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                                                                                                          Department of the Treasury
                                                                                                          Internal Revenue Service
Instructions for Form 8985 

and Form 8985-V

(Rev. January 2024)
Pass-Through Statement—Transmittal/Partnership Adjustment Tracking Report
(Required Under Sections 6226 and 6227)
For use with Form 8985 and Form 8985-V (December 2019)

Contents                                                                Page  used to report payment made and related calculations by a 
What’s New   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  1 pass-through partner.
Purpose of Form . . . . . . . . . . . . . . . . . . . . . . . . . . . .     1 Form 8985-V is used by a pass-through partner to submit a 
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 tax payment related to a BBA exam or BBA AAR.
General Instructions    . . . . . . . . . . . . . . . . . . . . . . . . .   2
                                                                              Definitions
Who Should Prepare Form 8985                    . . . . . . . . . . . . .   2 AAR partnership is a BBA partnership (see below) which has 
Who Must Sign Form 8985                 . . . . . . . . . . . . . . . . .   2 filed an AAR under section 6227.
Where To Submit Form 8985 . . . . . . . . . . . . . . . .                   2 AAR partnership’s adjustment year is the partnership tax year 
Due Dates       . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   2 that includes the date the AAR was filed with the IRS.
                                                                              Affected partner is a partner that held an interest in the 
Pass-Through Partners That Make a Payment . . . .                           3 pass-through partner entity at any time during the tax year of the 
Pass-Through Partners That Push Out                                           pass-through partner to which the adjustments in the statement 
Adjustments to Their Partners                   . . . . . . . . . . . . .   3 relate.
Specific Instructions   . . . . . . . . . . . . . . . . . . . . . . . . .   4 Audited partnership, for purposes of Form 8985, is a BBA 
                                                                              partnership that made the election under section 6226 to have its 
Part I—Information About Entity Submitting                                    partners report their share of adjustments to partnership-related 
This Form           . . . . . . . . . . . . . . . . . . . . . . . . . . .   4 items.
Part II—Information About the Audited                                         Audited partnership’s adjustment year is the year that 
Partnership or the Partnership That Filed                                     includes the date the court decision became final, if the 
an AAR          . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   4 partnership filed a petition under section 6234. Otherwise, it is 
Part III—Information About the Pass-Through                                   the year that includes the date the final partnership adjustment 
Partner Submitting This Form 8985                       . . . . . . . . .   5 (FPA) letter was mailed, or the FPA waiver was executed by the 
                                                                              IRS.
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       5 Adjustments that do not result in an IU. A partnership 
Part IV—Partners’ Total Reviewed Year                                         adjustment does not result in an imputed underpayment (IU) if 
Income, Gain, Loss, Deduction, Credits,                                       the result of netting with respect to any grouping or subgrouping 
and Other Items             . . . . . . . . . . . . . . . . . . . . . . .   5 that includes the particular partnership adjustment is zero or less 
Part IV—Applicable Penalties                . . . . . . . . . . . . . . .   6 than zero. Adjustments do not result in an IU if the calculation of 
                                                                              the IU on those adjustments results in an amount that is zero or 
Part V—Statements             . . . . . . . . . . . . . . . . . . . . . .   6 less than zero. Any adjustment to an item which is not a 
Instructions for Form 8985-V (Tax Payment by a                                monetary item (for example, an election made by the 
Pass-Through Partner)             . . . . . . . . . . . . . . . . . . . .   8 partnership) is an adjustment that does not result in an IU.
Purpose of Form 8985-V . . . . . . . . . . . . . . . . . . .                8 BBA AAR is an administrative adjustment request filed by a BBA 
                                                                              partnership.
Specific Instructions for Form 8985-V . . . . . . . . . .                   8 BBA partnership is a partnership that is subject to the 
Where To Submit Form 8985-V                   . . . . . . . . . . . . . .   8 centralized partnership audit regime that was enacted into law by 
Section references are to the Internal Revenue Code unless                    section 1101 of the Bipartisan Budget Act of 2015 (BBA). The 
otherwise noted.                                                              BBA is generally effective for tax years beginning on or after 
                                                                              January 1, 2018.
Future Developments                                                           Designated individual (DI) is the individual through whom an 
For the latest information about developments related to Forms                entity partnership representative acts.
8985 and 8985-V and their instructions, such as legislation                   Extended due date of the partnership’s adjustment year 
enacted after they were published, go to IRS.gov/Form8985.                    return is, for purposes of Form 8985, the extended due date of 
                                                                              the AAR or audited partnership’s adjustment year return 
What’s New                                                                    regardless of whether the partnership is required to file a return 
This revision of the Instructions for Form 8985 includes an                   for the adjustment year or timely filed a request for an extension.
update on using the Part V statements section for making a                    Finally determined The partnership adjustment(s) become 
correction to the amounts reported in Part IV. See Statements                 finally determined upon the expiration of the time to file a petition 
provided in addition to amounts in Part IV.                                   under section 6234 or, if a petition is filed under section 6234, 
                                                                              the date when the court’s decision becomes final or the date the 
Purpose of Form                                                               closing agreement is entered into between the IRS and the 
Form 8985 is used to summarize and transmit Forms 8986,                       partnership.
Partner's Share of Adjustment(s) to Partnership-Related Item(s),              First affected year is the partner’s tax year that includes the 
by an audited partnership, administrative adjustment request                  end of the audited or AAR partnership’s reviewed year(s). Each 
(AAR) partnership, or pass-through partner. Form 8985 is also 

Jan 16, 2024                                                            Cat. No. 69666K

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reviewed year of an audited partnership should have a submitted electronically) include a statement indicating that the
corresponding first affected year for each partner. PR or DI has changed and the date the Form 8979 was faxed.
Imputed underpayment (IU) is the amount determined under
Special instructions for a BBA partnership making a push
sections 6225, 6226, and 6227, and the regulations thereunder.
out election as a result of an examination. If a BBA
Partnership representative (PR) is the person designated by
partnership makes a push out election, and the PR or DI for the
the partnership or by the IRS under section 6223 and the
reviewed year has changed or you would like to make a change,
regulations thereunder to act on behalf of a BBA partnership.
submit Form 8979 by attaching it to the push out election, Form
Pass-through partner is a pass-through entity that holds an
8988 (which must be submitted electronically). If the PR or DI for
interest, either directly or indirectly, in a partnership.
the reviewed year changes between the time the push out
Pass-through entities include partnerships, S corporations,
election is made and when the Form 8985 is submitted, fax the
trusts, and decedents’ estates. For purposes of Form 8985, a
Form 8979 separately to 888-981-6982, and in Part V of the
pass-through entity is not a wholly owned entity disregarded as
Form 8985 (which must be submitted electronically) include a
separate from its owner for federal tax purposes or a trust that is
statement indicating that the PR or DI has changed and the date
wholly owned by only one person.
the Form 8979 was faxed.
Pass-through partner’s tax year end to which the
adjustments relate is the end of the pass-through partner's tax
Where To Submit Form 8985
year which includes the audited or AAR partnership’s reviewed
year end date. Audited partnerships and pass-through partners of audi-
ted partnerships. Section 6241(10) gives the IRS authority to
Note. An entity partner can be both a non-pass-through partner require electronic submission of anything required to be filed or
and a pass-through partner. To the extent the adjustments an submitted under section 6226(a). Audited BBA partnerships and
entity partner received on a Form 8986 relate to items that are their pass-through partners are required to submit Forms 8985
taxable at the entity level, it is considered a non-pass-through and 8986 electronically. See IRS.gov/BBAeSubmit for steps
partner. With regard to adjustments that pass through to its required to register and submit electronically.
owners/beneficiaries, it is considered a pass-through partner.
AAR partnerships. AAR partnerships that are electing to push
Reporting year is the partner’s tax year(s) that includes the out adjustments to their partners or have adjustments that do not
date the AAR or audited partnership furnished the Forms 8986, result in an IU must include Form 8985 with their AAR along with
Partner’s Share of Adjustment(s) to Partnership-Related Item(s), Forms 8986. The Forms 8985 and 8986 must be filed with, and
to its partners. in the same manner as, the AAR.
Reviewed year is the AAR or audited partnership’s tax year to
which the partnership adjustment(s) relates. Pass-through partners of an AAR partnership. Pass-through
Reviewed year adjustments are adjustments originating from partners of an AAR partnership must submit Form 8985 to the
the AAR or audited partnership’s reviewed year(s). IRS by fax at 888-981-6982, with or without Forms 8986, as
Reviewed year partner is any person that held an interest in applicable. This fax number is not for general use. Taxpayers
the audited or AAR partnership at any time during the should not use this for anything besides Forms 8985 and 8986.
partnership’s reviewed year. Illegible or other submissions received at this fax number will not
be processed. See IRS.gov/BBAAAR for additional information.
General Instructions
Due Dates
Who Should Prepare Form 8985 Audited partnerships. An audited partnership that has made
The following persons or entities should prepare Form 8985. an election under section 6226 must submit Form 8985 and the
• Audited partnerships that have made an election under related Forms 8986 to the IRS no later than 60 days after the
section 6226. date on which the partnership adjustments are finally
• Direct or indirect pass-through partners that receive a Form determined. Failure to submit Forms 8986 by the due date may
8986 related to an AAR or audited partnership, regardless of result in the audited partnership being liable for the IU.
whether they furnish statements to their partners or choose to An audited partnership can submit corrected Forms 8985 and
pay in lieu of furnishing statements to their partners. the related corrected Forms 8986 within 60 days of the due date
• Partnerships that file an AAR under section 6227 and either for the initially submitted forms without IRS permission. If
elect to push out the resulting adjustments to their partners or corrected statements need to be submitted after the 60-day
have adjustments that do not result in an IU. correction period, the audited partnership must contact the IRS
for permission to submit.
Who Must Sign Form 8985
AAR partnerships. An AAR partnership that either elects to
If prepared by an audited partnership or an AAR partnership, push out the resulting adjustments to its partners or has
Form 8985 should be signed by the authorized PR or DI for the adjustments that do not result in an IU must include Forms 8985
reviewed tax year. If prepared by a pass-through partner, Form and the related Forms 8986 with its AAR.
8985 should be signed by an individual who has the authority to
sign the partner’s information return. If the pass-through partner Pass-through partners. Direct and indirect pass-through
is a BBA partnership, this should be signed by the pass-through partners must submit Form 8985 by the extended due date of the
partner’s PR or DI for the first affected year. audited partnership’s adjustment year return (or the extended
due date of the AAR partnership’s adjustment year return). This
Special instructions for pass-through partners. If the PR or date can be found in Part II, item F, of the Form 8986 that was
DI shown on the pass-through partner's first affected year tax received by the pass-through partner. Failure to submit by the
return has changed or you would like to make a change, submit a due date may result in a penalty. A pass-through partner who
Form 8979 authorizing the change. If the Form 8985 you are receives a Form 8986 related to an audited partnership can
submitting is related to an AAR filing, the Form 8979 should be submit a corrected Form 8985 and the related Forms 8986, if
included with the Form 8985. However, if the Form 8985 is applicable, within 60 days of the due date for the initially
related to a BBA audit, fax the Form 8979 separately to submitted forms without IRS permission. If corrected Forms
888-981-6982, and in Part V of the Form 8985 (which must be 8985 need to be submitted after the 60-day correction period,

2 Instructions for Form 8985 (January 2024)

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the pass-through partner must contact the IRS for permission to partners’ share of partnership adjustments as finally determined
submit. in the FPA it received from the IRS for reviewed year ending
December 31, 2023. The Forms 8986 sent to partners M (an
Pass-Through Partners That Make a Payment individual) and J (a partnership) each reflect a partnership
If a pass-through partner receives a Form 8986 as a result of an adjustment of $100,000 to ordinary income. The statements also
audited partnership, it can take into account the adjustments indicate that the substantial understatement penalty under
reflected in the Form 8986 by paying the IU, including all section 6662(d) applies and no modifications were approved.
applicable penalties and interest, and submitting Form 8985 by The extended due date of MJ’s 2026 return is September 15,
the extended due date of the audited partnership’s adjustment 2027.
year return. A pass-through partner that chooses to pay an IU M takes into account her share of the adjustments reflected
should not issue related Forms 8986 to its partners, with one on the Form 8986 furnished by MJ on her reporting year 2026
exception noted in the next paragraph, but should still complete individual tax return by completing and attaching Forms 8978
Part IV of Form 8985. and 8978 Sch A.
If a pass-through partner receives a Form 8986 as a result of J’s first affected year return was due on March 15, 2024. J did
an AAR partnership, it can take into account the adjustments not file for an extension. Assume the short-term federal interest
reflected in the Form 8986 by paying the IU, including all rate from March 15, 2024, to April 1, 2027, is 2.5%. J adds 5%
applicable penalties and interest, and submitting Form 8985 by (3% from section 6621; 2% from section 6226) to this rate to
the extended due date of the AAR partnership’s adjustment year obtain 7.5% as its applicable interest rate which is compounded
return. However, adjustments that do not result in an IU shown daily. Also assume that the highest income tax rate for a U.S.
on the Form 8986 that are related to an AAR must be pushed person as of December 31, 2023, is 37%. On April 1, 2027, J
out. decides to account for the adjustments by paying an IU and
submitting the Form 8985 to the IRS. J determines that because
In Part III, item F, the appropriate box must be checked and the IU exceeds the threshold amount in section 6662(d), the
payment information must be reflected. In Part V, include a penalty must be included in its payment. On Form 8985, J
statement or statements showing how the IU, penalties, and checks box 1 in Part III, item F, figures an IU, and includes a
interest were figured. See below for how to figure these amounts. statement with the calculation details in Part V. J figures the IU,
Pass-through partner’s calculation of the IU. If a related penalty, and interest from March 15, 2024, as shown in
pass-through partner chooses to make a payment rather than the following table.
push out the adjustments to its partners, payment is figured in
the same manner as an IU is figured under Regulations section Example Calculation of Amount Due, Penalty, and
301.6225-1 by treating all the adjustments reflected on the Form Interest by Pass-Through Partner
8986 received by the pass-through partner as partnership
adjustments for the first affected year of the pass-through Total adjustments net of modifications $100,000
partner. Any modifications approved by the IRS with respect to Multiplied by highest income tax rate 37%
an audited partnership involving partners of the pass-through in effect on 12/31/2023
partner (which are indirect partners of the audited partnership) Equals IU (additional tax) $37,000
should be taken into account in this calculation. Adjustments that Multiplied by penalty rate under 20%
do not result in an IU are taken into account by the pass-through section 6662
partner in the tax year that includes the date of payment. Equals penalty on IU $7,400
However, adjustments that do not result in an IU shown on the Total IU and penalty $44,400
Form 8986 that are related to an AAR must be pushed out. A
detailed calculation must be included in Part V of the Form 8985 Interest at 7.5% from 03/15/2024 to $11,408
04/1/2027 on total IU and penalty
filed with the IRS. Pass-through partners of an AAR partnership
Total amount due $55,808
cannot include modifications in the calculation.
Pass-through partner’s calculation of penalties and inter- J makes a payment of $55,808 electronically at IRS.gov and
est. Pass-through partners that make a payment must figure obtains a confirmation number which it enters in the space
and pay applicable penalties on the amounts due, treating such provided in Part III, item F, of Form 8985, along with the amount
amounts as IUs for the pass-through partner’s first affected year. of additional tax, penalties, and interest. Since J has accounted
To find out which penalties apply, pass-through partners should for its share of the audit adjustments by making a payment and
refer to the penalty sections of Part V of the Form 8986 that they submitting Form 8985, it does not have to issue Forms 8986 to
received. its partners.
Pass-through partners that make a payment must pay interest Payments by pass-through partners. Go to IRS.gov/
on the IU (including all applicable penalties) as if the IU was due Payments for payment options. If submitting a check or money
on the due date of the return for first affected year. Interest is order, use Form 8985-V. See the instructions for Form 8985-V at
figured from the due date of the pass-through partner’s return for the end of these instructions.
the first affected tax year and is compounded daily until it is paid. However you choose to pay, identify your payment by
The interest on the penalties is also figured from the same due checking the appropriate box on Form 8985-V.
date unless the pass-through partner filed for an extension in the • Payment submitted by a pass-through partner due to an
first affected year, in which case it should be figured from that audited partnership should be identified as “BBA exam push
date. The interest is figured at the underpayment rate under out.”
section 6621(a)(2), but substituting “five percentage points” for • Payment submitted by a pass-through partner due to an AAR
“three percentage points.” Pass-through partners that are making partnership should be identified as “BBA AAR push out.”
a payment as part of an AAR should use the rate under section
6621(a)(2) without making this substitution. Pass-Through Partners That Push Out
Example calculation of amount due, penalty, and interest Adjustments to Their Partners
by pass-through partner. On October 12, 2026, MJ, an If a pass-through partner pushes out the adjustment(s) to its
audited partnership, timely furnishes Forms 8986 to its partners partners, it must push out all of the adjustment(s). The
and submits them to the IRS. The Forms 8986 reflect the
Instructions for Form 8985 (January 2024) 3

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appropriate box must be checked in Part III, item F, of Form last four digits of its EIN (EIN in Part III, B), followed by 01 (or 02,
8985. It must also provide Forms 8986 to its partners and to the 03 and so forth if the pass-through partner received more than
IRS by the extended due date of the audited partnership’s (or one Form 8986 originating from the same AAR partnership or
AAR partnership’s) adjustment year return. The push out same pass-through partner, for example, YYMM1234-0000XX.
package submitted to the IRS should include the summary Form
Audit control number. Enter the audit control number that is
8985 and all related Forms 8986 that were provided to the
provided on correspondence with the IRS. Pass-through
partners. See the Instructions for Form 8986.
partners can locate this number at the top of the Form 8986 they
Note. The audit control number does not apply to partnerships received.
and pass-through partners submitting Form 8985 as part of an
AAR. Part I—Information About Entity Submitting This
Form
Specific Instructions Item A—Indicate which entity is issuing this form by checking
Original or corrected. At the top of Form 8985, check the the appropriate box.
appropriate box to indicate if it’s an original or corrected form. A Item B—Check the box that corresponds to the type of return
corrected Form 8985 is required in all situations. If Form 8985 is normally filed by the entity issuing this form. If Other, also
corrected, it must be submitted with all of the Forms 8986 indicate the type of return filed on the line provided.
originally submitted, including forms that did not change. Item C—Enter the number of Forms 8986 that are associated
with only this Form 8985. Pass-through partners of an audited
Withholding for foreign partners. A BBA partnership may BBA partnership that choose to make a payment instead of
have withholding and reporting obligations if it furnishes a Form issuing Forms 8986 must enter a zero in this box.
8986 to a reviewed year partner that includes an adjustment Items D and E—These fields are to be filled out only by an
subject to withholding under chapter 3 (Withholding of Tax on audited BBA partnership or a pass-through partner of an audited
Nonresident Aliens and Foreign Corporations) or chapter 4 BBA partnership. Generally, box D should be checked, and you
(Taxes to Enforce Reporting on Certain Foreign Accounts). See should enter 1 of 1 in box E.
the Instructions for Form 8986 for more information.
Note. Pass-through partners of an audited BBA partnership that
Incoming tracking number and outgoing tracking number.
make a payment instead of issuing Forms 8986 will not need to
These fields are to be filled out by a BBA partnership or a
include any Forms 8986. They should also check box D and
pass-through partner of a BBA partnership. The incoming
enter 1 of 1 in box E.
tracking number is completed by a pass-through partner and is
the tracking number shown on the Form 8986 received by the Special instructions for audited BBA partnerships or
pass-through partner. The outgoing tracking number needs to be pass-through partners of audited BBA partnerships with
completed by a BBA partnership or a pass-through partner of a more than 500 partners submitting push out Forms 8985
BBA partnership that is issuing Forms 8986 to its partners/ and 8986 (batched submission). There is a limitation
owners. A unique outgoing tracking number must be obtained for regarding the size of files that can be filed electronically in a
each push out package submitted by an audited BBA single submission. If the submission exceeds that size, the
partnership or pass-through partner of an audited BBA submission must be split into multiple batches. In this situation,
partnership. AAR filers and related pass-through partners should each batch of Forms 8986 must have an associated Form 8985.
compute and enter unique tracking numbers by following the The Form 8985 included in the first batch will be considered the
instructions below. See IRS.gov/BBAeSubmit website for steps summary Form 8985, and for this Form 8985, box D should be
required to register and submit electronically. checked. In box E, enter 1 of X, with X being the total number of
AAR filers and pass-through partners (direct and indirect) of batches submitted for the outgoing tracking number shown at
AAR partnership filers that are electing to push out adjustments the top of the form. In the second batch submitted, do not check
to their partners should compute and complete the tracking box D; enter 2 of X in box E, and so forth for all subsequent
number field as follows: batches. Each batch must have the same outgoing tracking
• For an AAR partnership, the incoming tracking number field number (and incoming tracking number, if applicable).
should remain blank. The outgoing tracking number field should
contain eight numbers, and a dash, followed by another six Part II—Information About the Audited
numbers in the format YYMM1234-0000XX. In the first four digits Partnership or the Partnership That Filed an
enter the year and month the AAR partnership is reporting that AAR
Forms 8986 were sent to its partners (use the same date used in
Item A—On lines 1–6, enter the name and address of the
Form 8985/8986 Part II, G), and in next four digits enter the last
partnership. In the state field, enter the two-letter abbreviation for
four digits of its EIN (that is, Part II, C). In the final six digits enter
the U.S. state or the full name of the foreign province. U.S.
000001 (or 000002 or 000003 and so forth if this is the second or
partnerships leave the country code field blank. Foreign
third AAR filed for the reviewed year).
partnerships enter the country code found at Foreign Country
Note. This outgoing tracking number will also be used as the
Codes.
tracking number on Forms 8986 issued by the AAR partnership
Item B—On lines 1–7, enter the name, address, city, in the state
filer to its reviewed year partners.
field, enter the two-letter abbreviation for the U.S. state, ZIP
• For a pass-through partner (direct and indirect) of an AAR
code, and phone number of the PR. If the PR is an entity, provide
partnership, the tracking number from the Form 8986 it received
the name, address, city, state, ZIP code, and phone number of
is used as the incoming tracking number on Form 8985 in all
the DI instead of the information about the PR.
cases (whether the pass-through partner elects to pay or push
Item C—Enter the partnership’s tax identification number.
out). If the pass-through partner is required to push out
Item D—Enter the tax year end date of the reviewed year of the
adjustments that do not result in an imputed underpayment or if
partnership. Each reviewed year should have a separate Form
the pass-through partner elects to push out further to its affected
8985. This form must be completed for reviewed years that have
partners, it should determine and report the outgoing tracking
adjustments related to an audit or an AAR.
number using the same numbers before the dash as the tracking
Item E—Enter the partnership’s adjustment year ending date.
number on the Form 8986 it received (date in 8986 Part II, G and
last four of the EIN Part II, C), and then after the dash, enter the

4 Instructions for Form 8985 (January 2024)

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Item F—Enter the extended due date of the partnership’s Part IV—Partners’ Total Reviewed Year Income,
adjustment year tax return, regardless of whether the partnership
Gain, Loss, Deduction, Credits, and Other Items
has filed for an extension. For AAR partnerships, this will be the
extended due date of the tax year the AAR was filed. Note. Adjustments that increase a Schedule K-1 (Form 1065)
Item G—Enter the date the partnership furnished the Forms item as originally reported, or as corrected, must be shown as
8986 to its partners. positive numbers. Adjustments that decrease Schedule K-1
(Form 1065) items should be shown as negative numbers.
Part III—Information About the Pass-Through Part IV should include summary figures of the total amounts
Partner Submitting This Form 8985 of the Forms 8986 that are related to this Form 8985. For audited
partnerships and AAR partnerships, this part should include the
Item A—On lines 1–6, enter the pass-through partner’s name
sum of all adjustments included in the Forms 8986 sent to the
and address. In the state field, enter the two-letter abbreviation
partners. For pass-through partners, the amounts in this part
for the U.S. state or the full name of the foreign province. U.S.
should equal the amounts shown on the Form 8986 that was
partnerships leave the country code field blank. Foreign
received by the pass-through partner. For columns (a)–(c), refer
partnerships enter the country code found at Foreign Country
to the relevant Schedule K-1 and instructions. See below for
Codes.
special instructions for changes to Schedules K-2 and K-3 (Form
Item B—Enter the pass-through partner’s tax identification
1065). For each item that was adjusted, enter the following.
number.
Column (a), Line number—The Schedule K-1 line number that
Item C—Enter the pass-through partner’s tax year end to which
was adjusted. If you have changes to Schedule K-3, enter “K3”
the adjustments relate.
(no dash).
Item D—Enter the name of the entity that issued the Form 8986
Column (b), Line title—The title of the Schedule K-1 item that
to the pass-through partner, if different from the audited
was adjusted. For adjustments to Schedule K-3 (Form 1065),
partnership or AAR partnership in Part II.
enter the part, section (if applicable), line, and column reference.
Item E—Enter the tax identification number of the entity that
Column (c), Code—Enter the code letters listed in the
issued the Form 8986 to the pass-through partner, if different
Schedule K-1 instructions that correspond to the line number
from the audited partnership or AAR partnership in Part II.
shown in column (a). For adjustments to Schedule K-3, if
Item F—Indicate if the pass-through partner is making a
applicable, enter the country code. See the Schedule K-3
payment or issuing Forms 8986 to its partners by checking the
instructions. If no specific code applies, enter “NA.”
appropriate box 1 or 2. If the pass-through partner is making a
Column (d), As reported—Enter the original aggregate amount
payment, a statement must be included in Part V with a detailed
reported to the partners on their Schedules K-1 or as previously
calculation of the IU plus any applicable penalties and interest.
corrected by the partnership. With respect to Schedule K-3, do
An IU calculation is not needed if pushing out all the
not enter an amount in this column.
adjustments. If paying electronically, check box 3 and enter the
Column (e), Check if statement in Part V—Check the box in
electronic payment confirmation number in the space provided. If
this column if the item shown in column (a) has a corresponding
paying by check or money order, check box 4 and enter the
statement in Part V. For adjustments to Schedule K-3, enter an
check number in the space provided.
explanation of the adjustment on Part V of Form 8985 with
reference to the entry on Part IV, column (b).
Signature
Column (f), Reviewed year adjustments as finally
Non-electronically submitted forms. If the form is prepared determined—Enter the total reviewed year adjustments
by an audited partnership or an AAR partnership, the authorized corresponding to the line item in column (a). With respect to
PR or DI for the reviewed year should sign and date Form 8985. Schedule K-3, do not enter an amount in this column.
If the form is prepared by a pass-through partner, it should be Column (g), Approved modifications—Enter the total
signed and dated by an individual who has the authority to sign modifications approved by the IRS with respect to the item
the pass-through partner’s tax return. If the pass-through partner adjusted. Modifications related to the filing of an AAR should not
is a BBA partnership, it should be signed by its PR or DI for the be shown in this column. With respect to Schedule K-3, do not
first affected year. enter an amount in this column.
Column (h), Net (column (f) minus column (g))—Enter the
Electronically submitted forms. For audited BBA amount in column (f) less the amount in column (g). This is the
partnerships and pass-through partners of audited BBA reviewed year adjustments net of approved modifications. With
partnerships that electronically submit forms, the PR or DI for the respect to Schedule K-3, do not enter an amount in this column.
first affected year e-sign the form by entering their five-digit PIN
in the signature block. The five-digit PIN is the number that is Loans and other items recharacterized as distributions to
self-selected during the PBBA Transmitter Control Code (PBBA partners. If a reviewed year adjustment has been made to
TCC) application step as described in the multi-step process for change a partner loan or other item to a partner distribution, this
electronic submission as described on the BBA website, adjustment should be reported with the column (a) line number
IRS.gov/BBAeSubmit. that corresponds to the Schedule K-1 “Distributions” category
Name of person signing form. The typed name of the and with column (c) code A for cash distributions if the partner
person signing the form must exactly match the name entered received money and as a code C if the partner received property
during the TCC application step for electronic submission. For other than money.
example, if the name entered during the TCC application step is Disguised sale adjustments. Distributions to a partner that
John T. Smith, the typed name on the form must be John T. were changed as part of an audit proceeding to disguised sale
Smith, not John Smith, JT Smith, etc. proceeds under section 707 should be reported with the column
Title & Date. Enter your title and the date the form is being (a) line number that corresponds to the Schedule K-1, Other
signed. category, and with column (c) code DS. The partnership should
Telephone number. Enter a daytime telephone number. also include a statement in Part V describing the asset that was
Name of entity partnership representative (if applicable). sold, the proceeds, and the tax basis of the asset at the time of
If the PR is an entity, enter the entity name. the contribution.
Special instructions for changes to Schedules K-2 and K-3.
The Form 8985 is a summary of all adjustments on the related

Instructions for Form 8985 (January 2024) 5

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Forms 8986. This is similar to Schedule K-2 with respect to the statements section can be used to add an “As Corrected”
related Schedules K-3. Adjustments to the Schedule K-2 should column to the amounts reported in Part IV. If doing so, be sure to
be reflected on Form 8985 and to the Schedule K-3 on Form complete the line number field in column (a), which is a
8986. mandatory field for all items entered in Part V (Statements).
See the Instructions for the Form 8986 for examples of how Statements related to section 199A information.
Schedule K-3 adjustments should be reported. The related Adjustments that increase or decrease section 199A information
Schedule K-2 (summary of Schedule K-3) adjustments should reported to the partners must be shown in a separate statement
be reported in the same manner on the Form 8985. for each trade or business or each aggregated trade or business.
Partnerships may aggregate trades or businesses for purposes
Part IV—Applicable Penalties of computing QBI, UBIA, and W-2 wages. The choice to
The applicability of penalties is determined at the audited aggregate must be made on an originally filed tax return. See
partnership or AAR partnership level. In the penalties section of below for an example of the information that should be included
Part IV, enter the penalty code sections, descriptions, rates, in Part V of the Form 8985. These figures should reflect the
adjustment line numbers, and total adjustment amount to which aggregate amount of section 199A items reported separately to
the penalty applies. the partners on Forms 8986.
Part V—Statements Note. Section 199A dividends are reported as a cumulative
The purpose of this part is to provide additional space to add amount and not per qualified trade or business. These should
statements where needed. In general, if a statement was only be included once in the first section 199A statement
included to support the original Schedule K, the same statement attached to Form 8985, regardless of how many statements may
should be shown here if any item on that statement changed as be necessary.
a result of the audit or the AAR filing. This part can also be used Each trade or business should indicate if it is a publicly traded
by pass-through partners that choose to calculate and pay an IU, partnership (PTP), aggregated, or specified service trade or
and for adjustments that do not have a corresponding business (SSTB). See the Instructions for Schedule K-1 (Form
Schedule K-1 line number. 1065) or the Instructions for Schedule K-1 (Form 1120-S).
Column (a), Line no./code—List the corresponding If the partnership is a patron of a specified agricultural or
Schedule K-1, Part IV, column (a), line number and column (c) horticultural cooperative, the partnership must also include a
code (if applicable) for each item for which a statement is statement for each trade or business identifying the
included. adjustment(s) to qualified items of income, gain, deduction, and
Column (b), Statement—Include a detailed explanation of the loss and W-2 wages allocable to qualified payments. Section
amount(s) or calculation(s) that corresponds to the item in 199A(g) deductions are reported as a cumulative amount and
column (a). not per qualified trade or business. These should only be
Supporting schedules and statements should be in a format included once in the first statement of adjustments to items
that shows the original amount, the net change, and the correct allocable to qualified payments attached to Form 8985,
amount for each item listed in the statement. If any column (b) regardless of how many statements may be necessary.
statements exceed the space allowable in one box, continue in Balance sheet adjustments. Any adjustments to balance
the next box with the same information in column (a). sheet items (including changes to the type of a liability between
This Part V should also be used if a pass-through partner is recourse and nonrecourse) made as a result of a BBA audit
choosing to figure and pay an IU. Pass-through partners that are should be shown in a separate statement in Part V using a
choosing to pay an IU should enter “Part III F” in column (a) and per-return, adjustment, and corrected amount format.
a detailed calculation in column (b). For a change to liabilities or
other balance sheet items, enter "Part IV F" in the line number Examples
field of Part V of the Form 8985 (statements section) and attach Example 1—Push out of section 199A-related audit
a statement describing the original amounts reported, adjustments. Assume partnership ABC has one trade or
adjustments, and corrected aggregate balance sheet items. For business that is an SSTB and is not a patron in a specified
a change to capital accounts, enter "Part IV G" in Part V and agricultural or horticultural cooperative. On its filed return,
attach a statement describing the aggregate original amounts partnership ABC reported the items shown in Example 1.
reported, adjustments, and corrected amounts. Section 199A Related Amounts Generated by the Partnership as
Statements provided in addition to amounts in Part IV. To a summary of all the section 199A related amounts generated by
further explain the effect of any adjustment, the Part V the partnership.

6 Instructions for Form 8985 (January 2024)

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Example 1. Section 199A Related Amounts Generated by the Partnership

EIN:                                                                                PTP
                                                                                    Aggregated
                                                                                   ■ SSTB
Summary of section 199A items before audit adjustments:
QBI or qualified PTP items subject to partner-specific determinations:
                                                 Ordinary business income (loss)                                                    $400,000
                                                         Rental income (loss)                                                       $20,000
                                                         Royalty income (loss)
                                                    Section 1231 gain (loss)                                                        $100,000
                                                         Other deductions                                                           $160,000
W-2 wages                                                                                                                           $100,000
UBIA of qualified property                                                                                                          $120,000
Section 199A dividends                                                                                                              $10,000
  Assume the adjustments per audit increased ordinary income                       loss at the partnership level. Partnership ABC should include in 
by $20,000 and royalty income by $10,000, and decreased other                      Part V of the Form 8985 the information shown in Example 1, 
deductions by $40,000. Assume that all of the adjustments are                      Part V of Form 8985.
determined to be qualified items of income, gain, deduction, and 

Example 1. Part V of Form 8985

EIN:                                         As Reported                           Net Adjustments                      As Corrected
Summary of section 199A items before          PTP                                                                        PTP
audit adjustments:                            Aggregated                                                                 Aggregated
                                             ■ SSTB                                                                     ■ SSTB
QBI or qualified PTP items subject to 
partner-specific determinations:
          Ordinary business income (loss)                             $400,000                                $20,000               $420,000
                       Rental income (loss)                           $20,000                                                       $20,000
                       Royalty income (loss)                                                                  $10,000               $10,000
                   Section 1231 gain (loss)                           $100,000                                                      $100,000
                           Other deductions                           $160,000                                ($40,000)             $120,000
W-2 wages                                                             $100,000                                                      $100,000
UBIA of qualified property                                            $120,000                                                      $120,000
Section 199A dividends                                                $10,000                                                       $10,000
Example 2—Pass-through partner’s calculation of IU                                 8986 on a Form 8986 that showed its share of adjustments from 
from Form 8986 received.        Assume a pass-through partner                      an audit.
received the adjustments shown in Example 2, Part V of Form 

Example 2. Part V of Form 8986

(a)       (b)                                (c)    (d)                        (e)          (f)
 Line     Line title                         Code*  As reported                Check If     Reviewed year adjustments as 
number                                                                         statement    finally determined
                                                                               in Part VI
1         Ordinary Income—Increase                                    $ 50,000                                                      $100,000
13        Other Deductions—Decrease                                   $100,000                                                      –$50,000
9a        Long-Term Capital                                           $25,000                                                       –$20,000
          Gains—Decrease
15        Line 15a, LIH Credit—Decrease                               $3,000                                                        –$2,000
15        Line 15e, Rental                                            $0                                                            $1,000
          Credits—Increase
  The pass-through partner should figure an IU for these 
adjustments as shown in Example 2. Worksheet for 
Pass-Through Partner IU Calculation.

Instructions for Form 8985 (January 2024)                                                                                                           7

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Example 2. Worksheet for Pass-Through Partner IU Calculation

Adjustments by Subgroup                Description                         Positive                       Adjustments
                                                                           Adjustments                    that did not
                                                                                                          result in an IU
Ordinary Income, Schedule K-1, Line 1  Increase to Income                                      $100,000
Other Deductions, Line 13              Decrease to Other Deductions                            $50,000
Long-Term Capital Gains,               Decrease to Long-Term Capital Gains                                                      –$20,000
Schedule K-1, Line 9a
Adjustments Before Credits                                                                     $150,000
Applicable Tax Rate                                                                                   37%

IU amount before credits                                                                       $55,500
Low Inc. Housing Credit, Schedule K-1,  Decrease to LIH Credits                                     $2,000
Line 15a
Other Rental Credits, Schedule K-1,    Increase to Other Rental Credits                                                         –$1,000
Line 15e
Total Adjustments to Credits                                                                        $2,000
Adjustments to Creditable Expenditures                                                                  $0
IU                                                                                             $57,500
Note. For the purposes of the Forms 8985 and 8986, increases               information can be found in Part I, item A, of Form 8985. If box 2 
and (decreases) to the item as reported are reflected as                   of Form 8985, Part I, item A, is checked, select “BBA exam push 
increases or (decreases) on the form. However, for the purposes            out.” If box 4 is checked, select “BBA AAR push out.”
of the IU calculation, an adjustment is shown as a positive                Payment due date—Enter the date shown in the corresponding 
amount if it would increase the income tax of any taxpayer, and            Form 8985, Part II, item F.
as a negative or an amount that not did not result in an IU if it          Imputed underpayment, penalties, and interest—Enter the 
decreases tax. Any adjustment to a balance sheet item is treated           amounts shown on the Form 8985, Part III, item F, for additional 
as a positive adjustment. Also note that separate Schedule K-1             tax, penalties, and interest.
line items are in separate subgroups that should not be netted             Amount you are paying—Enter the total that you are paying of 
for the purposes of the calculation. See above for how                     the additional tax, penalties, and interest from Form 8985, Part 
pass-through partners should report amounts that did not result            III, item F.
in an IU.                                                                  Name of pass-through partner—Enter the name shown on 
                                                                           Form 8985, Part III, item A.
Special Instructions for Changes to                                        Pass-through partner’s applicable tax year ending date—
Schedule K-2 or Schedule K-3 (Form 1065)                                   Enter the date shown on Form 8985, Part III, item C.
                                                                           Audit control number—Enter the number, if any, shown at the 
Form 8985 is a summary of all adjustments on the related Forms             top of Form 8985. If this payment is related to an AAR, enter the 
8986. This is similar to Schedule K-2 with respect to the related          incoming tracking number from the Form 8985.
Schedules K-3. Adjustments to Schedule K-2 should be                       Partner’s TIN—Enter the partner’s tax identification number 
reflected on Form 8985 and adjustments to Schedule K-3 should              from Form 8985, Part III, item B.
be reflected on Form 8986.                                                 Type of return filed—Check the box that corresponds to the 
  See the Instructions for the Form 8986 for examples of how               box that is checked in Part I, item B, of Form 8985.
Schedule K-3 adjustments should be reported. The related                   Address, city, state, ZIP code, and foreign country—Enter 
Schedule K-2 (summary of Schedules K-3) adjustments should                 the information shown on Form 8985, Part III, item A.
be reported in the same manner on Form 8985.                               Partner’s representative—Enter the name and phone number 
                                                                           of the individual who signed Form 8985.
Note. If the adjustments cannot be fully reflected in Part V, fax a 
separate statement(s), and enter a note in Part V indicating that          Where To Submit Form 8985-V
you have faxed the statement(s) to 888-981-6982.                           Mail Form 8985-V along with your check or money order to:
Instructions for Form 8985-V (Tax                                          Department of the Treasury
                                                                           Internal Revenue Service
Payment by a Pass-Through Partner)                                         Ogden, UT 84201-0011

Purpose of Form 8985-V                                                     Checks and money orders should be made payable to 
When paying an imputed underpayment as discussed in                        “United States Treasury.”
Pass-Through Partners That Make a Payment, above, Form 
8985-V should be included with a check or money order                      Paperwork Reduction Act Notice.  We ask for the information 
submitted as payment made by a direct or indirect pass-through             on this form to carry out the Internal Revenue laws of the United 
partner of an audited partnership or an AAR partnership.                   States. You are required to give us the information. We need it to 
                                                                           ensure that you are complying with these laws and to allow us to 
Specific Instructions for Form 8985-V                                      figure and collect the right amount of tax.
Type of payment—Check the appropriate box in the upper left                You are not required to provide the information requested on 
of Form 8985-V to indicate the type of payment being made. This            a form that is subject to the Paperwork Reduction Act unless the 

8                                                                                       Instructions for Form 8985 (January 2024)

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form displays a valid OMB control number. Books or records         control number 1545-0123 and is included in the estimates 
relating to a form or its instructions must be retained as long as shown in the instructions for their business income tax return.
their contents may become material in the administration of any 
Internal Revenue law. Generally, tax returns and return            If you have comments concerning the accuracy of these time 
information are confidential, as required by section 6103.         estimates or suggestions for making this form simpler, we would 
The time needed to complete and file this form will vary           be happy to hear from you. See the instructions for the tax return 
depending on individual circumstances. The estimated burden        with which this form is filed.
for business taxpayers filing this form is approved under OMB 

Instructions for Form 8985 (January 2024)                                                                                         9

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