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Department of the Treasury
Internal Revenue Service
Instructions for Form 8978

(Including Schedule A)

(Rev. January 2024)
Partner’s Additional Reporting Year Tax
For use with Form 8978 (Rev. Jan. 2023)

Contents Page Note: An entity such as a trust or an estate can be both a
What’s New . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 taxable partner and pass-through partner. For adjustments to
Purpose of This Form . . . . . . . . . . . . . . . . . . . . . . . . 1 items that are taxable to the entity partner, it should use Form
8978; and for adjustments to items that pass through to the
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 partner's owners or beneficiaries, it should follow the Forms
General Instructions . . . . . . . . . . . . . . . . . . . . . . . . . 2 8985 and 8986 instructions for pass-through partners.
Who Must File . . . . . . . . . . . . . . . . . . . . . . . . . . 2 The Schedule A (Form 8978) lists all the adjustments a
Where and When To File . . . . . . . . . . . . . . . . . . . 2 partner receives on Form 8986. Schedule A is also used to
Completing Form 8978 and Schedule A . . . . . . . . 2 report any related amounts and adjustments not reported on
Form 8986 which may result from changes to partner-level tax
Specific Instructions for Form 8978 . . . . . . . . . . . . . . 4 attributes as a result of adjustments from Form 8986.
Specific Instructions for Schedule A (Form 8978) . . . . 5
Form 8978 should only be used for changes to a partner’s
Inconsistent Positions . . . . . . . . . . . . . . . . . . . . . . . . 5
income tax. Any non-income tax changes that are related to the
Section references are to the Internal Revenue Code unless
income tax adjustments on Form 8986 received by the partner,
otherwise noted.
such as self-employment tax changes, should be reflected on an
amended return for the partner’s first affected year. The
Future Developments amended return should include a statement that explains how
For the latest information about developments related to Form the change to non-income tax was calculated, and the source of
8978 and its instructions, such as legislation enacted after they the adjustment. See Instructions for Form 1040-X for further
were published, go to IRS.gov/Form8978. information.
What’s New Non-pass-through partners reporting credit amounts on
In general, adjustments from multiple Forms 8986 received from Form 8978. Partners other than pass-through partners (such as
partnerships can be reported by a partner on one Schedule A partnerships or S corporations) use Form 8978 and Schedule A
(Form 8978) as long as the adjustments are from the same (Form 8978) to calculate the tax in their reporting year from
source type. Totals from the Schedule A are carried by the adjustments shown on Forms 8986 (pushout statement)
partner to Form 8978. However, adjustments from Forms 8986 originating from a BBA partnership because of a BBA
related to administrative adjustment requests (AARs) must be examination or a BBA partnership AAR filing. The partner's
separated from adjustments from audits under the centralized reporting year is the partner's tax year that includes the date the
partnership audit regime of the Bipartisan Budget Act of 2015 audited BBA partnership or BBA partnership that filed an AAR
(BBA). For this reason, check boxes have been added to Form furnished the Forms 8986 to its partners.
8978 and its Schedule A to indicate the source of the These partners do not report on Form 3800 any changes to
adjustment(s) being reported: AAR filing or BBA audit. credits reported on the pushout statement. Instead, Form 8978
is used to calculate the change in tax for the first affected year
If a partner has adjustments from more than one source (AAR and any intervening years of the partner that result from the
filing or BBA audit), each source type must be reported on a adjustments included on the pushout statement (including
separate Form 8978 and Schedule A. The partner indicates the adjustments to credits). The first affected year is the partner's tax
source of adjustment using the check boxes. Schedule A year that includes the end of the audited partnership's reviewed
adjustments related to an AAR filing are carried to a Form 8978 year or the year for which the AAR was filed. The intervening
with the “AAR Filing” box checked. Schedule A adjustments years are the partner's tax years that end after the first affected
related to a BBA audit are carried to a Form 8978 with the “BBA year and before the reporting year. The total change of tax for
Audit” box checked. these years is then reported on Form 8978 as an increase/
decrease to the reporting year tax.
Because each Form 8978 and its Schedule A only provide for Because the total tax change is reported on Form 8978,
4 years of reporting, if there are more than 4 years of which is then used to change the reporting year tax, a refund
adjustments for either source, the partner must file multiple claim is not made by the partner and the adjustments to credits
Forms 8978 and Schedules A relating to that source. Schedule A reported on Form 8978 should not be duplicated on Form 3800.
adjustments related to a BBA audit are carried to a Form 8978 See Exception below pertaining to “Form 3800 for Form 8978
with the “BBA Audit” box checked. See Reporting adjustments Calculation Only,” which will not duplicate reported credits but
from both an audit and from an AAR. only support the calculation contained on the Form 8978.
However, any carryforward credit amounts after the first affected
Purpose of This Form year and any intervening years are reported on Form 3800 for
Partners (other than pass-through partners such as partnerships the reporting year and reported as carryforwards (if appropriate)
or S corporations) use Form 8978 and Schedule A (Form 8978) on Form 3800 in years after the reporting year.
to report adjustments shown on Forms 8986 received from
partnerships that have elected to push out adjustments to
partnership-related items to their partners.

Jan 9, 2024 Cat. No. 69657Z

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Exception: In preparing Form 8978, the partner may
TIP attach Forms 3800 to support the applicable first General Instructions
affected year or intervening year(s) calculations by
labeling each Form 3800 attachment in each header with: “Form Who Must File
3800 for Form 8978 Calculation Only.” Every partner (except pass-through partners) that receives a
Form 8986 from a pass-through entity must file Form 8978 to
Definitions report any additional reporting year tax as a result of taking into
account the partner’s share of the reviewed year(s) adjustments.
AAR partnership is a BBA partnership (see below) which has
filed an administrative adjustment request (AAR) under section Where and When To File
6227.
Additional reporting year tax is the partner’s change in A reviewed year partner or affected partner must file Form 8978
chapter 1 tax for the reporting year after taking into account the with a federal income tax return for the partner’s reporting year.
adjustments. Example 1. Where and when to file. On March 1, 2023, an
Affected partner is a partner that held an interest in a audited partnership furnishes Forms 8986 to its two partners.
pass-through partner at any time during the tax year of the One of these reviewed year partners is a calendar year individual
pass-through partner to which the adjustments in the statement and the other is a pass-through partner. On January 15, 2024,
relate. the pass-through partner, in turn, furnishes Forms 8986 to its two
Applicable tax year is any tax year that is impacted by the audit partners who are calendar year individuals. The reporting year
adjustments shown on Form 8986. For example, if the for all three individuals is the tax year that includes March 1,
adjustments are from tax year 2020 (first affected year), that year 2023. Because the partners all have a calendar year end, the
would be impacted as well as any year between the first affected reporting year is the 2023 tax year. The partners must each
year and the reporting year that had related changes to attach a completed Form 8978 to their individual income tax
partner-level tax attributes. returns which are due April 15, 2024 (without regard to
Audited partnership, for purposes of Form 8978, is a BBA extensions).
partnership that made the election under section 6226 to have its
partners take into account their share of adjustments for Completing Form 8978 and Schedule A
partnership-related items.
BBA AAR is an administrative adjustment request filed by a BBA What to report on Form 8978 and Schedule A (Form 8978).
partnership. The specific adjustments listed on Form 8986 received by a
BBA partnership is a partnership that is subject to the reviewed year or affected partner, and other adjustments from
centralized partnership audit regime that was enacted into law by partner-level tax attributes that have changed as a result of
section 1101 of the Bipartisan Budget Act of 2015 (BBA). taking into account the adjustments, should be listed on the
First affected year is the partner’s tax year that includes the partner’s Schedule A under lines 1, 3, and 5 for income,
end of the audited partnership’s reviewed year(s). Each reviewed deductions, and credits, respectively, for the applicable tax year.
year of an audited partnership should have a corresponding first The totals on lines 2, 4, and 6 of Schedule A are reported on
affected year for each partner. lines 1b, 3b, and 9b, respectively, of Form 8978.
Intervening years include the partner’s tax years that end after Note. Tax attribute schedules should be adjusted to the extent
the first affected year and before the reporting year. adjustments to non-income items were received. For example, if
Non-pass-through partner is a partner that is other than a the partner’s Form 8986 reflected a decrease to the partner’s
pass-through partner. share of recourse liabilities, this could change the partner’s
Pass-through partner is a pass-through entity that holds an amount at risk, which in turn could result in an adjustment on
interest, either directly or indirectly, in a partnership. Schedule A to reduce the allowable loss from the partnership. In
Pass-through entities include partnerships required to file a this example the partner's at risk schedule should be adjusted
return under section 6031(a), S corporations, trusts (other than and an increase to income should be reported on Schedule A to
wholly owned trusts disregarded as separate from their owners reflect the decrease to the previously reported loss from the
for federal tax purposes), and decedents’ estates. For this partnership.
purpose, a pass-through entity is not a wholly owned entity
disregarded as separate from its owner for federal tax purposes. Tax calculations. Taxes should be figured and shown on a
separate statement. In general, non-pass-through partners that
Note: An entity partner can be both a non-pass-through partner receive adjustments from a Form 8986 should figure the
and pass-through partner. To the extent the adjustments an additional reporting year tax as if all the adjustments on Form
entity partner receives on a Form 8986 relate to items that are 8986 had been included on the partner’s first affected year return
taxable at the entity level, it is considered a non-pass-through using a statement attached to Form 8978 to support the amounts
partner and with regard to adjustments that pass through to its reported on lines 6 and 7 of the Form 8978. The additional
owners/beneficiaries it is considered a pass-through partner. reporting year tax from line 14 is then reported on the partner’s
reporting year income tax return.
Reporting year is the partner’s tax year(s) that includes the
date the audited or AAR partnership furnished the Forms 8986 to Columns (a) through (d). Columns (a) through (d) on Form
its partners. The date the audited partnership or BBA 8978 and Schedule A can be used for adjustments for the first
partnership that filed an AAR furnished Forms 8986 to its affected year or intervening years. See Receipt of multiple Forms
partners is found on Form 8986, Part II, item G. For example, if 8986, later.
the Form 8986, Part II, item G, date is 06/15/2023 and the Years to include and exclude on Form 8978 and Sched-
partner receiving the Form 8986 is a calendar-year-end partner, ule A. Only applicable tax years (see Definitions, earlier) need
that partner’s reporting year is tax year ending 12/31/2023. to be shown on Form 8978 and Schedule A. A year that is not
Reviewed year is the audited or AAR partnership’s tax year to impacted does not have to be shown on the form or schedule.
which the partnership adjustment(s) relates. For example, if the first affected year is 2020 and the reporting
Reviewed year partner is any person that held an interest in year is 2025, years 2021–2024 are considered intervening years.
the audited or AAR partnership at any time during the If the only intervening year impacted is 2023 (that is, 2023 is the
partnership’s reviewed year. only intervening year that had related changes to partner-level

2 Instructions for Form 8978 (Jan. 2024)

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tax attributes as a result of the 2020 adjustments), the form and the $5,000 that he has determined is available for offset as a
schedule only need to show 2020 and 2023. negative amount on line 1c.
Receipt of multiple Forms 8986. If a partner receives multiple Bill carries the totals from lines 2 and 4 of Schedule A to Form
Forms 8986 for different years, a column on the form and 8978, lines 1b and 3b, respectively. Bill also completes lines 1a,
schedule could be both an affected year and an intervening year. 2, 3a, and 4 on the Form 8978, according to the instructions.
Bill attaches to Form 8978 a statement that shows how his tax
Note. If all of the adjustments from Forms 8986 cannot fit on year 2021 corrected taxable income, income tax, and AMT, if
one Schedule A (Form 8986), multiple Schedules A can be applicable, were figured. He includes the income adjustment as
attached. If more than one Schedule A is needed, enter the an increase to income and the deduction adjustment as a
totals from all Schedule A lines 2, 4, and 6 on the corresponding decrease to deductions.
Form 8978 lines 1b, 3b, and 9b, respectively.
Bill carries the amounts figured in the statement to lines 5, 6,
Reporting adjustments related to an AAR. Adjustments from and 8 of Form 8978. He enters his corrected tax liability for tax
an AAR are reported separately from adjustments from a BBA year 2021 on line 11 of Form 8978. He enters his income tax as
audit on Forms 8978 and Schedules A. A checkmark in box 1 or previously reported for tax year 2021 on line 12 of Form 8978
2 of Part I, item A of Form 8986 indicates the adjustments are and subtracts this amount from the amount on line 11 to obtain
related to an audit of a BBA partnership. A checkmark in box 3 or the increase or decrease to tax, which he enters on line 13.
4 of Part I, item A of Form 8986 indicates the adjustments are If any applicable penalties are shown on Form 8986, Part V,
related to an AAR. If a partner has no adjustments from a Form Bill must attach a statement to his Form 8978 that shows how the
8986 that are related to an audit, but only adjustments related to additional penalties that result from the additional tax were
an AAR, only the AAR-related Form 8978 and Schedule A need figured. If penalties are applicable, Bill needs to include this
to be included. amount on line 15 of Form 8978. Because Part V of the Form
If one or more adjustments are from a Form 8986 that is 8986 Bill received indicates that the section 6662 substantial
related to an AAR, a separate Form 8978 and Schedule A (Form understatement penalty applies, Bill prepares a separate
8978) must be completed to report the tax impact of these calculation which shows that the additional $3,408 in tax
adjustments and calculate the correct interest. The Form 8978 reported on line 13, column (a), of the Form 8978 does not
and its Schedule A should be filled out in the same way as for an exceed the $5,000 threshold required for the penalty to apply. He
audit-related Form 8978 and its Schedule A. Select the “AAR attaches this separate penalty calculation statement to his return
Filing” checkbox at the top of the Form 8978 and the Schedule A and enters zero on line 15 of his Form 8978.
and enter the employer identification number of the entity that Bill figures his additional interest on the increase in tax shown
issued the Form 8986. on line 14 of his Form 8978 from April 15, 2022 (the due date of
his 2021 return), up to the date the additional reporting year tax
Note. If all adjustments are AAR-related, only one Form 8978 is paid. If penalties had been shown on his Form 8978, Bill would
and one Schedule A need to be completed. have figured interest on penalties from the due date of his 2021
Reporting adjustments related to a BBA audit. The following return, or the extended due date of his 2021 return, if a valid
example shows how adjustments reported on Form 8986 related extension request had been filed.
to a BBA audit are reported on Form 8978 and its Schedule A.
Note. The reduction in tax for 2022 reflected in column (b) of the
Example 2. Completing Form 8978 and Schedule A for Form 8978 is included in the total increase to tax reported on
an audit-related Form 8986. On June 10, 2023, Bill Jones, line 14, but is not included in the interest calculation.
who files as a single individual, calendar-year taxpayer, receives
a Form 8986 from an audited partnership of which Bill is a If there were any intervening year partner-level adjustments,
partner. The Form 8986 is for reviewed year 2021. Part II, box G, Bill would have done similar calculations for those years. For
of the Form 8986 indicates that the audited partnership issued example, if any of the adjustments made for 2021 or 2022 would
Forms 8986 to its partners on June 8, 2023. Because June 8, also apply to Bill’s 2023 tax year, Bill would complete column (c)
2023, is within Bill’s tax year ending December 31, 2023, Bill for 2023 on Schedule A (Form 8978) and column (c) for 2023 on
must report these adjustments on his 2023 Form 1040 income Form 8978, showing the partner-level adjustments.
tax return and attach Form 8978. Bill must report the additional reporting year tax from line 14
The Form 8986 indicates that Bill's share of the adjustments of Form 8978 on the appropriate line on his 2023 Form 1040,
includes a $15,000 increase to ordinary income and a $10,000 following the Instructions for Form 1040.
decrease in other deductions, in Part V of Form 8986, and a Bill’s payment accompanying his 2023 Form 1040 should
$6,000 decrease to capital gains, shown as a negative amount in include the tax and interest. If a penalty had been applicable, he
Part V of Form 8986. would include that in his payment as well.
Bill determines that the adjustments shown on Form 8986 are Bill must attach Form 8978, Schedule A (Form 8978), and the
from a partnership that he treats as a section 469 passive activity calculation statements to the Form 1040 he files for 2023. In this
for tax purposes. example, Bill should include statements for tax and penalty
Bill previously reported no capital gains or losses on his calculations related to Form 8978. He should also attach his
Forms 1040 in 2021 and 2022, and now has a $6,000 decrease section 469 suspended loss and section 199A schedules; these
to capital gains (increased capital loss). Due to the $3,000 should include the adjustments shown on his Schedule A (Form
annual capital loss limitation, the $6,000 capital loss adjustment 8978).
is taken in $3,000 annual increments. So, Bill claims a $3,000 If a corporation received a Form 8986 identical to the one that
capital loss in 2021 and the remaining $3,000 capital loss in Bill received, the corporation would follow the same procedures
2022. for completing Form 8978 and Schedule A, and include those
Bill enters the ordinary income, the capital gain/loss with its tax year 2023 income tax return. The additional tax,
adjustments, and the appropriate tracking numbers on penalties, and interest would be reported and paid following the
Schedule A (Form 8978), lines 1a and 1b, respectively. After instructions for the corporation’s income tax return.
taking into account the BBA income adjustment for 2021, 2022, Reporting adjustments from both an audit and from an
and 2023, Bill determines that there are $5,000 in previously AAR. If a partner receives one or more audit-related Forms
suspended passive activity losses that can be used. He enters
Instructions for Form 8978 (Jan. 2024) 3

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8986 and also one or more AAR-related Forms 8986, the and its Schedule A should only include ECI figures, and each
partner’s Form 8978 related to the AAR adjustments should be “FDAP Form 8978” and its Schedule A should only include FDAP
completed first. The numbers shown on this first Form 8978 figures.
should be included in the “as previously reported” numbers on
the Form 8978 related to the audit adjustments. Each Form 8978 Note. Attach a statement to each “ECI Form 8978” and each
should have applicable lines completed, and the partner should “FDAP Form 8978” explaining how all line 13 income tax
add all the amounts on line 14 (total increase/decrease to tax) numbers were calculated. Enter the total of all the line 13
from all the Forms 8978 and report the sum on the appropriate amounts on line 14. Enter the amounts from line 14 on the
line of the tax return. applicable lines on the partner’s reporting year income tax
return. See the instructions for the applicable income tax return.
Example 3. Completing Forms 8978 and Schedules A for
You may receive a Form 1042-S or 8805 from the partnership (or
an audit-related Form 8986 and an AAR-related Form 8986.
a pass-through partner) that has withheld on your additional
Frank Smith files as a single individual. On May 15, 2021, Frank
reporting year tax, and you may claim the withholding credit on
received a Form 8986 related to an AAR that was filed by a
your income tax return.
partnership in which he is a partner. This Form 8986 reflects an
increase of $5,000 to Frank’s share of other deductions. On June Specific Instructions for Form 8978
12, 2021, he received a Form 8986 related to an audit, showing
an additional $10,000 in income. No penalties were noted on
either Form 8986. According to the date shown on Parts II, item Part I—Computation of Additional Reporting
D of the Forms 8986, both relate to adjustments made to the Year Tax
2020 tax year. Each column, (a) through (d), is figured separately for lines 1
Frank’s first step is to complete a Form 8978 and Schedule A through 13.
(Form 8978) for the AAR-related adjustments. He calculates a Line 1a—Total income per original return or as
decrease in tax of $1,200 from the AAR- related adjustments previously adjusted. Enter the total income amount as shown
and reports that amount on line 14 of the AAR-related Form on your original or amended return, or as adjusted by the IRS.
8978. Enter negative amounts in parentheses.
Frank’s second step is to complete another Form 8978 and Line1b—Adjustments to income. Enter the amount from
Schedule A (Form 8978) for the audit-related adjustments. On Schedule A, line 2, Total adjustments to income.
this second Form 8978 (the audit-related Form 8978), he Line 2—Corrected income. Enter the total of lines 1a and
includes the amounts from the AAR-related Form 8978 in the 1b.
“previously reported” amounts on lines 1a, 3a, 9a, and 12. He Line 3a—Total deductions per return or as previously
figures a total increase to tax of $2,400 from the audit-related adjusted. Enter the total amount of deductions shown on your
adjustments and reports this on line 14 of the audit-related Form original or amended return, or as adjusted by the IRS.
8978. He reports the total net amount of $1,200 on the Line 3b—Adjustments to deductions. Enter the amount
appropriate line of his Form 1040, referring to the Instructions for from Schedule A, line 4, Total adjustments to deductions.
Form 1040. Line 4—Corrected deductions. Combine the amount on
Frank attaches the forms to his 2022 Form 1040 and includes line 3b with the amount on line 3a and enter the result.
payment of the additional $1,200 in tax, following the Instructions Line 5—Corrected taxable income. Subtract line 4 from
for Form 1040 with regard to amounts from Form 8978. The line 2 and enter the result. This should be the corrected taxable
amount of interest is figured on the audit-related increase to tax income. If, as a result of changes in tax attributes, corrected
on line 13 of the audit-related Form 8978 using the short-term taxable income is different from the result obtained by
quarterly rate plus 5%; interest runs from the due date of Frank’s subtracting line 4 from line 2, include a separate statement
2020 Form 1040 to the date of payment. This amount is reported showing how the corrected taxable income amount was figured
on lines 17 and 18 of the audit-related Form 8978. and enter that corrected amount on line 5.
Because the AAR-related Form 8978 showed a decrease to Line 6—Income tax. Include a separate statement showing
tax, no interest is shown on that Form 8978. If the AAR-related how the corrected income tax was figured and enter that
Form 8978 had an increase to tax, the interest would be figured corrected income tax on line 6. See the Instructions for Form
using the same dates as for the audit-related Form 8978, but the 1040 or the instructions for your income tax return for the
rate would be the short-term quarterly rate plus 3%, and the appropriate year(s).
amount would have been reported on line 17 of the AAR-related Line 7—Alternative minimum tax (AMT). If AMT applies,
Form 8978. include a separate statement showing how the corrected AMT,
including the applicable adjustment(s) shown on Schedule A,
More than 4 applicable tax years. If there are more than 4 was figured and enter the corrected AMT on line 7. See the
applicable tax years (see Definitions, earlier), additional Forms Instructions for Form 1040 or the instructions for your income tax
8978 should be prepared for the additional years. Each Form return for the appropriate year(s) to figure the corrected AMT.
8978 should have all lines completed and the total of all the Line 8—Total corrected income tax. Enter the sum of lines
line 14 amounts should be reported on the appropriate line of the 6 and 7.
partner’s return. Include a Schedule A for each Form 8978. Line 9a—Total credits per return or as previously
Foreign partners that receive Forms 8986. Foreign corporate adjusted. Enter the total amount of credits shown on your
partners that receive Forms 8986 must complete separate original or amended return, or as adjusted by the IRS.
Forms 8978 and Schedules A (Form 8978) to report adjustments Line 9b—Adjustments to credits. Enter the amount from
pertaining to effectively connected income (ECI) under section Schedule A, line 6, Total adjustments to credits.
882, and fixed, determinable, annual, periodical (FDAP) income Line 10—Total corrected credits. Combine the amounts on
under section 881. ECI is income effectively connected with the lines 9a and 9b and enter the result on line 10.
conduct of a trade or business in the United States; FDAP Line 11—Total corrected income tax liability. Subtract
income is income from U.S. sources not effectively connected line 10 from line 8 to obtain the corrected income tax liability.
with the conduct of a trade or business in the United States. The This amount should not include any non-income taxes. If, as a
Forms 8978 and related Schedules A should clearly indicate result of changes not reflected on a line item on the form or
whether they reflect ECI or FDAP income. Each “ECI Form 8978” schedule, corrected income tax liability after credits is different

4 Instructions for Form 8978 (Jan. 2024)

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from the result obtained by subtracting line 10 from line 8, the Form 8986. If the tracking number is not on the Form 8986,
include a separate statement showing how the corrected liability use the audit control number at the top of the Form 8986, and if
was figured and enter that correct amount on line 11. the audit control number is also blank, enter the tax identification
Line 12—Total tax shown on return or as previously number of the entity that issued the Form 8986. Leave the
adjusted. Enter the amount shown on your original or tracking number field blank for all adjustments to partner-level
amended return, or as adjusted by the IRS. tax attributes.
Line 13—Increase/decrease to tax. Subtract the amount Reporting amounts from Form 8986. All adjustments
shown on line 12 from the amount on line 11 and enter the result. (positive and negative) from a Form 8986 should be shown as
Line 14—Total additional reporting year tax. Enter the reported on that form. When entering adjustments from a Form
sum of line 13, columns (a) through (d). Report this amount on 8986, enter amounts from Form 8986, Part V, column (h), which
the appropriate line of your income tax return for the reporting reflect the adjustments net of any approved modifications
year. (column (g) of Form 8986). These amounts should be entered in
Line 15. Form 8986, Part V, Applicable Penalties, lists which the applicable columns (a) through (d) that correspond to the
penalties, if any, apply and which line items are affected. If partner’s affected year. However, if Form 8986 is a result of an
penalties apply, include a statement showing how the penalties AAR partnership (and not an audited partnership), no
were figured and enter the amount of penalties in the applicable modifications should be shown on Part V, column (g), of that
column(s) of Form 8978. Penalties for each applicable tax year Form 8986 and no modifications should be reported on
should be reported on line 15, columns (a) through (d). Schedule A.
Line 17. Interest on any increase in income tax is figured from
Schedule A line instructions.
the original due date of your income tax return for each tax year
to which an increase in tax is attributable, as determined under Line 1—Income. Enter all the adjustments individually from
section 6226(b)(3). Interest is computed at the underpayment Form 8986, Part V, that affect taxable income. Generally, this
rate under section 6621(a)(2), but substituting “five percentage includes adjustments to ordinary income, rental income, interest
points” for “three percentage points” for purposes of section income, dividends, royalties, gains and losses, and other
6621(a)(2)(B) (that is, the sum of the federal short-term rate plus income. Also include related amounts and adjustments not on
five percentage points instead of three percentage points). For Form 8986 that result from changes to partner-level tax attributes
additional reporting year tax reported as a result of a Form 8986 and other items as a result of adjustments from Form 8986.
from an AAR, this substitution is not made. Interest for each Line 2—Total adjustments to income. Enter the total of all
applicable tax year should be reported on line 17, columns (a) adjustments from line 1. Carry the total of each column to the
through (d). corresponding column on Form 8978, line 1b.
Line 3—Deductions. Enter all the adjustments individually
Note. Interest should not be calculated on any decreases in tax from Form 8986, Part V, that affect deductions from income.
on line 13 for a tax year. Generally, this includes adjustments to separately stated items
such as a section 179 deduction. Also include related amounts
Note. Interest on penalties is figured in the same manner as and adjustments not on Form 8986 that result from changes to
interest on tax, except it is figured from the due date of the partner-level tax attributes as a result of adjustments from Form
partner’s return including any valid extensions that were filed by 8986.
the partner. Line 4—Total adjustments to deductions. Enter the total of
Where to report additional reporting year tax. The total all adjustments from line 3. Carry the total of each column to the
additional reporting year tax from Form 8978, Part I, line 14, is corresponding column on Form 8978, line 3b.
reported on the appropriate lines of the partner’s reporting year Line 5—Credits. Enter all the adjustments individually from
return (see the instructions for the applicable reporting year tax Form 8986, Part V, that affect tax credits. Also include related
return). The additional penalties and interest should be included amounts and adjustments not on Form 8986 that result from
in the net payment calculation for the partner’s reporting tax year changes to partner-level tax attributes as a result of adjustments
but these are not reported on the partner’s reporting year return from Form 8986.
and are not included in the additional reporting year tax. Line 6—Total adjustments to credits. Enter the total of all
adjustments from line 5. Carry the total of each column to the
Specific Instructions for Schedule A corresponding column on Form 8978, line 9b.

(Form 8978) Inconsistent Positions
Adjustments. Enter the description of the item that If you originally reported an amount for an item inconsistent with
corresponds to the Schedule K-1 or Schedule K-3 line number the amount reported to you by the partnership on Schedule K-1
and title as reflected in columns (a) and (b) of Form 8986, Part V. or Schedule K-3, and this same item is included as an
For example, if Form 8986, Part V, column (a), shows “1” and adjustment on the Form 8986 received, you should also include
column (b) shows “Ordinary business income,” enter on the amount of inconsistency for that item on Schedule A (Form
Schedule A, Adjustments column, “Schedule K-1, line 1, 8978).
Ordinary business income.” For adjustments due to changes in Example 4. Inconsistent position and BBA audit
partner tax attributes, use the description used on the partner’s adjustment. Mary Johnson, a partner and calendar year
return. taxpayer, received a tax year 2022 Schedule K-1 with $100 of
Note. Schedule K-3 (Form 1065) adjustments that do not ordinary business income. If she only reported $70 on her Form
directly increase or decrease a partner's taxable income should 1040 or 1040-SR, she would have taken a $30 inconsistent
be reported with a zero amount on Schedule A (Form 8978), with position on her Form 1040 or 1040-SR. If she subsequently
any corresponding change to the partner's tax attributes, such as receives a Form 8986 for affected tax year 2022, with an audit
the foreign tax credit, shown as a positive (increase) or negative adjustment reflecting a $50 increase to the Schedule K-1, line 1,
(decrease) amount. Ordinary business income amount, she would have two amounts
to enter on Schedule A (Form 8978). First, Mary would enter on
Tracking number. If an adjustment is from a Form 8986, the line 1a “Schedule K-1, line 1, Ordinary business income” in the
tracking number column should be completed for that adjustments column and $50 in column (a), which would be
adjustment line. The tracking number can be found at the top of labelled “12/31/2022.” Second, Mary would enter on line 1b

Instructions for Form 8978 (Jan. 2024) 5

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“Inconsistent position previously taken on line 1a item” in the ensure that you are complying with these laws and to allow us to
adjustments column and $30 in column (a). Because she figure and collect the right amount of tax.
received a Form 8986 from an audit, Mary must now resolve the
inconsistency with the original Schedule K-1. If she had no other You are not required to provide the information requested on
adjustments, the amount of her total adjustments to income on a form that is subject to the Paperwork Reduction Act unless the
line 2 of Schedule A, column (a), would be $80. She would carry form displays a valid OMB control number. Books or records
this amount to Form 8978, line 1b, column (a). relating to a form or its instructions must be retained as long as
their contents may become material in the administration of any
Note. A partner’s requirement to treat partnership-related items Internal Revenue law. Generally, tax returns and return
consistently applies to adjustments that result from an audited information are confidential, as required by section 6103.
partnership or an AAR partnership regardless of whether the The time needed to complete and file this form will vary
partner previously treated the item inconsistently. However, depending on individual circumstances. The estimated burden
partners that properly and timely file a subsequent Form 8082, for business taxpayers filing this form is approved under OMB
Notice of Inconsistent Treatment or Administrative Adjustment control number 1545-0123 and is included in the estimates
Request (AAR), for items that are adjusted as part of an AAR shown in the instructions for their business income tax return.
filing are not required to treat the items on Schedule A (Form
8978) consistent with the partnership’s treatment. If you have comments concerning the accuracy of these time
estimates or suggestions for making this form simpler, we would
Paperwork Reduction Act Notice. We ask for the information be happy to hear from you. See the instructions for the tax return
on this form to carry out the Internal Revenue laws of the United with which this form is filed.
States. You are required to give us the information. We need it to

6 Instructions for Form 8978 (Jan. 2024)

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