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Instructions for Form 1065-X

(Rev. December 2024)
Amended Return or Administrative Adjustment Request (AAR)

Section references are to the Internal Revenue Code BBA) or a partner-level AAR under section 6227(d) (under
unless otherwise noted. TEFRA proceedings). For a definition of TEFRA
proceedings, see Definitions, later. Continue to use Form
Future Developments 8082, Notice of Inconsistent Treatment or Administrative
Adjustment Request (AAR), to make those changes.
For the latest information about developments related to
Bipartisan Budget Act (BBA). All partnerships with tax
Form 1065-X and its instructions, such as legislation
years beginning after 2017 are subject to the centralized
enacted after they were published, go to IRS.gov/
partnership audit regime unless eligible partnerships elect
Form1065X.
out by making a valid election under section 6221(b). For
For information pertaining to BBA partnerships filing Form purposes of these instructions (unless otherwise noted),
1065-X, go to IRS.gov/bbaaar. the centralized partnership audit regime proceedings
under sections 6221 through 6241 will be referred to as
“BBA proceedings.”
What’s New
If you're a non-TEFRA partnership (see Definitions and
Which revision of Form 1065-X to use. For tax years Section I, Part I, items B and C, later) or a non-BBA
beginning on or after January 1, 2023, use the August partnership (defined under Definitions, later) filing an
2023 revision of Form 1065-X. For tax years beginning amended return electronically, use Form 1065 and see the
after December 31, 2020, and before January 1, 2023, related instructions. If you aren’t filing electronically, use
use the December 2021 revision of Form 1065-X available Form 1065-X.
at IRS.gov/pub/irs-prior/f1065x--2021.pdf. For tax years
beginning prior to January 1, 2021, use the September Form 1065-X should only be used to make a paper
2018 version of Form 1065-X available at IRS.gov/pub/irs- filing. For electronic filing, use Form 8082 in conjunction
prior/f1065x--2018.pdf. with Form 1065.
Generally, the criteria used to determine whether the
Reminders original Form 1065 is required to be filed electronically are
also used to determine if the amended return or AAR must
Part I, Section 2—BBA AAR. Item C2 was added to
be filed electronically.
indicate when adjustments don’t result in an imputed
underpayment. For information regarding when Form 1065 is required
to be filed electronically, and how to electronically file an
Part II, line 13, changed. Part II, line 13a, was changed amended return or AAR for a partnership, see the
from “Contributions” to “Cash contributions.” Line 13b is Instructions for Form 1065.
“Noncash contributions.” Prior year lines 13b, 13c, and
13d were changed to 13c, 13d, and 13e, respectively. Form 1065-X isn't used to elect out of BBA. See
the Instructions for Form 1065 for electing out of
Note. Unless otherwise noted, references to sections CAUTION! BBA.
6221 through 6241 are to Internal Revenue Code (the
Code) sections, as amended by BBA. Who Must File
Amended return. Partnerships and real estate mortgage
General Instructions investment conduits (REMICs) that become aware of
incorrect items of income, deductions, etc., use Form
Purpose of Form 1065-X to correct their previously filed partnership or
Use Form 1065-X, if you aren’t filing electronically, to REMIC return. See Specific Instructions, later, for
complete one of the following. information on completing Form 1065-X as an amended
• Correct items on a previously filed Form 1065, U.S. return.
Partnership Return of Income; Form 1065-B, U.S. Return
of Income for Electing Large Partnerships; or Form 1066, Note. To make adjustments to partnership-related items,
U.S. Real Estate Mortgage Investment Conduit (REMIC) partnerships under BBA must file an AAR instead of an
Income Tax Return. amended return unless there is specific guidance allowing
• Make an AAR for a previously filed Form 1065, Form for the filing of an amended return. For information on BBA
1065-B, or Form 1066. partnerships filing Form 1065-X, go to IRS.gov/bbaaar.
• File an amended return by a partnership-partner of a AAR-Partnerships (except electing large partner-
BBA partnership as part of the modification process of a ships (ELPs)). Partnerships that are subject to either
BBA proceeding with respect to that BBA partnership. BBA or TEFRA proceedings use Form 1065-X to file for an
Form 1065-X can’t be used to file a notice of AAR. See Specific Instructions, later, for information on
inconsistent treatment under section 6222 (TEFRA or completing Form 1065-X as an AAR.

Instructions for Form 1065-X (Rev. 12-2024) Catalog Number 57876S
Dec 16, 2024 Department of the Treasury Internal Revenue Service www.irs.gov

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Protective TEFRA AARs.     Generally, a protective AAR is      • In the case of a BBA partnership, before a notice of an 
a request for credit or refund based on current litigation or  administrative proceeding with respect to the tax year is 
expected changes in tax law or other legislation. The TMP      mailed under section 6231; or
or partner with authority (PWA) files a protective AAR         • In the case of a partnership that is a partner in a BBA 
when the right to a refund is contingent on future events      partnership which is filing an amended return for purposes 
and may not be determinable until after the period for filing  of BBA partnership modification under section 6225(c)(2), 
an AAR has expired. Protective AARs are subject to AAR         in the time period specified under section 6225(c).
statutes set forth in sections 6227, 6228, and 6229 (prior 
                                                               What To Attach
to amendment by the BBA). If you're a TMP filing on 
behalf of the partnership, the petition period described in    If the corrected amount involves an item that must be 
section 6228 (prior to amendment by the BBA) can be            supported with a schedule, statement, or form, attach the 
extended by using Form 9248, Agreement to Extend the           appropriate schedule, statement, or form to Form 1065-X. 
Time to File a Petition for Adjustment by the Tax Matters      Include the entity's name and employer identification 
Partner With Respect to Partnership Items. A protective        number (EIN) on any attachments. See the instructions for 
AAR must clearly state that it is a protective AAR, alert the  Form 1065, 1065-B, or 1066 (as applicable) for a list of 
IRS to the essential nature of the adjustment, and specify     forms that may be required.
the line item to be protected.                                   If the attachments needed to support the corrected 
AAR under BBA.   File Form 1065-X if you're the                amount include copies of forms or schedules from 
partnership representative (PR) or designated individual       previously filed tax returns, write at the top of each 
(DI) requesting an administrative adjustment to correct a      previously filed form or schedule, “Copy Only—Do Not 
previously filed partnership return on behalf of the BBA       Process.”
partnership. See Partnership representative (PR), later, for     A BBA partnership must attach a schedule to Form 
the definition of a PR. Go to IRS.gov/bbaaar for additional    1065-X that supports the position(s) reported. If the 
information.                                                   partnership doesn't make the election under section 
AAR-Electing Large Partnerships (ELPs).      ELPs that         6227(b)(2) to have the adjustments taken into account by 
file Form 1065-B and need to correct errors on a               the reviewed year partners and would like to modify per 
previously filed Form 1065-B use Form 1065-X to file for       section 6227(b)(1), it must attach Form 8980, Partnership 
an AAR. See Specific Instructions, later, for information on   Request for Modification of Imputed Underpayments 
completing Form 1065-X as an AAR.                              Under IRC Section 6225(c), to support any modifications 
                                                               made to the imputed underpayment (IU), as described in 
AAR-REMICs.  For tax years beginning prior to January 1,       sections 6225(b) and (c), and as applied to a BBA AAR 
2018 (unless electing into BBA), REMICs that don’t meet        under section 6227(b)(1). See Modifications to an 
the small REMIC exception under sections 860F(e) and           Imputed Underpayment Included in an Administrative 
6231 (prior to amendment by the BBA), and related              Adjustment Request in Pub. 5346, Instructions for Form 
regulations, or make the election described in section         8980.
6231(a)(1)(B)(ii) (prior to amendment by the BBA) not to 
be treated as a small REMIC, use Form 1065-X to file for         In addition, if a REMIC requests that the IRS 
an AAR. For tax years beginning after December 31,             electronically deposit a refund of $1 million or more, attach 
2017, REMICs that had more than one residual interest          Form 8302, Electronic Deposit of Tax Refund of $1 Million 
holder at any time during the tax year and didn’t elect out    or More.
of the centralized partnership audit regime, use Form 
1065-X to file an AAR. See Specific Instructions, later, for   Who Must Sign
information on completing Form 1065-X as an AAR.               Non-TEFRA and non-BBA partnerships. Any partner 
    When a partnership's or REMIC's federal return is          or limited liability company (LLC) member must sign the 
TIP changed for any reason, it may affect its state            return. Form 1065-X isn’t considered to be a return unless 
    return. For more information, contact the state tax        it is signed. When a return is made for a partnership by a 
agency with which the state return is filed.                   receiver, trustee, or assignee, the fiduciary must sign the 
                                                               return instead of the partner or LLC member. Returns and 
When To File                                                   forms signed by a receiver or trustee in bankruptcy on 
                                                               behalf of a partnership must be accompanied by a copy of 
Generally, a pass-through entity may file an amended           the order or instructions of the court authorizing the 
return or AAR to change items on its return:                   signing of the return or form.
• Within 3 years after the later of the date on which the 
partnership return for that year is filed, or the last day for BBA partnerships.   When filing an AAR, Form 1065-X 
filing the partnership return for that year (excluding         must be signed by the PR (or the DI if the PR is an entity) 
extensions); and                                               for the reviewed year.
• In the case of a TEFRA partnership or REMIC, before a        TEFRA partnerships.   The TMP must sign Form 1065-X. 
notice of final partnership administrative adjustment for      See Tax matters partner (TMP), later, for the definition of a 
that year is mailed to the TMP or tax matters person, or, in   TMP.
the case of an ELP, before the mailing to the partnership of 
a notice of partnership administrative adjustment with         ELPs. The PWA must sign Form 1065-X. See Partner 
respect to that year;                                          with authority (PWA), later, for the definition of a PWA.

2                                                                       Instructions for Form 1065-X (Rev. 12-2024)

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REMICs with a startup day after November 9, 1988. must be filed by the PR. Go to IRS.gov/bbaaar for
For these REMICs, Form 1065-X may be signed by any additional information.
person who could sign the return of the entity in the Designated individual (DI). When filing its annual Form
absence of the REMIC election. Thus, the return of a 1065, a partnership appoints a DI if its PR is an entity. The
REMIC that is a corporation or trust would be signed by a DI is the only individual authorized to act on behalf of the
corporate officer or a trustee, respectively. For REMICs PR.
with only segregated pools of assets, the return would be
signed by any person who could sign the return of the Imputed underpayment (IU). An IU is the amount a
entity owning the assets of the REMIC under applicable partnership is potentially liable for as a result of an
state law. adjustment to a partnership-related item (PRI). Whether
an adjustment results in an IU is determined in
Note. If the REMIC is subject to BBA for the tax year and accordance with the rules under Regulations section
is using Form 1065-X to file an AAR, the PR or DI, as 301.6225-1, with that amount subject to possible
applicable, must sign Form 1065-X. modification under Regulations section 301.6227-2.
REMICs with a startup day before November 10, Non-BBA partnership. Under BBA, certain partnerships
1988. These REMICs may elect to apply the rules for with 100 or fewer eligible partners for the tax year can
REMICs with a startup day after November 9, 1988 (as elect out of the centralized partnership audit regime. For
described in Regulations section 1.860F-4(c)(2)(iii)). additional information, see the Instructions for Form 1065.
Otherwise, Form 1066 must be signed by a residual A partnership that elects out of the centralized partnership
interest holder or, as provided in section 6903, by a audit regime is referred to as a “non-BBA partnership.”
fiduciary, as defined in section 7701(a)(6), who is acting Non-TEFRA partnership. A partnership with a tax year
for the REMIC and who has furnished adequate notice, as beginning before 2018 that isn’t subject to TEFRA
described in Regulations section 301.6903-1(b). proceedings and didn't elect into BBA for that tax year
In the prior paragraph, the term “startup day” means beginning after November 2, 2015, and before January 1,
any day selected by a REMIC that is on or before the first 2018, is referred to as a “non-TEFRA partnership.”
day on which interests in such REMIC are issued.
Partner with authority (PWA). Each ELP must
Otherwise, the startup day is the day on which the REMIC
designate a partner (or other person) as the PWA who
issued all of its regular and residual interests. However, a
shall have the sole authority to act on behalf of the
sponsor may contribute property to a REMIC in exchange
partnership. See section 6255(b)(1) (prior to amendment
for regular and residual interests over any period of 10
by BBA). If the partnership fails to designate a PWA, the
consecutive days and the REMIC may designate any 1 of
IRS can select any partner to serve as the partner with
those 10 days as the startup day. The day so designated
such authority. The PWA has the authority to file an AAR
is then the startup day, and all interests are treated as
on behalf of the partnership. The PWA does this by filing
issued on that day.
Form 1065-X.
Note. If the REMIC is subject to BBA for the tax year and Partnership-related item (PRI). A PRI is any item or
is using Form 1065-X to file an AAR, the PR or DI, as amount with respect to the partnership that is relevant in
applicable, must sign Form 1065-X. determining the tax liability of any person under chapter 1,
and any partner’s distributive share of that item or amount.
Where To File An item or amount is with respect to the partnership if it is
Form 1065-X must be filed with the service center where shown or reflected, or required to be shown or reflected,
the original return was filed. on the partnership return or the forms prescribed by the
IRS for the partnership's tax year or is required under the
Definitions Code and related regulations to be maintained in the
Adjustment year. For BBA partnerships, the adjustment partnership's books or records. This includes an IU for
year is the partnership tax year in which: which the partnership may be liable, as well as any tax,
• An adjustment pursuant to the decision of a court in a penalty, addition to tax, or additional amount imposed on
proceeding brought under section 6234 becomes final; the partnership under chapter 1.
• An AAR is filed under section 6227; or Partnership representative (PR). Under section 6223,
• A notice of final partnership adjustment is mailed under BBA partnerships must designate a partner or other
section 6231 or, if the partnership waives the limitations person with a substantial presence in the United States as
on assessments under section 6232(b), the waiver is the PR who shall have the sole authority to act on behalf
executed by the IRS. of the partnership. If the PR is an entity, the partnership
BBA partnership. A partnership that is subject to the must also appoint a DI to act on behalf of the entity PR.
centralized partnership audit regime is referred to as a The appointed DI must be an individual and may not be an
“BBA partnership.” All partnerships with tax years entity. The partnership and all partners are bound by the
beginning after 2017 are BBA partnerships unless, under actions of the PR in dealings with the IRS under BBA. Go
section 6221, they make a valid election out of the to IRS.gov/bbaaar for additional information. A REMIC
centralized partnership audit regime. A partner in a BBA that's a BBA partnership (hasn't elected out of BBA) would
partnership is referred to as a “BBA partner.” An AAR filed need to designate a PR.
by a BBA partnership is referred to as a “BBA AAR” and Pass-through entity. A partnership (including an ELP), S
corporation, estate, trust, or REMIC.

Instructions for Form 1065-X (Rev. 12-2024) 3

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Reviewed year. For BBA partnerships, the reviewed year proceedings are referred to as “TEFRA partnerships.” An
is the partnership’s tax year to which a partnership AAR filed by the TMP of the TEFRA partnership is a
adjustment relates. TEFRA AAR. Any partner in a TEFRA partnership may file
an AAR using Form 8082. TEFRA proceedings won’t
Reviewed year pass-through partner. For purposes of apply to partnerships with tax years beginning after 2017.
these instructions, under BBA, a reviewed year
pass-through partner is a pass-through entity that held an Paid Preparer's Information
interest in a BBA partnership at any time during the If a partner or an employee of the partnership or REMIC
reviewed year, which is the partnership tax year to which completes Form 1065-X, the “Paid Preparer Use Only”
the partnership adjustment relates. For example, if the section should remain blank. In addition, anyone who
BBA AAR is filed to make an adjustment to income for the prepares Form 1065-X but doesn't charge the partnership
2023 tax year, 2023 is the reviewed year. or REMIC shouldn’t complete this section.
Schedule K-1. Schedule K-1 is the annual schedule Generally, anyone who is paid to prepare Form 1065-X
reporting the partner's, shareholder's, or beneficiary's must do the following.
share of income, deductions, credits, etc., from a • Sign the return in the space provided for the preparer's
partnership, S corporation, estate, or domestic trust. signature.
Schedule K-2. An extension of Form 1065, Schedule K, • Fill in the other blanks in the “Paid Preparer Use Only”
used to report items of international tax relevance from the area of the return. A paid preparer can’t use a social
operation of a partnership. security number in the “Paid Preparer Use Only” box. The
paid preparer must use a preparer tax identification
Schedule K-3. An extension of Schedule K-1 (Form number (PTIN).
1065) generally used to report to partners their share of • Give the partnership or REMIC a copy of the return in
the items reported on Schedule K-2. addition to the copy to be filed with the IRS.
Schedule Q. Schedule Q is the quarterly schedule A paid preparer may sign original or amended
reporting the residual interest holder's share of taxable TIP returns by rubber stamp, mechanical device, or
income or net loss from the REMIC. computer software program.
Tax matters partner (TMP). If the partnership is subject
to the TEFRA procedures, it can designate a partner as Interest and Penalties
the TMP for the tax year for which the return is filed. The
TMP is a general partner (in most cases, the TMP must Interest. Generally, interest is charged on taxes not paid
also be a U.S. person) designated by the partnership to by the due date, even if an extension of time to file is
represent the partners in the consolidated audit and granted. Interest is also charged on penalties imposed for
litigation proceedings under sections 6221 through 6234 negligence, fraud, substantial valuation misstatements,
prior to amendment by BBA (TEFRA proceedings). The substantial understatements of tax, and reportable
designation is made by completing the Designation of Tax transaction understatements. The interest is charged from
Matters Partner section of Form 1065 used for tax years the due date (including extensions) to the date of
beginning before 2018. payment. The interest charge is figured at a rate
determined under section 6621.
Additionally, a REMIC may designate a tax matters
person in the same manner in which a partnership may Late payment penalty. The penalty for not paying the
designate a TMP under Regulations section 301.6231(a) tax when due is usually / of 1% of the unpaid tax for 1 2
(7)-1. When applying that section, treat all holders of a each month or part of a month that the tax remains
residual interest in the REMIC as general partners. The unpaid. The penalty can’t exceed 25% of the unpaid tax.
designation may be made by completing the Designation Other penalties. Penalties can also be imposed for
of Tax Matters Person section of Form 1066 for tax years negligence, substantial understatements of tax, reportable
beginning before 2018. For tax years beginning after transaction understatements, and fraud. See sections
December 2017, a REMIC that's a BBA partnership 6662, 6662A, and 6663.
(hasn't elected out of BBA) would need to designate a PR.
Interest and penalties applicable to the IU. Except
For an LLC, a member of the LLC is treated as a when the partnership elects to have its partners take into
partner and a member-manager is treated as a general account the adjustments, BBA partnership interest and
partner. A member-manager is any owner of an interest in penalties are the following.
the LLC who, alone or together with others, has continuing • The interest figured for an IU is the interest that would
exclusive authority to make the management decisions be determined under chapter 67 for the period beginning
necessary to conduct the business for which the LLC was on the day after the return due date for the reviewed year
formed. If there are no elected or designated and ending on the return due date for the adjustment year,
member-managers, each owner is treated as a as defined under section 6225(d)(2) or, if earlier, the date
member-manager. For details, see Regulations section the IU is paid.
301.6231(a)(7)-2. • Any penalty, addition to tax, or additional amount shall
TEFRA partnership. The consolidated audit be determined at the partnership level and is applied as if
proceedings of sections 6221 through 6234 (prior to that BBA partnership had been an individual subject to tax
amendment by BBA) are referred to as “TEFRA under chapter 1 for the reviewed year and the IU were an
proceedings” and partnerships that are subject to TEFRA actual underpayment (or understatement) for that year for
purposes of part II of subchapter A of chapter 68.

4 Instructions for Form 1065-X (Rev. 12-2024)

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Election to apply the alternative to payment of the IU. For Partnership Tax Years Beginning Before
If the partners must take into account the adjustments January 1, 2018 (Unless Electing Into BBA)
because the BBA partnership filed an AAR and there are
adjustments that don’t result in an IU, or if a BBA TEFRA AAR. The consolidated audit proceedings of
partnership elects the alternative to payment of the IU sections 6221 through 6234 (prior to amendment by BBA)
under sections 6227(b)(2) and 6226(c), interest shall be are referred to as “TEFRA proceedings” and partnerships
determined: that are subject to TEFRA proceedings are referred to as
• At the partner level; “TEFRA partnerships.” An AAR filed by the TMP of the
• From the due date of the return for the tax year to which TEFRA partnership is a TEFRA AAR. TEFRA proceedings
the increase is attributable (determined by taking into won’t apply to partnerships with tax years beginning after
account any increases attributable to a change in tax 2017.
attributes for a tax year under section 6226(b)(2)), until the Non-TEFRA AAR. A partnership with a tax year
date of payment; and beginning before 2018 that isn’t subject to TEFRA
• At the section 6621(a)(2) underpayment rate. proceedings is referred to as a “non-TEFRA partnership.”
Judicial review of an AAR (for returns subject to the ELPs/REMICs The ELP procedures were repealed for
TEFRA procedures or ELPs). If the IRS fails to act on tax years beginning after 2017. However, ELPs filing a
an AAR, the TMP or PWA may file a petition for judicial non-e-filed AAR for a tax year that began before 2018 will
review with the U.S. Tax Court, U.S. Court of Federal use Form 1065-X.
Claims, or U.S. District Court. The TMP or PWA must file
the petition before the date that is 2 years after the date
For Partnership Tax Years Beginning After 2017
the TMP or PWA filed the AAR, but not until after the date
that is 6 months from the date of such filing. The 2-year and Partnerships Electing Into BBA for Tax Years
period may be extended if the IRS and the TMP or PWA Beginning After November 2, 2015, and Before
agree in writing. For more details, see sections 6228 (prior January 1, 2018
to amendment by BBA) and 6252.
BBA AAR. All partnerships with tax years beginning after
2017 are subject to the centralized partnership audit
Specific Instructions regime unless an eligible partnership makes a valid
election under section 6221(b) to elect out of the
If, after reading the instructions, you're unable to complete centralized partnership audit regime. Partnerships electing
an item in Part I or Part II, enter “See Part V” in the entry into BBA for tax years beginning after November 2, 2015,
space for that item and provide the information there. and before January 1, 2018, are also subject to the
centralized partnership audit regime. Partnerships that are
Name and Identifying Number
subject to the centralized partnership audit procedures of
Enter the legal name of the entity and identifying number sections 6221 through 6241 are referred to as “BBA
on the appropriate lines. Include the suite, room, or other partnerships.” An AAR filed by a BBA partnership is a BBA
unit number after the street address. If the post office AAR.
doesn't deliver mail to the street address and the entity
has a P.O. box, show the box number instead. Non-BBA. A partnership with a tax year beginning after
2017 that isn't subject to BBA proceedings because it has
If the entity receives its mail in care of a third party made a valid election under section 6221(b) is referred to
(such as an accountant or attorney), enter on the street as a “non-BBA partnership.”
address line “C/O” followed by the third party's name and
street address or P.O. box. Partnership-Partner Amended Return Related to
If the entity's address is outside the United States, or its Modification of Another Partnership’s IU
possessions or territories, enter the information on the line
for “City or town, state, and ZIP code” in the following A partner that is itself a partnership (partnership-partner)
order: city, province or state, and foreign country. Follow that is filing an amended return as part of modification of
the foreign country's practice in placing the postal code in the IU under section 6225(c)(2) should check this box.
the address. Don’t abbreviate the country name.
Section 1—TEFRA/Non-TEFRA Determination
Part I. Check the Appropriate Box
An AAR can be filed by a partnership subject to TEFRA Item A
proceedings (TEFRA AAR), a partnership subject to BBA
proceedings (BBA AAR), an ELP, and a REMIC. If the answer to item A is “Yes,” the partnership return isn’t
If you're a BBA partnership that has received a notice of subject to the TEFRA proceedings. You should proceed to
administrative proceeding, you may not file an AAR. Also, item E and check the “Not subject to TEFRA” box.
a partner may not file an AAR on behalf of the BBA
partnership in which it is a partner unless doing so in its Items B Through E
capacity as the PR for that partnership.
These items are used to determine if the partnership is
subject to the rules for consolidated audit procedures
(TEFRA procedures).

Instructions for Form 1065-X (Rev. 12-2024) 5

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Consolidated REMIC proceedings. Generally, the tax                  Table for Determining Which Box To Check in Item E
treatment of REMIC items is determined at the REMIC 
level in a consolidated REMIC proceeding, rather than in       IF in item... The box      THEN in item E, check...
                                                                             checked is...
separate proceedings with individual residual interest 
holders. A REMIC subject to consolidated REMIC                 B             No           Subject to TEFRA.
procedures will have checked the box on item G on              C             No           Subject to TEFRA.
page 3 of its original Form 1066 (for tax years beginning      D             Yes          Subject to TEFRA.
before January 1, 2018).
                                                               B and C       Yes          Not subject to TEFRA.
Items B and C                                                  D             No           Not subject to TEFRA.

All partnerships with tax years beginning before 2018 
(except ELPs) and REMICs are subject to TEFRA 
partnership audit procedures unless the partnership or         Item F
REMIC is subject to the small partnership exception. See 
section 6231(a)(1)(B) (prior to amendment by BBA).             Check the box to indicate whether you're filing an 
                                                               amended return or an AAR.
  A small partnership is a partnership with 10 or fewer 
partners at all times during the year. All partners must be    Amended Return.      Check this box if you checked the 
U.S. individuals and their estates, resident alien             “Not subject to TEFRA” box in item E, and you aren’t an 
individuals, or C corporations.                                ELP. This means that you're filing a request to correct a 
                                                               previously filed non-TEFRA partnership return or REMIC 
Note. For making the small partnership determination, a        return.
married couple, each spouse having their own partnership         If your partnership or REMIC return meets the 
interest, is considered one partner. An individual who has     exception under section 860F(e) or section 6231 (prior to 
passed away during the year and their estate are               amendment by BBA), and doesn't file an election to be 
considered one partner.                                        treated as a TEFRA partnership under section 6231(a)(1)
                                                               (B)(ii) (prior to amendment by BBA), and related 
Item D                                                         regulations, and you received a corrected Form 1099 or 
                                                               are making changes to income, deductions, or credits, but 
A partnership defined as a small partnership can elect to      there are no flow-through changes from a TEFRA 
be treated as a TEFRA partnership for tax years beginning      partnership, then you're filing an amended return. Check 
before 2018. The partnership elects TEFRA treatment by         the “Amended Return” box.
attaching a statement to the tax return for the first year 
they wish the election to be effective. This statement must    AAR.   Check this box if you're filing a request to correct a 
be signed by all partners. See Regulations section             previously filed partnership or REMIC return and you're 
301.6231(a)(1)-1(b). Form 8893, Election of Partnership        one of the following.
Level Tax Treatment, is the statement that can be used to      • The TMP of the TEFRA partnership or REMIC. The 
make this election. If you answer “Yes” to item D, enter the   REMIC must be subject to consolidated REMIC 
tax year of the filing of this election in the space provided. proceedings. For more information on consolidated 
                                                               REMIC proceedings, see the Instructions for Form 1066.
                                                               • An ELP correcting a previously filed return.
Item E
If, at any time during the tax year, there are more than 10    Item G
partners or any of the following are partners in the 
partnership, then the partnership isn’t a small partnership.   A substituted return requests that the treatment of an item 
• Another partnership.                                         shown on the AAR be substituted for the treatment of the 
• An LLC which files as a partnership or is treated as a       item on the pass-through entity's return.
disregarded entity.
• Any type of trust, including a grantor trust.                  Check “Yes” if you're requesting substituted return 
• A nominee.                                                   treatment for the partnership. If the IRS allows substituted 
• A nonresident alien.                                         return treatment, the changes shown on the amended 
• An S corporation.                                            return will be treated as corrections of mathematical or 
                                                               clerical errors, and the IRS may assess any resulting tax 
                                                               to the partners or residual interest holders without a 
                                                               deficiency or entity-level proceeding. In this case, partners 
                                                               or residual interest holders may file amended returns 
                                                               requesting refunds. See section 6227(c)(1) (prior to 
                                                               amendment by BBA).

                                                                 If the IRS doesn’t allow substituted return treatment for 
                                                               the partnership, the partners or residual interest holders 
                                                               may file amended returns requesting refunds. The IRS 
                                                               may conduct an examination of the pass-through entity's 

6                                                                            Instructions for Form 1065-X (Rev. 12-2024)

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return, or take no action on the request. When a request Item D
isn’t treated as a substituted return, the IRS can’t assess
tax without a deficiency or entity-level proceeding. See Each reviewed year partner is required to take into
section 6227(c)(2) (prior to amendment by BBA). account its share of adjustments requested in a BBA AAR
ELPs. An ELP can’t request substituted treatment. See if the partnership adjustments result in a positive IU and
section 6227(c)(1) (prior to amendment by BBA). the partnership makes the alternative to payment election
discussed under Item C1, earlier. Additionally, each
Section 2—BBA AAR reviewed year partner is required to take into account its
For additional information on filing BBA AARs, go to share of any adjustments requested in a BBA AAR
IRS.gov/bbaaar. resulting in an IU of zero or less than zero, or that don't
result in an IU. The determination of whether or not an
adjustment results in an IU amount is discussed under
Item A Item B, earlier.

If the "Yes" box is checked, complete Form 8979 and The partnership is required to furnish each reviewed
attach it to the AAR. See the Instructions for Form 8979, year partner with a Form 8986 reporting its share of the
Partnership Representative Revocation, Designation, and BBA AAR adjustments. The PR must attest to the
Resignation Form, for more information. partnership’s compliance with this requirement. The PR
will sign Form 1065-X under item D to declare, under
Note. If you're a BBA partnership, you may not file an penalties of perjury, that all statements have been
AAR solely for the purpose of changing the PR. provided to the reviewed year partners, as required by
these instructions.
Item B
Item E
BBA partnerships filing an AAR will need to determine if
the partnership adjustments result in an IU. See Figuring Under section 6227(b)(1), the partnership may modify the
the Imputed Underpayment (IU), later, for information as to IU resulting from adjustments reported in a BBA AAR in
how to figure the IU. The BBA partnership should consider accordance with the provisions under section 6225(c),
all available guidance issued by the IRS in making a disregarding the provisions under paragraphs (2), (7), and
determination of whether or not the AAR results in an IU. (9). Any modification made to the IU under section
Also, see Part IV, later, for discussion of the IU. 6227(b)(1) must be disclosed and fully explained on Form
8980 and included with the AAR.
Item C1
Note. If the partnership makes a valid election to push out
If the adjustments contained in the BBA AAR result in an the adjustments to the partners as an alternative to
IU, the partnership must pay the IU at the same time the payment of the IU, the modifications to the IU are
AAR is filed. However, under section 6227(b)(2), the disregarded and aren’t included on the statements
partnership can elect to have its reviewed year partners provided to the partners.
take the adjustments into account. This is an election to However, if the partnership's election to push out
push out the adjustments to the partners as an alternative ! the adjustments rather than pay an IU is
to payment of the IU. See section 6226(a)(2) for details. If CAUTION determined to be invalid, the partnership will still
this valid election is made, the partnership is no longer be liable for the IU. In such a case, if the partnership filed
liable for the IU. its IU calculation and Form 8980 to request permitted
If the partnership's election under section 6227(b) modifications be applied to the IU, those modifications will
be considered in making any such determination and
! (2) to push out the adjustments to the partners is
CAUTION determined to be invalid, the partnership will still potential subsequent assessment.
remain liable for the IU.
Section 3—Partnership-Partner Amended
Item C2 Return Filed as Part of Modification of the
Imputed Underpayment (IU) During a BBA Audit
The partnership will need to furnish Forms 8986 to each Section 6225(c)(2) allows a BBA partnership under
reviewed year partner reflecting the partner's share of examination to request specific types of modifications of
adjustments for when the adjustments don't result in an IU an IU proposed by the IRS. One type of modification
(for example, the adjustments in the BBA AAR result in an applies when a partner or indirect partner, including a
IU of zero or less than zero; or there is a net negative partnership-partner, files an amended return for the tax
adjustment). The partnership is also required to file with year of the partner which includes the end of the reviewed
the AAR all Forms 8986 furnished to partners and Form year of the BBA partnership under examination. See Form
8985. See the instructions for these forms for further 8980, Item E, Part I, and Pub. 5346.
information.
A BBA partnership under examination will be assigned
Note. The BBA partnership doesn't furnish Schedules a unique audit control number. A partnership-partner
K-1 to its partners when filing a BBA AAR. Instead, it'll using Form 1065-X to file an amended return as part of a
provide Forms 8986. modification under section 6225(c)(2) must include in

Instructions for Form 1065-X (Rev. 12-2024) 7

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Section 3 (Form 1065-X) the name, EIN, reviewed year, that you'd like applied to the IU and a completed Form
and audit control number of the BBA partnership under 8980 with your filing. Complete Forms 8985 and 8986
examination to which the amended return relates. In (pushout package) pertaining to the adjustments that
addition, the partnership-partner shouldn’t furnish don’t result in an IU (if applicable). Don't include
amended Schedules K-1 or K-3, or Forms 8986, to its Schedules K-1 because they aren't appropriate for a
partners, but instead must pay an amount computed like BBA partnership AAR.
an IU on the adjustments allocable to it, plus any penalties b. If pushing out all the adjustments to the reviewed
and interest. See Part IV, later, for payment instructions. year partners, complete Forms 8985 and 8986
(pushout package).
Part II—Amended or Administrative
If the partnership pushes out the adjustments, but
Adjustment Request (AAR) Items for ! the election is invalid, the partnership remains
Partnerships Filing Form 1065 Only CAUTION liable for an IU and such IU potentially may be
assessed. If the partnership filed its IU calculation and
(ELPs and REMICs Use Part III) Form 8980 to request permitted modifications be applied
For information on income, deductions, credits, etc., see to the IU, those modifications will be considered in
the instructions for Form 1065, Schedules K, K-1, K-2, determining the liability.
and K-3 for the tax year being amended or otherwise
adjusted. See the Instructions for Form 1065 for a list of 5. File Form 1065-X and attach any other supporting
forms that may be required. documents required, including copies of Forms 8985 and
8986 (if applicable).
Note. In Part II of Form 1065-X, “see instructions” refers 6. If applicable, distribute the Forms 8986 to reviewed
to the instructions for Form 1065 and Schedule K-1, not year partners according to the Form 8986 instructions.
the Instructions for Form 1065-X.
Column (a). Enter the amounts from Form 1065,
TEFRA partnerships filing AARs. A TEFRA partnership
Schedule K, as originally filed or as was previously
filing an AAR to change items that were reported on its
adjusted. If the return was changed or audited by the IRS,
original return must do the following.
enter the amounts as adjusted.
1. Determine the required changes to be made.
Column (b). Enter the net increase or decrease for each
2. Complete Form 1065-X to identify the changes line being changed. Enter as a positive the amount by
being made. which column (c) exceeds column (a) or enter as a
a. On Form 1065-X, check the “TEFRA AAR” box negative the amount by which column (a) exceeds column
under Part I. (c). Use parentheses around all amounts that are
b. See later for how to complete Part II, columns (a) negative. Positive amounts are increases and negative
through (c). amounts are decreases. Explain the increase or decrease
3. Complete Form 1065-X. in Part V.
a. See Who Must Sign, earlier, for who must sign the Column (c). Enter the correct amount. This will be the
Form 1065-X. sum of column (a) and column (b).
b. Attach amended Schedules K-1 showing the
corrected amounts for each partner. Forms 8985 and 8986
4. File Form 1065-X and attach any other supporting If a BBA partnership files an AAR and it is making an
documents required. election under section 6227(b)(2) to have the adjustments
taken into account by the reviewed year partners, or (1)
5. Give a copy of the amended Schedules K-1 to the
when the adjustments in the BBA AAR result in an IU of
applicable partners.
zero or less than zero; or (2) the adjustments don't result
BBA partnerships filing AARs. A BBA partnership filing in an IU, then it will furnish to each partner for the reviewed
an AAR to change items that were reported on its original year a Form 8986 reflecting the partner’s share of the
return must do the following. adjustments to PRI as a result of a BBA audit or BBA AAR
for situations where the partners are taking into account
1. Determine the required changes to be made.
the adjustments. The partnership is also required to file
2. Complete Form 1065-X to identify the changes with the AAR all Forms 8986 furnished to partners and
being made. Form 8985. Form 8985 is used to summarize and transmit
a. On Form 1065-X, check the “BBA AAR” box under Forms 8986, in situations where the partners are taking
Part I. into account the adjustments. Adjustments shown on
b. See later for how to complete Part II, columns (a) Form 1065-X, Part II, column (b), should tie to the
through (c). adjustments reported on Form 8985, Part IV, column (f).
3. Figure an IU and determine if there are any Form 8985 is also used to report payment(s) made and
adjustments that don’t result in an IU. related calculations by a pass-through partner, if
applicable. See the instructions for these forms for further
4. Determine if it’ll pay the IU or push out the information.
adjustments to the partners.
a. If paying an IU, report the IU appropriately in Part IV.
With your filing, include any permitted modifications

8 Instructions for Form 1065-X (Rev. 12-2024)

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Amended Schedules K-1 2. It may elect to not pass the adjustment through to
If a BBA partnership files an AAR and needs to make its current partners by paying tax on any IU that results from
partners aware of their allocable share of adjustments, it the adjustment. If the partnership elects to pay the tax,
will furnish to each partner for the reviewed year Form enter it on Part III, line 16. Attach a computation of the tax
8986 reflecting the partner’s share of the adjustments (and to Form 1065-X.
shouldn’t provide amended Schedules K-1). The In either case, the partnership is liable for any interest
partnership must also file all Forms 8986 furnished to and penalties on IUs that result from the adjustment. See
partners and Form 8985 with the AAR. See the section 6242(b) (prior to amendment by BBA) for details.
instructions for these forms for further information. ELPs Interest is figured on the IU for the period beginning on the
filing a Form 1065-X as an AAR should see Part III, later. day after the due date (excluding extensions) of the
All other partnerships should file amended Schedules K-1 partnership return for the tax year the adjustment takes
with Form 1065-X and furnish copies of the amended effect or, if earlier, the date the partnership paid the tax
Schedules K-1 to the partners. due under (2) above. The adjusted year is the partnership
tax year in which the item being adjusted arose.
If a TEFRA partnership files Form 1065-X for an AAR, it
should inform the partners receiving the amended ELPs and REMICs. Identify in Part III the amount and
Schedules K-1 that the partnership is filing the AAR. If the treatment of any item the partnership or REMIC is
partnership isn’t subject to either the rules for changing from the way it was reported on the original
consolidated audit proceedings (TEFRA proceedings) return.
under sections 6221 through 6234 (prior to amendment by Column (a). Enter a description of the item that the
BBA) or to the centralized partnership audit regime under partnership or REMIC is adjusting or amending.
BBA, it must furnish the amended Schedules K-1 to its
partners. The partners must then file their own amended Column (b). Enter the amounts from the ELP's or
returns. REMIC's return as originally filed or as it was later
adjusted. If the return was changed or audited by the IRS,
Amended or Corrected Schedules K-2 and K-3 enter the amounts as adjusted.
for Tax Years Beginning on or After January 1, Column (c). Enter the net increase or net decrease for
2021 each line being changed. Use parentheses around all
amounts that are decreases. Explain the increase or
Non-BBA partnership filing an amended return.
decrease in Part V.
Attach the amended Schedule K-2 and on the header of
the schedule enter “As Amended.” Attach the amended Column (d). Enter the correct amount. This will be the
Schedules K-3 with the amended box checked at the top sum of column (b) and column (c).
of each. The partnership must furnish the amended Line 6. Show any increase or decrease to the ELP's tax
Schedules K-3 to its partners. or other payments.
BBA partnerships filing AARs. When a BBA Line 10. Enter the total tax as follows.
partnership files an AAR and needs to make its partners
ELPs. Enter the line 6 amounts on line 10.
aware of their allocable share of adjustments, it shouldn’t
file an amended Schedule K-2 or Schedules K-3 instead it REMICs. Add the amounts on lines 7 through 9 and
must file Forms 8985 and 8986 with the AAR to report the enter the total for each column on line 10.
changes to the Schedules K-2 and K-3. The BBA Line 11. Enter the amount of tax paid with Form 7004,
partnership must also furnish Forms 8986 to its partners. Application for Automatic Extension of Time To File
See the instructions for Forms 8985 and 8986. Also see Certain Business Income Tax, Information, and Other
the Instructions for Form 8986 for examples of how Returns.
Schedule K-3 adjustments should be reported. The
Line 14. Enter the amount from the “Overpayment” line of
related Schedule K-2 (summary of Schedules K-3)
the original return, even if the ELP or REMIC chose to
adjustments should be reported in the same manner.
credit all or part of this amount to the next year's estimated
Part III—Amended or Administrative tax. This amount must be considered in preparing Form
1065-X because any refund due from the original return
Adjustment Request (AAR) Items for will be refunded separately from any additional refund
ELPs and REMICs Only claimed on Form 1065-X. If the original return was
changed by the IRS and the result was an additional
ELPs only. An ELP may file an AAR to adjust its overpayment of tax, also include that amount on line 14.
partnership items. Generally, the ELP has two choices for
handling the adjustment. Line 16. If the ELP or REMIC doesn't use electronic fund
transfers, including the Electronic Federal Tax Payment
1. It may combine the adjustment with the same System (EFTPS), enclose a check with this form. Make
partnership item for the year in which the IRS allows the the check payable to “United States Treasury.”
adjustment and pass it through to the current partners for
that year. However, if the adjustment involves the Line 17. If the ELP or REMIC is entitled to a refund larger
reduction in a credit which exceeds the amount of that than the amount claimed on the original return, line 17 will
credit for the partnership tax year in which the adjustment show only the additional amount of overpayment. This
is allowed, the partnership must pay tax in an amount additional amount will be refunded separately from the
equal to the excess amount.

Instructions for Form 1065-X (Rev. 12-2024) 9

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amount claimed on the original return. The IRS will figure The partnership must always include an IU calculation,
any interest due and include it in the refund. irrespective of whether the IU is zero (or less than zero, or
the adjustments don’t result in an IU) or the partnership
Amended Schedules K-1 or Schedules Q elects under section 6227(b)(2) to have its reviewed year
If the ELP or REMIC is filing Form 1065-X for an AAR, partners take all the adjustments into account. See
don’t furnish the amended Schedules K-1 or Schedules Q Figuring the Imputed Underpayment (IU), later, for
to the partners or residual interest holders. If the REMIC information on how to figure the IU. Also go to How to
isn’t filing for an AAR and isn’t subject to the rules for figure an imputed underpayment.
consolidated audit proceedings under sections 6221
Under section 6227(b)(1), the partnership may modify
through 6231 (prior to amendment by BBA), the REMIC
the IU resulting from adjustments reported in a BBA AAR
must furnish the amended Schedules Q to its residual
in accordance with the provisions under section 6225(c),
interest holders.
disregarding the provisions under sections 6225(c)(2), (7),
Part IV—Imputed Underpayment (IU) and (9). Any modification made to the IU under section
6227(b)(1) must be disclosed and fully explained in
Under the Centralized Partnership documentation included with the AAR.
Audit Regime If modifications are applied to the IU, complete and
BBA AARs must always include a computation of attach Form 8980 and report the modified IU amount on
Part IV, line 1. See Part I, Section 2, Item E, earlier, for
! the IU (even when the IU is zero or less than zero, more information on modification.
CAUTION or the adjustments don’t result in an IU), as
determined under section 6225(b). If the partnership makes an election to push out
the adjustments rather than pay an IU but the
If the adjustments don’t result in an IU, the IU should be CAUTION!
election is determined to be invalid, the
shown as zero. Documentation should be included with
partnership remains liable for an IU and such IU
the AAR that supports the computation of the IU amount.
potentially may be assessed. If the partnership filed its IU
If the resulting IU amount is zero or less than zero, or the
calculation and Form 8980 to request permitted
adjustments don’t result in an IU, or if the partnership is
modifications be applied to the IU, those modifications will
making an election under section 6227(b)(2) to have the
be considered in determining the liability.
adjustments taken into account by the reviewed year
partners, Part IV, line 1, should be shown as zero.
The applicability of interest and penalties is discussed
Otherwise, the IU amount should be reported on Part IV,
under Interest and penalties applicable to the IU, earlier.
line 1.
The BBA AAR may include a prepayment for interest and
If the adjustments requested in the AAR result in an IU, penalties. If making such prepayments, the AAR should
generally the partnership takes the adjustments into include documentation that supports the calculations. A
account and must pay the IU. Adjustments requested in payment made with Form 1065-X should detail the
the AAR that result in zero, less than zero, or the portions of the payment that are for the IU, prepaid
adjustments don’t result in an IU must be taken into estimated interest, and prepaid estimated penalties. The
account by each reviewed year partner as if the total of all three should be reported on Part IV, line 2.
partnership had made an election under section 6227(b) Under section 6232(a)(2), partnerships filing a BBA
(2), but only with regard to those adjustments that don’t AAR that has adjustments that result in an IU, and don’t
result in an IU. In this instance, see Forms 8985 and 8986 elect the alternative to payment of the IU (by not electing
and their related instructions for reporting amounts not to push out the adjustments to the reviewed year
included in the IU. partners), must pay the IU. The IU should be shown on
The partnership may elect under section 6227(b)(2) to Form 1065-X, Part IV, line 1, at the time of filing the AAR.
have the reviewed year partners take into account When paying by check, include the name of the
adjustments resulting in an IU. If the partnership makes partnership, “Form 1065,” the TIN of the partnership, the
the election, the partnership isn’t liable for, nor required to tax year, and “BBA AAR Imputed Underpayment.” Checks
pay, the IU related to the adjustments. Additionally, if the must be made payable to “United States Treasury” and
IU calculation results in an amount that is zero, less than included with the BBA AAR. If making an electronic
zero, or the adjustments don’t result in an IU, then all payment, choose the payment description “BBA AAR
adjustments are taken into account by the reviewed year Imputed Underpayment” from the list of payment types.
partners. However, the partnership may have withholding The payment amount, including any amount paid toward
and reporting obligations under chapter 3 or chapter 4 the IU, prepaid estimated interest, and penalties, should
with respect to the adjustments taken into account by the be reported on Part IV, line 3.
reviewed year foreign partners. See the instructions for
Form 8985 and Form 8986. Figuring the Imputed Underpayment (IU)
For an example of how to figure an IU, go to How to figure
If the partnership validly elects under section 6227(b) an imputed underpayment.
(2) to have its reviewed year partners take all the
adjustments into account, all modifications by the Definitions
partnership (that would have been allowed had the
partnership paid an IU) aren’t allowed and are Adjustments not resulting in an IU. If, after grouping,
disregarded. subgrouping, and netting, the amount in any grouping or

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subgrouping is a net negative or the calculation of the IU is Total netted partnership adjustments (TNPA). The
zero or less than zero, then the adjustments in those net sum of all net positive adjustments in the reallocation
negative groups or in the calculation of the IU are grouping and the residual grouping.
adjustments that don’t result in an IU. Any adjustments
that don’t result in an IU are taken into account by the Formula for Figuring the IU
reviewed year partners in accordance with Regulations
section 301.6227-3.
Figuring the IU
Credit grouping. Any adjustment to a PRI that is
reported or could be reported by a partnership as a credit TNPA x rate* =
on the partnership’s return, including a reallocation + Sum of net positive adjustments
adjustment to such PRI, is placed in the credit grouping. to creditable expenditure and
Creditable expenditure grouping. Any adjustment to a credit groupings:
PRI where any person could take the item that is adjusted = Total IU
(or item as adjusted if the item wasn’t originally reported * Highest rate in effect for the reviewed year under section 1 or 11.
by the partnership) as a credit, including a reallocation
adjustment to a creditable expenditure, is placed in the
creditable expenditure grouping. The process of taking the adjustments shown on the
AAR and inputting them into the formula above requires
Negative adjustment. A negative adjustment is any an understanding of the concepts of grouping,
adjustment that is a decrease in an item of gain or income; subgrouping, and netting. There are seven steps
an increase in an item of loss or deduction; an increase in necessary in figuring an IU. The first three steps focus on
an item of credit or creditable expenditure; a decrease in grouping, subgrouping, and netting.
an item of tax, penalty, addition to tax, or additional
amount for which the partnership is liable under chapter 1; Steps in Figuring the IU
or a decrease to an IU calculated by the partnership for
the tax year.
Step 1—Grouping
Net negative adjustment. Any amount which results
from netting adjustments within a grouping or subgrouping
that isn’t a net positive adjustment. A net negative Place each adjustment into one of four groupings:
adjustment includes a negative adjustment that wasn’t reallocation, credit, creditable expenditure, and residual
netted with any other adjustment. groupings.

Net positive adjustment. An amount that is greater than Note. Under Regulations section 301.6225-1(b)(4), a
zero which results from netting adjustments within a partnership that files an AAR may treat a positive
grouping or subgrouping. A net positive adjustment adjustment as zero (solely for purposes of calculating any
includes a positive adjustment that wasn’t netted with any IU) if the positive adjustment is related to, or results from,
other adjustment. A net positive adjustment includes a net a positive adjustment to another item. The IRS may later
decrease in an item of credit (or creditable expenditure). determine that the adjustment should not have been
treated as zero by the partnership in its calculation of the
Positive adjustment. A positive adjustment is any
IU. Go to How to figure an imputed underpayment.
adjustment that isn’t a negative adjustment.
Reallocation grouping. A reallocation adjustment
Reallocation grouping. In general, any adjustment that
generally consists of at least two adjustments, one
allocates or reallocates a PRI to and from a partner or
positive and one negative, with each in a separate
partners is a reallocation adjustment, except for an
subgrouping.
adjustment to a credit or to a creditable expenditure. Each
• One part of the reallocation adjustment reverses the
reallocation adjustment generally results in at least two
effect of the improper allocation of a PRI.
separate adjustments, each of which becomes a separate
• The other part of the adjustment makes the proper
subgrouping.
allocation of the PRI.
Residual grouping. Any adjustment to a PRI that • Under the AAR rules, if one of the reallocation
doesn’t belong in the reallocation, credit, or creditable adjustments is negative, such negative adjustment must
expenditure grouping is placed in the residual grouping. be pushed out to the proper partner(s).
This grouping also includes any adjustment to a PRI that
Don’t net reallocation adjustments. Because each
derives from an item that wouldn’t have been required to
part of a reallocation adjustment is placed in a
be allocated by the partnership to a partner under section CAUTION!
separate subgrouping within the reallocation
704(b), such as an adjustment to a liability amount on the
grouping, those adjustments can’t be netted in
balance sheet.
accordance with the netting rules.
Subgrouping. Each adjustment is subgrouped
according to how the adjustment would be required to be Example. $100 of ordinary income is being
taken into account separately under section 702(a). In reallocated from Partner A to Partner B. For purposes of
general, a subgrouping follows Schedules K, K-1, K-2, figuring the IU, there will be two adjustments, each in a
and K-3 line items, including any alpha codes related to a separate subgrouping: a negative adjustment of $100
Schedule K-1 line item. (reversing improper allocation to Partner A) and a positive
adjustment of $100 (making proper allocation to Partner

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B). These two adjustments can’t be netted. As a result, the     Example.  Adjustments to ordinary income must be 
total net positive adjustment in the reallocation grouping is placed in a different subgrouping than capital gain income 
$100 and will be included in the TNPA.                        or interest income because each of those items is 
                                                              required to be separately stated under section 702(a).
Credit grouping. 
• Generally, a decrease in credits is treated as a positive   • Subgroupings generally reflect a line item from 
                                                              Schedules K, K-1, K-2, and K-3, including any 
adjustment, and an increase in credits is treated as a 
                                                              subcategories of those lines (for example, alpha codes 
negative adjustment.
                                                              per the Schedule K-1 instructions or activities broken out 
• A reallocation adjustment relating to the credit grouping 
                                                              via attached statements). If any line item on Schedules K 
is placed into two separate subgroupings and won’t be 
                                                              and K-1 or other schedules consists of multiple items and 
netted together nor will they be netted with other credit 
                                                              the components are required to be taken into account 
adjustments.
                                                              separately under the Code, regulations, forms, 
Creditable expenditure grouping.                              instructions, or other IRS guidance, then such line item 
• Generally, a decrease in creditable expenditures is         must be further subgrouped.
treated as a positive adjustment, and an increase in 
                                                                Example.  2019 Schedule K-1, box 13, code A (cash 
creditable expenditures is treated as a negative 
                                                              contributions 60%), and box 13, code B (cash 
adjustment.
                                                              contributions 30%), are two separate subgroupings.
• A reallocation adjustment relating to a creditable 
                                                              • The ordinary income (loss) amount reported on 
expenditure grouping is placed into two separate 
                                                              Schedule K, line 1, and in box 1 of Schedule K-1 is 
subgroupings and won’t be netted together.
                                                              sourced from Form 1065, page 1, and is a net amount 
• A creditable expenditure is treated in this manner even 
                                                              consisting of various page 1 line items of income and 
if the partners claimed a deduction in lieu of a credit.
                                                              expenses. Although those separate page 1 line items are 
• Each adjustment to a creditable expenditure is 
                                                              distinct items of income and expenses, if they are 
subgrouped based on the separate category of income to 
                                                              appropriately netted and included on Schedule K, line 1, 
which the creditable expenditure relates and to account 
                                                              and in box 1 of Schedule K-1, the net amount will be 
for any different allocation of the creditable expenditure 
                                                              considered a single subgrouping, except when such 
between partners. Two or more adjustments to creditable 
                                                              amount is required to be separately allocated, such as 
expenditures are included within the same subgrouping 
                                                              when the partnership has more than one trade or 
only if each adjustment relates to creditable expenditures 
                                                              business. If the partnership has more than one trade or 
in the same separate category, and each adjusted PRI 
                                                              business reported on Form 1065, page 1, the net income 
would be allocated to the partners in the same ratio had 
                                                              (loss) from each trade or business must be separately 
those items been properly reflected on the originally filed 
                                                              reported on Schedule K-1. Each separate activity will 
partnership return.
                                                              constitute a separate subgrouping and it must be 
Residual grouping.  The residual grouping contains all        determined which activity an adjustment to the page 1 
adjustments that don’t fit into one of the other groups.      item of income and expense relates to for subgrouping 
Recharacterization adjustments. A recharacterization          purposes.
adjustment will generally result in at least two separate     • If you have a negative adjustment along with a positive 
adjustments within the residual grouping.                     adjustment in the same line item of Schedules K and K-1, 
• One adjustment reverses the improper characterization       you must consider whether they may be properly netted at 
of the PRI.                                                   the partnership level or whether they are required to be 
• The other adjustment makes the proper                       taken into account separately by any partner. The 
characterization of the PRI.                                  adjustments may be subject to a limitation or preference 
• The adjustments that result from a recharacterization       under the Code before you can place them in the same 
are placed into separate subgroupings.                        subgrouping (for example, passive and nonpassive 
                                                              activities).
                                                              • A negative adjustment that isn’t otherwise required to 
Step 2—Subgrouping                                            be placed in its own subgrouping must be placed in the 
                                                              same subgrouping as another adjustment if the negative 
Determine if any adjustment, within one of the four 
                                                              adjustment and the other adjustment would have been 
groupings, needs to be subgrouped. Each adjustment is 
                                                              properly netted at the partnership level or such netted 
subgrouped according to how the adjustment would be 
                                                              amount would have been required to be allocated to the 
required to be taken into account separately under section 
                                                              partners of the partnership as a single item for purposes 
702(a). If any adjustment could be subject to any 
                                                              of section 702(a) or other provision of the Code and 
preference, limitation, or restriction under the Code (or not 
                                                              regulations.
allowed, in whole or in part, against ordinary income) if 
taken into account by any person, the adjustment is 
placed in a separate subgrouping from all other               Step 3—Netting
adjustments within the grouping.
                                                              Net all adjustments within each of the groupings and 
  Generally, each separate line item of Schedules K, K-1,     subgroupings.
K-2, and K-3 or return schedule (for example, Schedule L)     • Positive adjustments may be netted with other positive 
represents a separate and distinct subgrouping.               adjustments only if they are in the same grouping.

12                                                                         Instructions for Form 1065-X (Rev. 12-2024)

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• Negative adjustments may be netted with other              Step 7—Figure the IU Based on the Results of 
negative adjustments only if they are in the same            Steps 4 Through 6 and Insert Those Results Into 
grouping.                                                    the IU Formula
• Positive and negative adjustments may only be netted 
against each other if they are in the same subgrouping.
                                                                           Figuring the IU
• An adjustment in one grouping or subgrouping may not 
be netted against an adjustment in any other grouping or                   TNPA x rate* =
subgrouping.
• All adjustments within a subgrouping are netted to         + Sum of net positive adjustments 
determine whether there is a net positive adjustment or      to creditable expenditure and 
                                                                   credit groupings: 
net negative adjustment for that subgrouping.
• Net positive adjustments from subgroupings or positive                   = Total IU
adjustments within a grouping (if subgroupings are           * Highest rate in effect for the reviewed year under section 1 or 11.
unnecessary) are netted to determine the net positive 
adjustment for that grouping. Net negative adjustments       Partnership-Partner Amended Return Filed as 
from subgroupings within a grouping are netted to 
                                                             Part of Modification
determine the net negative adjustment for that grouping.
                                                             Partnership-partners who are filing amended returns as 
Step 4—Figure the Total Netted Partnership                   part of the modification of the IU during examination under 
                                                             section 6225(c)(2) will report the applicable payment of 
Adjustments (TNPA)                                           tax on Part IV, line 1. The pass-through partner will 
                                                             compute the amount like an IU on the adjustments 
• Each net positive adjustment in a grouping or 
                                                             allocated to it and make the payment with the filing of 
subgrouping in the residual or reallocation grouping that 
                                                             Form 1065-X. A payment made with Form 1065-X should 
results after netting the adjustments is included in the 
                                                             detail the portions that are for the payment of the IU, the 
calculation of the TNPA.
                                                             interest, and the penalties. The partnership should 
• Each net negative adjustment in a grouping or 
                                                             consider all available guidance issued by the IRS when 
subgrouping that results after netting the adjustments is 
                                                             figuring the amount due. In general, the partnership 
excluded from the calculation of the TNPA because those 
                                                             should compute its amount due in accordance with the IU 
adjustments don’t result in an IU.
                                                             computation in these instructions. See Steps in Figuring 
Note. If a positive adjustment to an item is reflected in    the IU, earlier. The total of the IU, penalties, and interest 
positive adjustments to other items, the positive            should be reported on Part IV, line 2. When paying by 
adjustment of equal or lesser magnitude that is reflected    check, include the name of the partnership-partner, “Form 
may be treated as zero solely for purposes of calculating    1065,” the TIN of the partnership-partner, the tax year, and 
any IU.                                                      “Partner Payment for BBA Modification.” Checks must be 
                                                             made payable to “United States Treasury” and included 
Step 5—Determine the Highest Tax Rate in Effect              with the amended return. If making an electronic payment, 
                                                             choose the payment description “Partner Pymnt for BBA 
Under Section 1 or 11 in the Reviewed Year                   Modification” from the list of payment types. The payment 
                                                             amount, including any amount paid toward the IU, interest, 
Step 6—Determine the Sum of Net Positive                     and penalties, should be reported on Part IV, line 3.
Adjustments to Creditable Expenditures and 
                                                             Partnership-Partners Who Are Allocated 
Credit Groupings That Will Increase the Product of 
                                                             Adjustments That Don’t Result in an IU
the TNPA Multiplied by the Highest Rate in Effect
                                                             If a partnership-partner is paying an amount due as part of 
• A net decrease to creditable expenditures is treated as    an amended return submitted for purposes of 
a net positive adjustment and increases the product of the   modification, during examination under section 6225(c)
TNPA multiplied by the highest tax rate in effect. A net     (2), any adjustments that don’t result in an IU must be 
increase to creditable expenditures is treated as a net      taken into account in the tax year that the amount is paid 
negative adjustment, including net negative adjustments      by the partnership-partner. However, if there are only 
resulting from a creditable expenditures reallocation        adjustments that don’t result in an IU, those adjustments 
adjustment, is excluded from the calculation of the TNPA     are subject to modification by the ultimate taxpayers who 
and is an adjustment that doesn't result in an IU.           reported the original amounts and not by the 
• For the credit grouping, a net positive adjustment will    partnership-partner itself. Refer to Regulations section 
increase the product of the TNPA multiplied by the highest   301.6225-3 for further guidance.
tax rate in effect. A net negative adjustment, including net 
                                                             Part V—Explanation of Changes to 
negative adjustments resulting from a credit reallocation 
adjustment, will be treated as an adjustment that doesn't    Items in Part II and Part III
result in an IU.                                             For each amended item, explain in detail the reasons for 
                                                             the change. Include any computations necessary to 
                                                             support the amended item.

Instructions for Form 1065-X (Rev. 12-2024)                                                                                       13

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Changes in allocations. If there is a change in the The time needed to complete and file this form will vary
allocation of income, gain, loss, deduction, or credit to a depending on individual circumstances. The estimated
partner, specify the nature and reasons for the changes. burden for business taxpayers filing this form is approved
under OMB control number 1545-0123 and is included in
Paperwork Reduction Act Notice. We ask for the the estimates shown in the instructions for their business
information on this form to carry out the Internal Revenue income tax return.
laws of the United States. You're required to give us the If you have suggestions for making this form simpler,
information. We need it to ensure that you're complying we would be happy to hear from you. You can send us
with these laws and to allow us to figure and collect the comments through IRS.gov/FormComments. Or, you can
right amount of tax. write to: Internal Revenue Service, Tax Forms and
You aren’t required to provide the information requested Publications Division, 1111 Constitution Ave. NW,
on a form that is subject to the Paperwork Reduction Act IR-6526, Washington, DC 20224. Don’t send Form
unless the form displays a valid OMB control number. 1065-X to this address. Instead, see Where To File,
Books or records relating to a form or its instructions must earlier.
be retained as long as their contents may become
material in the administration of any Internal Revenue law.
Generally, tax returns and return information are
confidential, as required by section 6103.

14 Instructions for Form 1065-X (Rev. 12-2024)

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