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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
made as a result of a BBA audit should be Column (g), Approved modifications— Part IV—Applicable Penalties
shown in a separate statement in Part V Enter the total modifications approved by The applicability of penalties is
using a per-return, adjustment, and the IRS with respect to the item adjusted. determined at the audited partnership or
corrected amount format. Modifications related to the filing of an AAR partnership level. In the penalties
AAR should not be shown in this column. section of Part IV, enter the penalty code
Part IV—Partners’ Total With respect to Schedule K-3, do not enter sections, descriptions, rates, adjustment
Reviewed Year Income, Gain, an amount in this column. line numbers, and total adjustment amount
Loss, Deduction, Credits, and Column (h), Net (column (f) minus to which the penalty applies.
column (g))—Enter the amount in column
Other Items
(f) less the amount in column (g). This is Part V—Statements
Note. Adjustments that increase a the reviewed year adjustments net of The purpose of this part is to provide
Schedule K-1 (Form 1065) item as approved modifications. With respect to additional space to add statements where
originally reported, or as corrected, must Schedule K-3, do not enter an amount in needed. In general, if a statement was
be shown as positive numbers. this column. included to support the original
Adjustments that decrease Schedule K-1
(Form 1065) items should be shown as Loans and other items recharacterized Schedule K, the same statement should
negative numbers. as distributions to partners. If a be shown here if any item on that
Part IV should include summary figures reviewed year adjustment has been made statement changed as a result of the audit.
of the total amounts of the Forms 8986 to change a partner loan or other item to a This part can also be used by
that are related to this Form 8985. For partner distribution, this adjustment should pass-through partners that choose to
audited partnerships and AAR be reported with the column (a) line calculate and pay an IU, and for
partnerships, this part should include the number that corresponds to the adjustments that do not have a
sum of all adjustments included in the Schedule K-1 “Distributions” category and corresponding Schedule K-1 line number.
Forms 8986 sent to the partners. For with column (c) code A for cash Column (a), Line no./code—List the
pass-through partners, the amounts in this distributions if the partner received money corresponding Schedule K-1, Part IV,
part should equal the amounts shown on and as a code C if the partner received column (a), line number and column (c)
the Form 8986 that was received by the property other than money. code (if applicable) for each item for which
a statement is included.
pass-through partner. For columns (a)–(c), Disguised sale adjustments. Column (b), Statement—Include a
refer to the relevant Schedule K-1 and Distributions to a partner that were detailed explanation of the amount(s) or
instructions. See below for special changed as part of an audit proceeding to calculation(s) that corresponds to the item
instructions for changes to Schedules K-2 disguised sale proceeds under section in column (a).
and K-3 (Form 1065). For each item that 707 should be reported with the column
was adjusted, enter the following. (a) line number that corresponds to the Supporting schedules and statements
Column (a), Line number—The Schedule K-1, Other category, and with should be in a format that shows the
Schedule K-1 line number that was column (c) code DS. The partnership original amount, the net change, and the
adjusted. If you have changes to should also include a statement in Part V correct amount for each item listed in the
Schedule K-3, enter “K3” (no dash). describing the asset that was sold, the statement. If any column (b) statements
Column (b), Line title—The title of the proceeds, and the tax basis of the asset at exceed the space allowable in one box,
Schedule K-1 item that was adjusted. For the time of the contribution. continue in the next box with the same
adjustments to Schedule K-3 (Form 1065), information in column (a).
enter the part, section (if applicable), line, Note. If the adjustments cannot be fully
and column reference. reflected in Part VI, fax a separate This Part V should also be used if a
Column (c), Code—Enter the code statement(s), and enter a note in Part VI pass-through partner is choosing to figure
letters listed in the Schedule K-1 indicating that you have faxed the and pay an IU. Pass-through partners that
instructions that correspond to the line statement(s) to 888-981-6982 are choosing to pay an IU should enter
number shown in column (a). For “Part III F” in column (a) and a detailed
adjustments to Schedule K-3, if Special instructions for changes to calculation in column (b). For a change to
applicable, enter the country code. See Schedules K-2 and K-3. The Form 8985 liabilities or other balance sheet items,
the Schedule K-3 instructions. If no is a summary of all adjustments on the enter "Part IV F" in the line number field of
specific code applies, enter “NA.” related Forms 8986. This is similar to Part V of the Form 8985 (statements
Column (d), As reported—Enter the Schedule K-2 with respect to the related section) and attach a statement describing
original aggregate amount reported to the Schedules K-3. Adjustments to the the original amounts reported,
partners on their Schedules K-1 or as Schedule K-2 should be reflected on Form adjustments, and corrected aggregate
previously corrected by the partnership. 8985 and to the Schedule K-3 on Form balance sheet items. For a change to
With respect to Schedule K-3, do not enter 8986. capital accounts, enter "Part IV G" in Part
an amount in this column. See the Instructions for the Form 8986 V and attach a statement describing the
Column (e), Check if statement in Part for examples of how Schedule K-3 aggregate original amounts reported,
V—Check the box in this column if the adjustments should be reported. The adjustments, and corrected amounts.
item shown in column (a) has a related Schedule K-2 (summary of Statements that need to be sent sepa-
corresponding statement in Part V. For Schedule K-3) adjustments should be rately by fax. Adjustments that cannot be
adjustments to Schedule K-3, enter an reported in the same manner on the Form fully reflected in Part V can be faxed
explanation of the adjustment on Part V of 8985. separately to 888-981-6982. All faxed
Form 8985 with reference to the entry on Note. If the adjustments cannot be fully statements to be associated with Forms
Part IV, column (b). reflected in Part V, fax a separate 8985 and 8986 should have the following
Column (f), Reviewed year statement(s), and enter a note in Part V information at the top of the statement.
adjustments as finally determined— indicating that you have faxed the • Form number the statement relates to
Enter the total reviewed year adjustments statement(s) to 888-981-6982. (8985 or 8986).
corresponding to the line item in column • Submitting entity name.
(a). With respect to Schedule K-3, do not • Partner's tax identification number (if
enter an amount in this column. related to a Form 8986).
Instructions for Form 8985 (Rev. 12-2021) -5-
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