning after November 2, 2015, and before January 1, 2018, are also subject to the centralized partnership audit regime. Partnerships that are subject to the centralized partnership audit procedures of sections 6221 through 6241 are “BBA partnerships.” An AAR filed by a BBA partnership is a BBA AAR.
nonBBA.
A partnership with a tax year beginning after 2017 that isn't subject to BBA proceedings because it has made a valid election under section 6221(b) is a “nonBBA partnership.”
A partner that is itself a partnership (partnership-partner) that is filing an amended return as part of modification of the IU under section 6225(c)(2) should check this box.
If the answer to item A is “Yes,” the partnership return isn’t subject to the TEFRA proceedings. You should proceed to item E and check the “Not subject to TEFRA” box.
These items are used to determine if the partnership is subject to the rules for consolidated audit procedures (TEFRA procedures).
Consolidated REMIC proceedings.
Generally, the tax treatment of REMIC items is determined at the REMIC level in a consolidated REMIC proceeding, rather than in separate proceedings with individual residual interest holders. A REMIC subject to consolidated REMIC procedures will have checked the box on item G on page 3 of its original Form 1066 (for tax years beginning before January 1, 2018).
All partnerships with tax years beginning before 2018 (except ELPs) and REMICs are subject to TEFRA partnership audit procedures unless the partnership or REMIC is subject to the small partnership exception. See section 6231(a)(1)(B) (prior to amendment by BBA).
A small partnership is a partnership with 10 or fewer partners at all times during the year. All partners must be U.S. individuals and their estates, resident alien individuals, or C corporations.
For making the small partnership determination, a married couple, each spouse having their own partnership interest, is considered one partner. An individual who has passed away during the year and their estate are considered one partner.
A partnership defined as a small partnership can elect to be treated as a TEFRA partnership for tax years beginning before 2018. The partnership elects TEFRA treatment by attaching a statement to the tax return for the first year they wish the election to be effective. This statement must be signed by all partners. See Regulations section 301.6231(a)(1)-1(b). Form 8893, Election of Partnership Level Tax Treatment, is the statement that can be used to make this election. If you answer “Yes” to item D, enter the tax year of the filing of this election in the space provided.
If, at any time during the tax year, there are more than 10 partners or any of the following are partners in the partnership, then the partnership isn’t a small partnership.
| Table for Determining Which Box To Check in Item E | ||
| IF in item. | The box checked is. | THEN in item E, check. |
| B | No | Subject to TEFRA. |
| C | No | Subject to TEFRA. |
| D | Yes | Subject to TEFRA. |
| B and C | Yes | Not subject to TEFRA. |
| D | No | Not subject to TEFRA. |
Check the box to indicate whether you're filing an amended return or an AAR.
Amended Return.
Check this box if you checked the “Not subject to TEFRA” box in item E, and you aren’t an ELP. This means that you're filing a request to correct a previously filed nonTEFRA partnership return or REMIC return.
If your partnership or REMIC return meets the exception under section 860F(e) or section 6231 (prior to amendment by BBA), and doesn't file an election to be treated as a TEFRA partnership under section 6231(a)(1)(B)(ii) (prior to amendment by BBA), and related regulations, and you received a corrected Form 1099 or are making changes to income, deductions, or credits, but there are no flow-through changes from a TEFRA partnership, then you're filing an amended return. Check the “Amended Return” box.
AAR.
Check this box if you're filing a request to correct a previously filed partnership or REMIC return and you're one of the following.
A substituted return requests that the treatment of an item shown on the AAR be substituted for the treatment of the item on the pass-through entity's return.
Check “Yes” if you're requesting substituted return treatment for the partnership. If the IRS allows substituted return treatment, the changes shown on the amended return will be treated as corrections of mathematical or clerical errors, and the IRS may assess any resulting tax to the partners or residual interest holders without a deficiency or entity-level proceeding. In this case, partners or residual interest holders may file amended returns requesting refunds. See section 6227(c)(1) (prior to amendment by BBA).
If the IRS doesn’t allow substituted return treatment for the partnership, the partners or residual interest holders may file amended returns requesting refunds. The IRS may conduct an examination of the pass-through entity's return, or take no action on the request. When a request isn’t treated as a substituted return, the IRS can’t assess tax without a deficiency or entity-level proceeding. See section 6227(c)(2) (prior to amendment by BBA).
ELPs.
An ELP can’t request substituted treatment. See section 6227(c)(1) (prior to amendment by BBA).
For additional information on filing BBA AARs, go to IRS.gov/bbaaar.
If the "Yes" box is checked, complete Form 8979 and attach it to the AAR. See the Instructions for Form 8979, Partnership Representative Revocation, Designation, and Resignation, for more information.
Note. If you're a BBA partnership, you may not file an AAR solely for the purpose of changing the PR.
BBA partnerships filing an AAR will need to determine if the partnership adjustments result in an IU. See Figuring the Imputed Underpayment (IU) , later, for information as to how to figure the IU. The BBA partnership should consider all available guidance issued by the IRS in making a determination of whether or not the AAR results in an IU. Also, see Part IV , later, for discussion of the IU.
If the adjustments contained in the BBA AAR result in an IU, the partnership must pay the IU at the same time the AAR is filed. However, under section 6227(b)(2), the partnership can elect to have its reviewed year partners take the adjustments into account. This is an election to push out the adjustments to the partners as an alternative to payment of the IU. See section 6226(a)(2) for details. If this valid election is made, the partnership is no longer liable for the IU.
The partnership will need to furnish Forms 8986 to each reviewed year partner reflecting the partner's share of adjustments for when the adjustments don't result in an IU (for example, the adjustments in the BBA AAR result in an IU of zero or less than zero; or there is a net negative adjustment). The partnership is also required to file with the AAR all Forms 8986 furnished to partners and Form 8985. See the instructions for these forms for further information.
Each reviewed year partner is required to take into account its share of adjustments requested in a BBA AAR if the partnership adjustments result in a positive IU and the partnership makes the alternative to payment election discussed under Item C1 , earlier. Additionally, each reviewed year partner is required to take into account its share of any adjustments requested in a BBA AAR resulting in an IU of zero or less than zero, or that don't result in an IU. The determination of whether or not an adjustment results in an IU amount is discussed under Item B , earlier.
The partnership is required to furnish each reviewed year partner with a Form 8986 reporting its share of the BBA AAR adjustments. The PR must attest to the partnership’s compliance with this requirement. The PR will sign Form 1065-X under item D to declare, under penalties of perjury, that all statements have been provided to the reviewed year partners, as required by these instructions.
Under section 6227(b)(1), the partnership may modify the IU resulting from adjustments reported in a BBA AAR in accordance with the provisions under section 6225(c), disregarding the provisions under paragraphs (2), (7), and (9). Any modification made to the IU under section 6227(b)(1) must be disclosed and fully explained on Form 8980 included with the AAR.
If the partnership makes an election to push out the adjustments to the partners as an alternative to payment of the IU, the modifications to the IU are disregarded and aren’t included on the statements provided to the partners.
Section 6225(c)(2) allows a BBA partnership under examination to request specific types of modifications of an IU proposed by the IRS. One type of modification applies when a partner or indirect partner, including a partnership-partner, files an amended return for the tax year of the partner which includes the end of the reviewed year of the BBA partnership under examination. See Form 8980, Item E, Part I, and Pub. 5346.
A BBA partnership under examination will be assigned a unique audit control number. A partnership-partner using Form 1065-X to file an amended return as part of a modification under section 6225(c)(2) must include in Section 3 (Form 1065-X) the name, EIN, reviewed year, and audit control number of the BBA partnership under examination to which the amended return relates. In addition, the partnership-partner shouldn’t furnish amended Schedules K-1 or K-3 to its partners, but instead must pay an amount computed like an IU on the adjustments allocable to it, plus any penalties and interest. See Part IV , later, for payment instructions.
For information on income, deductions, credits, etc., see the instructions for Form 1065, Schedules K, K-1, K-2, and K-3 for the tax year being amended or otherwise adjusted. See the Instructions for Form 1065 for a list of forms that may be required.
In Part II of Form 1065-X, “see instructions” refers to the instructions for Form 1065 and Schedule K-1, not the Instructions for Form 1065-X.
TEFRA partnerships filing AARs.
A TEFRA partnership filing an AAR to change items that were reported on its original return must do the following.
| a. On Form 1065-X, check the “TEFRA AAR” box under Part I. |
| b. See later for how to complete Part II, columns (a) through (c). |
| a. See Who Must Sign , earlier, for who must sign the Form 1065-X. |
| b. Attach amended Schedules K-1 showing the corrected amounts for each partner. |
BBA partnerships filing AARs.
A BBA partnership filing an AAR to change items that were reported on its original return must do the following.
| a. On Form 1065-X, check the “BBA AAR” box under Part I. |
| b. See later for how to complete Part II, columns (a) through (c). |
| a. If paying an IU, report the IU appropriately in Part IV. Complete Forms 8985 and 8986 (pushout package) pertaining to the adjustments that don’t result in an IU (if applicable). |
| b. If pushing out all the adjustments to the reviewed year partners, complete Forms 8985 and 8986 (pushout package). |
Column (a).
Enter the amounts from Form 1065, Schedule K, as originally filed or as was previously adjusted. If the return was changed or audited by the IRS, enter the amounts as adjusted.
Column (b).
Enter the net increase or decrease for each line being changed. Enter as a positive the amount by which column (c) exceeds column (a) or enter as a negative the amount by which column (a) exceeds column (c). Use parentheses around all amounts that are negative. Positive amounts are increases and negative amounts are decreases. Explain the increase or decrease in Part V.
Column (c).
Enter the correct amount. This will be the sum of column (a) and column (b).
If a BBA partnership files an AAR and it is making an election under section 6227(b)(2) to have the adjustments taken into account by the reviewed year partners, or (1) when the adjustments in the BBA AAR result in an IU of zero or less than zero; or (2) the adjustments don't result in an IU, then it will furnish to each partner for the reviewed year a Form 8986 reflecting the partner’s share of the adjustments to PRI as a result of a BBA audit or BBA AAR for situations where the partners are taking into account the adjustments. The partnership is also required to file with the AAR all Forms 8986 furnished to partners and Form 8985. Form 8985 is used to summarize and transmit Forms 8986, in situations where the partners are taking into account the adjustments. Adjustments shown on Form 1065-X, Part II, column (b), should tie to the adjustments reported on Form 8985, Part IV, column (f). Form 8985 is also used to report payment(s) made and related calculations by a pass-through partner, if applicable. See the instructions for these forms for further information.
If a BBA partnership files an AAR and needs to make its partners aware of their allocable share of adjustments, it will furnish to each partner for the reviewed year Form 8986 reflecting the partner’s share of the adjustments (and shouldn’t provide amended Schedules K-1). The partnership must also file all Forms 8986 furnished to partners and Form 8985 with the AAR. See the instructions for these forms for further information. ELPs filing a Form 1065-X as an AAR should see Part III , later. All other partnerships should file amended Schedules K-1 with Form 1065-X and furnish copies of the amended Schedules K-1 to the partners.
If a TEFRA partnership files Form 1065-X for an AAR, it should inform the partners receiving the amended Schedules K-1 that the partnership is filing the AAR. If the partnership isn’t subject to either the rules for consolidated audit proceedings (TEFRA proceedings) under sections 6221 through 6234 (prior to amendment by BBA) or to the centralized partnership audit regime under BBA, it must furnish the amended Schedules K-1 to its partners. The partners must then file their own amended returns.
NonBBA partnership filing an amended return.
Attach the amended Schedule K-2 and on the header of the schedule enter “As Amended.” Attach the amended Schedules K-3 with the amended box checked at the top of each. The partnership must furnish the amended Schedules K-3 to its partners.
BBA partnerships filing AARs.
Attach the corrected Schedule K-2 and on the header of the schedule enter “As per AAR.” When a BBA partnership files an AAR and needs to make its partners aware of their allocable share of adjustments, it shouldn’t issue amended Schedules K-3 but rather file Forms 8985 and 8986 with the AAR and furnish Forms 8986 to partners. Refer to the instructions for Forms 8985 and 8986.
ELPs only.
An ELP may file an AAR to adjust its partnership items. Generally, the ELP has two choices for handling the adjustment.
In either case, the partnership is liable for any interest and penalties on IUs that result from the adjustment. See section 6242(b) (prior to amendment by BBA) for details. Interest is figured on the IU for the period beginning on the day after the due date (excluding extensions) of the partnership return for the tax year the adjustment takes effect or, if earlier, the date the partnership paid the tax due under (2) above. The adjusted year is the partnership tax year in which the item being adjusted arose.
ELPs and REMICs.
Identify in Part III the amount and treatment of any item the partnership or REMIC is changing from the way it was reported on the original return.
Column (a).
Enter a description of the item that the partnership or REMIC is adjusting or amending.
Column (b).
Enter the amounts from the ELP's or REMIC's return as originally filed or as it was later adjusted. If the return was changed or audited by the IRS, enter the amounts as adjusted.
Column (c).
Enter the net increase or net decrease for each line being changed. Use parentheses around all amounts that are decreases. Explain the increase or decrease in Part V.
Column (d).
Enter the correct amount. This will be the sum of column (b) and column (c).
Line 6.
Show any increase or decrease to the ELP's tax or other payments.
Line 10.
Enter the total tax as follows.
Enter the line 6 amounts on line 10.
Add the amounts on lines 7 through 9 and enter the total for each column on line 10.
Line 11.
Enter the amount of tax paid with Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns.
Line 14.
Enter the amount from the “Overpayment” line of the original return, even if the ELP or REMIC chose to credit all or part of this amount to the next year's estimated tax. This amount must be considered in preparing Form 1065-X because any refund due from the original return will be refunded separately from any additional refund claimed on Form 1065-X. If the original return was changed by the IRS and the result was an additional overpayment of tax, also include that amount on line 14.
Line 16.
If the ELP or REMIC doesn't use electronic fund transfers, including the Electronic Federal Tax Payment System (EFTPS), enclose a check with this form. Make the check payable to “United States Treasury.”
Line 17.
If the ELP or REMIC is entitled to a refund larger than the amount claimed on the original return, line 17 will show only the additional amount of overpayment. This additional amount will be refunded separately from the amount claimed on the original return. The IRS will figure any interest due and include it in the refund.
If the ELP or REMIC is filing Form 1065-X for an AAR, don’t furnish the amended Schedules K-1 or Schedules Q to the partners or residual interest holders. If the REMIC isn’t filing for an AAR and isn’t subject to the rules for consolidated audit proceedings under sections 6221 through 6231 (prior to amendment by BBA), the REMIC must furnish the amended Schedules Q to its residual interest holders.
BBA AARs must always include a computation of the IU (even when the IU is zero or less than zero, or the adjustments don’t result in an IU), as determined under section 6225(b). Where the adjustments don’t result in an IU, the IU should be shown as zero. Documentation should be included with the AAR that supports the computation of the IU amount. If the resulting IU amount is zero or less than zero, or the adjustments don’t result in an IU, or if the partnership is making an election under section 6227(b)(2) to have the adjustments taken into account by the reviewed year partners, Part IV, line 1, should be shown as zero. Otherwise, the IU amount should be reported on Part IV, line 1.
If the adjustments requested in the AAR result in an IU, generally the partnership takes the adjustments into account and must pay the IU. Adjustments requested in the AAR that result in zero, less than zero, or the adjustments don’t result in an IU must be taken into account by each reviewed year partner as if the partnership had made an election under section 6227(b)(2), but only with regard to those adjustments that don’t result in an IU. In this instance, see Forms 8985 and 8986 and their related instructions for reporting amounts not included in the IU.
The partnership may elect under section 6227(b)(2) to have the reviewed year partners take into account adjustments resulting in an IU. If the partnership makes the election, the partnership isn’t liable for, nor required to pay, the IU related to the adjustments. Additionally, if the IU calculation results in an amount that is zero, less than zero, or the adjustments don’t result in an IU, then all adjustments are taken into account by the reviewed year partners. However, the partnership may have withholding and reporting obligations under chapter 3 or chapter 4 with respect to the adjustments taken into account by the reviewed year foreign partners. See the instructions for Form 8985 and Form 8986.
If the partnership elects under section 6227(b)(2) to have its reviewed year partners take all the adjustments into account, all modifications by the partnership (that would have been allowed had the partnership paid an IU) aren’t allowed and are disregarded.
The partnership must always include an IU calculation, irrespective of whether the IU is zero (or less than zero, or the adjustments don’t result in an IU) or the partnership elects under section 6227(b)(2) to have its reviewed year partners take all the adjustments into account.
Under section 6227(b)(1), the partnership may modify the IU resulting from adjustments reported in a BBA AAR in accordance with the provisions under section 6225(c), disregarding the provisions under sections 6225(c)(2), (7), and (9). Any modification made to the IU under section 6227(b)(1) must be disclosed and fully explained in documentation included with the AAR.
If modifications are applied to the IU, complete and attach Form 8980 and report the modified IU amount on Part IV, line 1. See Part I, Section 2, Item E , earlier, for more information on modification.
The applicability of interest and penalties is discussed under Interest and penalties applicable to IU , earlier. The BBA AAR may include a prepayment for interest and penalties. If making such prepayments, the AAR should include documentation that supports the calculations. A payment made with Form 1065-X should detail the portions of the payment that are for the IU, prepaid estimated interest, and prepaid estimated penalties. The total of all three should be reported on Part IV, line 2.
Under section 6232(a)(2), partnerships filing a BBA AAR that has adjustments that result in an IU, and don’t elect the alternative to payment of the IU (by not electing to push out the adjustments to the reviewed year partners), must pay the IU. The IU should be shown on Form 1065-X, Part IV, line 1, at the time of filing the AAR. When paying by check, include the name of the partnership, “Form 1065,” the TIN of the partnership, the tax year, and “BBA AAR Imputed Underpayment.” Checks must be made payable to “United States Treasury” and included with the BBA AAR. If making an electronic payment, choose the payment description “BBA AAR Imputed Underpayment” from the list of payment types. The payment amount, including any prepaid estimated interest and penalties, should be reported on Part IV, line 3.