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                                                                                                                Department of the Treasury
                                                                                                                Internal Revenue Service
Instructions for Form 1065-X

(Rev. August 2023)
Amended Return or Administrative Adjustment Request (AAR)

Section references are to the Internal Revenue Code                            2018 version of Form 1065-X available at IRS.gov/pub/irs-
unless otherwise noted.                                                        prior/f1065x--2018.pdf.
Contents                                                                Page   Part I, Section 2—BBA AAR.       Item C2 has been added 
What’s New  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   1  to indicate when adjustments don’t result in an imputed 
Reminders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   1  underpayment.
Purpose of Form . . . . . . . . . . . . . . . . . . . . . . . . . . . .     2  Part II, line 13, changed. Part II, line 13a, is changed 
Who Must File   . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   3  from “Contributions” to “Cash contributions.” New line 13b 
What To Attach . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    3  is “Noncash contributions.” Prior year lines 13b, 13c, and 
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4  13d are changed to 13c, 13d, and 13e, respectively. This 
                                                                               follows similar changes on the 2023 Form 1065.
Specific Instructions   . . . . . . . . . . . . . . . . . . . . . . . . .   6
   Part I. Classification of Filer . . . . . . . . . . . . . . . . .        6  Reminders
   Part II—Amended or Administrative                                           The Bipartisan Budget Act of 2015 (BBA) created a new 
   Adjustment Request (AAR) Items for                                          centralized partnership audit regime generally effective for 
   Partnerships Filing Form 1065 Only (ELPs                                    partnership tax years beginning after 2017.
   and REMICs Use Part III)             . . . . . . . . . . . . . . . . .   8
                                                                                 The Tax Equity and Fiscal Responsibility Act of 1982 
   Forms 8985 and 8986 . . . . . . . . . . . . . . . . . .                  9  (TEFRA) generally applied to tax years beginning before 
   Amended Schedules K-1                    . . . . . . . . . . . . . . .   9  2018. BBA repealed TEFRA and the electing large 
   Amended/Corrected Sch. K-2, K-3, on/                                        partnership (ELP) rules. Consequently, former ELPs are 
         after 1-1-2021         . . . . . . . . . . . . . . . . . . . . .   9  now treated as other partnerships under the BBA regime.
   Part III—Amended or Administrative                                            Although BBA repealed the ELP rules for partnership 
   Adjustment Request (AAR) Items for ELPs                                     tax years beginning after 2017, and although Form 
   and REMICs Only . . . . . . . . . . . . . . . . . . . . . .              9  1065-B and its instructions are obsolete for tax years 
   Amended Schedules K-1 or Schedules Q . . .                               10 beginning after 2017, Form 1065-B is referred to in these 
   Part IV—Imputed Underpayment (IU) Under                                     instructions to assist former ELPs filing amended returns.
   the Centralized Partnership Audit Regime . . . .                         10
                                                                               Election into BBA for tax years beginning before 
   Figuring the IU          . . . . . . . . . . . . . . . . . . . . . .     11 2018.   A partnership may make an election into the 
   Partnership-Partner Amended Return                                          centralized partnership audit regime for tax years that 
         Filed as Part of Modification            . . . . . . . . . . .     13 begin after November 2, 2015, and before January 1, 
   Partnership-Partners Who Are Allocated                                      2018, by filing an AAR. Refer to Regulations section 
         Adjustments That Don't Result in an                                   301.9100-22 for detailed information. If the AAR is filed on 
         IU. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      14 paper, the partnership uses Form 1065-X and must make 
   Part V—Explanation of Changes to Items in                                   the election in accordance with section 1101(g)(4) of BBA.
   Part II and Part III       . . . . . . . . . . . . . . . . . . . . .     14   Note. An AAR filed with respect to a 2018 short tax 
                                                                               period return by a partnership that is subject to the 
Future Developments                                                            centralized partnership audit regime must meet the 
                                                                               requirements under section 6227.
For the latest information about developments related to 
Form 1065-X and its instructions, such as legislation                          Making the election for eligible tax years on an AAR 
enacted after they were published, go to IRS.gov/                              filed on paper. To make the election, the partnership 
Form1065X.                                                                     must write across the top of Form 1065-X used to file the 
                                                                               AAR, “Election under Section 1101(g)(4)” and attach a 
For information pertaining to BBA partnerships filing Form                     statement to the AAR. For the statement requirement, the 
1065-X, go to IRS.gov/bbaaar.                                                  partnership can use Form 7036, Election Under Section 
                                                                               1101(g)(4) of the Bipartisan Budget Act of 2015. If Form 
What’s New                                                                     7036 isn’t used, the partnership may prepare its own 
                                                                               statement with the following information.
Which revision of Form 1065–X to use.                   For tax years          • The partnership's name, the taxpayer identification 
beginning on or after January 1, 2023, use the August                          number (TIN), and the partnership tax year for which the 
2023 revision of Form 1065-X. For tax years beginning                          election is being made.
after December 31, 2020, and before January 1, 2023,                           • The name, TIN, address, and daytime telephone 
use the December 2021 revision of Form 1065-X available                        number of the individual who signs the statement.
at IRS.gov/pub/irs-prior/f1065x--2021.pdf. For tax years                       • Language indicating that the partnership is electing 
beginning prior to January 1, 2021, use the September                          application of section 1101(c) of BBA for the partnership 
                                                                               return for the eligible tax year.

Dec 26, 2023                                                            Cat. No. 57876S

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• The information required to properly designate the and send Forms 8986 to its partners. The BBA
partnership representative (PR), as defined by section partnership isn’t required to provide the five items of
6223, which must include the name, TIN, address, and information again on Forms 8985 and 8986. The BBA
daytime telephone number of the PR. partners don’t need to attach the five items of information
to their original returns to which their Forms 8986 are
The following representations must be made with re-
attached. For more information, see Research Credit
gard to the statement attached to the election.
Claims (Section 41) on Amended Returns Frequently
• The partnership isn’t insolvent and doesn’t reasonably
Asked Questions at IRS.gov/businesses/corporations/
anticipate becoming insolvent before resolution of any
research-credit-claims-section-41FAQ.
adjustment with respect to the partnership tax year for
which the election is being made. Schedules K-2 and K-3. For tax years beginning on or
• The partnership hasn’t voluntarily filed, and doesn't after January 1, 2021, filers of Form 1065-X may need to
reasonably anticipate filing, a petition for relief under title include amended Schedules K-2 and K-3 (Form 1065)
11 of the United States Code. according to the type of partnership (for example, BBA vs.
• The partnership isn’t subject to, and doesn't reasonably nonBBA). See Amended Schedules K-2 and K-3 for Tax
anticipate becoming subject to, an involuntary petition for Years Beginning on or After January 1, 2021, later.
relief under title 11 of the United States Code.
• The partnership has sufficient assets, and reasonably Note. Unless otherwise noted, references to sections
anticipates having sufficient assets, to pay a potential 6221 through 6241 are to Internal Revenue Code
imputed underpayment (IU) with respect to the sections, as amended by BBA.
partnership tax year that may be determined under
subchapter C of chapter 63 of the Internal Revenue Code,
General Instructions
as amended by BBA.
• A representation, signed under penalties of perjury, that Purpose of Form
the individual signing the statement is duly authorized to
Use Form 1065-X, if you aren’t filing electronically, to:
make the election described in Regulations section Correct items on a previously filed Form 1065, Form
•
301.9100-22 and that, to the best of the individual's 1065-B, or Form 1066;
knowledge and belief, all of the information contained in Make an AAR for a previously filed Form 1065, Form
•
the statement is true, correct, and complete. 1065-B, or Form 1066; or
The statement must be signed and dated by the tax • File an amended return by a partnership-partner of a
matters partner (TMP), as defined under section 6231(a) BBA partnership as part of the modification process of a
(7) (prior to amendment by BBA), and the applicable BBA proceeding with respect to that BBA partnership.
regulations, or an individual who has the authority to sign
the partnership return for the tax year. The fact that an Form 1065-X can’t be used to file a notice of
individual dates and signs the statement making the inconsistent treatment under section 6222 (TEFRA or
election shall be prima facie evidence that the individual is BBA) or a partner-level AAR under section 6227(d) (under
authorized to make the election on behalf of the TEFRA proceedings). For a definition of TEFRA
partnership. proceedings, see Definitions, later. Continue to use Form
8082, Notice of Inconsistent Treatment or Administrative
Increased research credit reported by a BBA partner- Adjustment Request (AAR), to make those changes.
ship. If an increased research credit is reported by a BBA
partnership, the BBA partnership doesn’t file an amended Bipartisan Budget Act (BBA). All partnerships with tax
return. Instead, the BBA partnership must file an AAR and years beginning after 2017 are subject to the centralized
attach the following five items of information to that AAR. partnership audit regime unless eligible partnerships elect
out by making a valid election under section 6221(b). For
1. Identify all the business components to which the purposes of these instructions (unless otherwise noted),
section 41 research credit relates for that tax year. the centralized partnership audit regime proceedings
2. For each business component, identify all research under sections 6221 through 6241 will be referred to as
activities performed. “BBA proceedings.”
3. Name the individuals who performed each research If you're a nonTEFRA partnership (see Definitions and
activity. Section I, Part I, items B and C, later) or a nonBBA
4. The information each individual sought to discover. partnership (defined under Definitions, later) filing an
amended return electronically, use Form 1065 and see the
5. The total qualified employee wage expenses, total
related instructions. If you aren’t filing electronically, use
qualified supply expenses, and total qualified contract
Form 1065-X.
research expenses for the claim year. This may be done
using Form 6765, Credit for Increasing Research Form 1065-X should only be used to make a paper
Activities. filing. For electronic filing, use Form 8082 in conjunction
with Form 1065 or 1065-B, as applicable.
Because an increased research credit is being reported
Generally, the criteria used to determine whether the
in this circumstance, as part of the AAR process, the BBA
original Form 1065 or Form 1065-B is required to be filed
partnership will also submit Form 8985,
electronically are also used to determine if the amended
Pass-Through—Transmittal/Partnership Adjustment
return or AAR must be filed electronically.
Tracking Report, and Form 8986, Partner’s Share of
Adjustment(s) to Partnership-Related Item(s), to the IRS For information regarding when Form 1065 is required
to be filed electronically, and how to electronically file an

2 Instructions for Form 1065-X (Rev. 08-2023)

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

Instructions for Form 1065-X (Rev. 08-2023)                                                                                    3

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the order or instructions of the court authorizing the Pass-through entity. A partnership (including an ELP),
signing of the return or form. S corporation, estate, trust, or REMIC.
BBA partnerships. The PR or DI, if applicable, must sign Item. Any item of a partnership, S corporation, estate,
Form 1065-X. See Partnership representative (PR), later, trust, or REMIC required to be taken into account for the
for the definition of a PR. pass-through entity's tax year by the partners,
TEFRA partnerships. The TMP must sign Form 1065-X. shareholders, beneficiaries, owners, or residual interest
See Tax matters partner (TMP), later, for the definition of a holders of that pass-through entity.
TMP. Tax matters partner (TMP). If the partnership is subject
ELPs. The PWA must sign Form 1065-X. See Partner to the TEFRA procedures, it can designate a partner as
with authority (PWA), later, for the definition of a PWA. the TMP for the tax year for which the return is filed. The
TMP is a general partner (in most cases, the TMP must
REMICs with a startup day after November 9, 1988. also be a U.S. person) designated by the partnership to
For these REMICs, Form 1065-X may be signed by any represent the partners in the consolidated audit and
person who could sign the return of the entity in the litigation proceedings under sections 6221 through 6234
absence of the REMIC election. Thus, the return of a prior to amendment by BBA (TEFRA proceedings). The
REMIC that is a corporation or trust would be signed by a designation is made by completing the Designation of Tax
corporate officer or a trustee, respectively. For REMICs Matters Partner section of Form 1065 used for tax years
with only segregated pools of assets, the return would be beginning before 2018.
signed by any person who could sign the return of the
entity owning the assets of the REMIC under applicable Additionally, a REMIC may designate a tax matters
state law. person in the same manner in which a partnership may
designate a TMP under Regulations section 301.6231(a)
REMICs with a startup day before November 10, (7)-1. When applying that section, treat all holders of a
1988. These REMICs may elect to apply the rules for residual interest in the REMIC as general partners. The
REMICs with a startup day after November 9, 1988 (as designation may be made by completing the Designation
described in Regulations section 1.860F-4(c)(2)(iii)). of Tax Matters Person section of Form 1066 for tax years
Otherwise, Form 1066 must be signed by a residual beginning before 2018.
interest holder or, as provided in section 6903, by a
For an LLC, a member of the LLC is treated as a
fiduciary, as defined in section 7701(a)(6), who is acting
partner and a member-manager is treated as a general
for the REMIC and who has furnished adequate notice, as
partner. A member-manager is any owner of an interest in
described in Regulations section 301.6903-1(b).
the LLC who, alone or together with others, has continuing
In the prior paragraph, the term “startup day” means exclusive authority to make the management decisions
any day selected by a REMIC that is on or before the first necessary to conduct the business for which the LLC was
day on which interests in such REMIC are issued. formed. If there are no elected or designated
Otherwise, the startup day is the day on which the REMIC member-managers, each owner is treated as a
issued all of its regular and residual interests. However, a member-manager. For details, see Regulations section
sponsor may contribute property to a REMIC in exchange 301.6231(a)(7)-2.
for regular and residual interests over any period of 10
consecutive days and the REMIC may designate any 1 of BBA partnership. A partnership that is subject to the
those 10 days as the startup day. The day so designated centralized partnership audit regime is a “BBA
is then the startup day, and all interests are treated as partnership.” All partnerships with tax years beginning
issued on that day. after 2017 are BBA partnerships unless they make a valid
election out of the centralized partnership audit regime. A
Where To File partner in a BBA partnership is a “BBA partner.” An AAR
Form 1065-X must be filed with the service center where filed by a BBA partnership is a “BBA AAR” and must be
the original return was filed. filed by the PR. Go to IRS.gov/bbaaar for additional
information.
Definitions Partnership representative (PR). If the partnership is
TEFRA partnership. The consolidated audit subject to the centralized partnership audit regime,
proceedings of sections 6221 through 6234 (prior to section 6223 provides that the partnership must designate
amendment by BBA) are “TEFRA proceedings” and a partner or other person with a substantial presence in
partnerships that are subject to TEFRA proceedings are the United States as the PR who shall have the sole
“TEFRA partnerships.” An AAR filed by the TMP of the authority to act on behalf of the partnership. If the PR is an
TEFRA partnership is a TEFRA AAR. Any partner in a entity, the partnership must also appoint a DI to act on
TEFRA partnership may file an AAR using Form 8082. behalf of the entity PR. The partnership and all partners
TEFRA proceedings won’t apply to partnerships with tax are bound by the actions of the PR in dealings with the
years beginning after 2017. IRS under BBA.
NonTEFRA partnership. A partnership with a tax year Partner with authority (PWA). Each ELP must
beginning before 2018 that isn’t subject to TEFRA designate a partner (or other person) as the PWA who
proceedings and didn't elect into BBA for that tax year shall have the sole authority to act on behalf of the
beginning after November 2, 2015, and before January 1, partnership. See section 6255(b)(1) (prior to amendment
2018, is a “nonTEFRA partnership.” by BBA). If the partnership fails to designate a PWA, the

4 Instructions for Form 1065-X (Rev. 08-2023)

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IRS can select any partner to serve as the partner with Generally, anyone who is paid to prepare Form 1065-X
such authority. The PWA has the authority to file an AAR must do the following.
on behalf of the partnership. The PWA does this by filing • Sign the return in the space provided for the preparer's
Form 1065-X. signature.
NonBBA partnership. Under BBA, certain partnerships • Fill in the other blanks in the “Paid Preparer Use Only”
area of the return. A paid preparer can’t use a social
with 100 or fewer eligible partners for the tax year can
security number in the “Paid Preparer Use Only” box. The
elect out of the centralized partnership audit regime. For
paid preparer must use a preparer tax identification
additional information, see the Instructions for Form 1065.
number (PTIN).
A partnership that elects out of the centralized partnership
audit regime is a “nonBBA partnership.” • Give the partnership or REMIC a copy of the return in
addition to the copy to be filed with the IRS.
Partnership-related item (PRI). For BBA partnerships,
A paid preparer may sign original or amended
under section 6241(2)(B), a PRI is any item or amount
returns by rubber stamp, mechanical device, or
with respect to the partnership that is relevant in TIP
computer software program.
determining the income tax liability of any person, without
regard to whether the item or amount appears on the
partnership's return. This includes an IU and an item or Interest and Penalties
amount relating to any transaction with, basis in, or liability Interest. Generally, interest is charged on taxes not paid
of the partnership. by the due date, even if an extension of time to file is
Adjustment year. For BBA partnerships, the adjustment granted. Interest is also charged on penalties imposed for
year is the partnership tax year in which: negligence, fraud, substantial valuation misstatements,
• An adjustment pursuant to the decision of a court in a substantial understatements of tax, and reportable
proceeding brought under section 6234 becomes final; transaction understatements. The interest is charged from
• An AAR is filed under section 6227; or the due date (including extensions) to the date of
• A notice of final partnership adjustment is mailed under payment. The interest charge is figured at a rate
section 6231 or, if the partnership waives the limitations determined under section 6621.
on assessments under section 6232(b), the waiver is Late payment penalty. The penalty for not paying the
executed by the IRS. tax when due is usually / of 1% of the unpaid tax for 1 2
Reviewed year. For BBA partnerships, the reviewed year each month or part of a month that the tax remains
is the partnership’s tax year to which a partnership unpaid. The penalty can’t exceed 25% of the unpaid tax.
adjustment relates. Other penalties. Penalties can also be imposed for
Reviewed year pass-through partner. For purposes of negligence, substantial understatements of tax, reportable
these instructions, under BBA, a reviewed year transaction understatements, and fraud. See sections
pass-through partner is a pass-through entity that held an 6662, 6662A, and 6663.
interest in a BBA partnership at any time during the Interest and penalties applicable to IU. Except when
reviewed year, which is the partnership tax year to which the partnership elects to have its partners take into
the partnership adjustment relates. For example, if the account the adjustments, BBA partnership interest and
BBA AAR is filed to make an adjustment to income for the penalties are the following.
2023 tax year, 2023 is the reviewed year. • The interest figured with respect to any IU is the interest
Schedule K-1. Schedule K-1 is the annual schedule which would be determined under chapter 67 for the
reporting the partner's, shareholder's, or beneficiary's period beginning on the day after the return due date for
share of income, deductions, credits, etc., from a the reviewed year and ending on the return due date for
partnership, S corporation, estate, or domestic trust. the adjustment year, as defined under section 6225(d)(2)
or, if earlier, the date the IU is paid.
Schedule K-2. An extension of Form 1065, Schedule K, Any penalty, addition to tax, or additional amount shall
•
used to report items of international tax relevance from the be determined at the partnership level and is applied as if
operation of a partnership. such BBA partnership had been an individual subject to
Schedule K-3. An extension of Schedule K-1 (Form tax under chapter 1 for the reviewed year and the IU were
1065) generally used to report to partners their share of an actual underpayment (or understatement) for such year
the items reported on Schedule K-2. for purposes of part II of subchapter A or chapter 68.
Schedule Q. Schedule Q is the quarterly schedule Election to apply the alternative to payment of the IU.
reporting the residual interest holder's share of taxable If the partners must take into account the adjustments
income or net loss from the REMIC. because the BBA partnership filed an AAR and there are
adjustments that don’t result in an IU, or if a BBA
Paid Preparer's Information partnership elects the alternative to payment of the IU
If a partner or an employee of the partnership or REMIC under sections 6227(b)(2) and 6226(c), interest shall be
completes Form 1065-X, the “Paid Preparer Use Only” determined:
section should remain blank. In addition, anyone who • At the partner level;
prepares Form 1065-X but doesn't charge the partnership • From the due date of the return for the tax year to which
or REMIC shouldn’t complete this section. the increase is attributable (determined by taking into
account any increases attributable to a change in tax

Instructions for Form 1065-X (Rev. 08-2023) 5

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attributes for a tax year under section 6226(b)(2)), until the ELPs/REMICs The ELP procedures were repealed for
date of payment; and tax years beginning after 2017. However, ELPs filing a
• At the section 6621(a)(2) underpayment rate. non-e-filed AAR for a tax year that began before 2018 will
Judicial review of an AAR (for returns subject to the use Form 1065-X.
TEFRA procedures or ELPs). If the IRS fails to act on
an AAR, the TMP or PWA may file a petition for judicial For Partnership Tax Years Beginning After 2017
review with the U.S. Tax Court, U.S. Court of Federal and Partnerships Electing Into BBA for Tax Years
Claims, or U.S. District Court. The TMP or PWA must file Beginning After November 2, 2015, and Before
the petition before the date that is 2 years after the date
January 1, 2018
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 BBA AAR. All partnerships with tax years beginning after
period may be extended if the IRS and the TMP or PWA 2017 are subject to the centralized partnership audit
agree in writing. For more details, see sections 6228 (prior regime unless an eligible partnership makes a valid
to amendment by BBA) and 6252. election under section 6221(b) to elect out of the
centralized partnership audit regime. Partnerships electing
into BBA for tax years beginning after November 2, 2015,
Specific Instructions and before January 1, 2018, are also subject to the
If, after reading the instructions, you're unable to complete centralized partnership audit regime. Partnerships that are
an item in Part I or Part II, enter “See Part V” in the entry subject to the centralized partnership audit procedures of
space for that item and provide the information there. sections 6221 through 6241 are “BBA partnerships.” An
AAR filed by a BBA partnership is a BBA AAR.
Name and Identifying Number nonBBA. A partnership with a tax year beginning after
Enter the legal name of the entity and identifying number 2017 that isn't subject to BBA proceedings because it has
on the appropriate lines. Include the suite, room, or other made a valid election under section 6221(b) is a “nonBBA
unit number after the street address. If the Post Office partnership.”
doesn't deliver mail to the street address and the entity
has a P.O. box, show the box number instead. Partnership-Partner Amended Return Related to
If the entity receives its mail in care of a third party Modification of Another Partnership’s IU
(such as an accountant or attorney), enter on the street
address line “C/O” followed by the third party's name and A partner that is itself a partnership (partnership-partner)
street address or P.O. box. that is filing an amended return as part of modification of
the IU under section 6225(c)(2) should check this box.
If the entity's address is outside the United States, or its
possessions or territories, enter the information on the line Section 1—TEFRA/NonTEFRA Determination
for “City or town, state, and ZIP code” in the following
order: city, province or state, and foreign country. Follow Item A
the foreign country's practice in placing the postal code in
the address. Don’t abbreviate the country name. If the answer to item A is “Yes,” the partnership return isn’t
subject to the TEFRA proceedings. You should proceed to
Part I. Check the Appropriate Box item E and check the “Not subject to TEFRA” box.
An AAR can be filed by a partnership subject to TEFRA
proceedings (TEFRA AAR), a partnership subject to BBA
Items B Through E
proceedings (BBA AAR), an ELP, and a REMIC.
If you're a BBA partnership that has received a notice of These items are used to determine if the partnership is
administrative proceeding, you may not file an AAR. Also, subject to the rules for consolidated audit procedures
a partner may not file an AAR on behalf of the BBA (TEFRA procedures).
partnership in which it is a partner unless doing so in its Consolidated REMIC proceedings. Generally, the tax
capacity as the PR for that partnership. treatment of REMIC items is determined at the REMIC
level in a consolidated REMIC proceeding, rather than in
For Partnership Tax Years Beginning Before separate proceedings with individual residual interest
January 1, 2018 (Unless Electing Into BBA) holders. A REMIC subject to consolidated REMIC
procedures will have checked the box on item G on
TEFRA AAR. The consolidated audit proceedings of page 3 of its original Form 1066 (for tax years beginning
sections 6221 through 6234 (prior to amendment by BBA) before January 1, 2018).
are “TEFRA proceedings” and partnerships that are
subject to TEFRA proceedings are “TEFRA partnerships.”
Items B and C
An AAR filed by the TMP of the TEFRA partnership is a
TEFRA AAR. TEFRA proceedings won’t apply to
All partnerships with tax years beginning before 2018
partnerships with tax years beginning after 2017.
(except ELPs) and REMICs are subject to TEFRA
nonTEFRA AAR. A partnership with a tax year beginning partnership audit procedures unless the partnership or
before 2018 that isn’t subject to TEFRA proceedings is a REMIC is subject to the small partnership exception. See
“nonTEFRA partnership.” section 6231(a)(1)(B) (prior to amendment by BBA).

6 Instructions for Form 1065-X (Rev. 08-2023)

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  A small partnership is a partnership with 10 or fewer        (B)(ii) (prior to amendment by BBA), and related 
partners at all times during the year. All partners must be    regulations, and you received a corrected Form 1099 or 
U.S. individuals and their estates, resident alien             are making changes to income, deductions, or credits, but 
individuals, or C corporations.                                there are no flow-through changes from a TEFRA 
                                                               partnership, then you're filing an amended return. Check 
Note.  For making the small partnership determination, a       the “Amended Return” box.
married couple, each spouse having their own partnership 
interest, is considered one partner. An individual who has     AAR. Check this box if you're filing a request to correct a 
passed away during the year and their estate are               previously filed partnership or REMIC return and you're 
considered one partner.                                        one of the following.
                                                               • The TMP of the TEFRA partnership or REMIC. The 
                                                               REMIC must be subject to consolidated REMIC 
Item D
                                                               proceedings. For more information on consolidated 
                                                               REMIC proceedings, see the Instructions for Form 1066.
A partnership defined as a small partnership can elect to        An ELP correcting a previously filed return.
                                                               •
be treated as a TEFRA partnership for tax years beginning 
before 2018. The partnership elects TEFRA treatment by 
                                                               Item G
attaching a statement to the tax return for the first year 
they wish the election to be effective. This statement must 
                                                               A substituted return requests that the treatment of an item 
be signed by all partners. See Regulations section 
                                                               shown on the AAR be substituted for the treatment of the 
301.6231(a)(1)-1(b). Form 8893, Election of Partnership 
                                                               item on the pass-through entity's return.
Level Tax Treatment, is the statement that can be used to 
make this election. If you answer “Yes” to item D, enter the     Check “Yes” if you're requesting substituted return 
tax year of the filing of this election in the space provided. treatment for the partnership. If the IRS allows substituted 
                                                               return treatment, the changes shown on the amended 
Item E                                                         return will be treated as corrections of mathematical or 
                                                               clerical errors, and the IRS may assess any resulting tax 
If, at any time during the tax year, there are more than 10    to the partners or residual interest holders without a 
partners or any of the following are partners in the           deficiency or entity-level proceeding. In this case, partners 
partnership, then the partnership isn’t a small partnership.   or residual interest holders may file amended returns 
• Another partnership.                                         requesting refunds. See section 6227(c)(1) (prior to 
• An LLC which files as a partnership or is treated as a       amendment by BBA).
disregarded entity.
• Any type of trust, including a grantor trust.                  If the IRS doesn’t allow substituted return treatment for 
• A nominee.                                                   the partnership, the partners or residual interest holders 
• A nonresident alien.                                         may file amended returns requesting refunds. The IRS 
• An S corporation.                                            may conduct an examination of the pass-through entity's 
                                                               return, or take no action on the request. When a request 
      Table for Determining Which Box To Check in Item E       isn’t treated as a substituted return, the IRS can’t assess 
IF in item... The box           THEN in item E, check...       tax without a deficiency or entity-level proceeding. See 
              checked is...                                    section 6227(c)(2) (prior to amendment by BBA).
B             No                Subject to TEFRA.              ELPs. An ELP can’t request substituted treatment. See 
C             No                Subject to TEFRA.              section 6227(c)(1) (prior to amendment by BBA).

D             Yes               Subject to TEFRA.              Section 2—BBA AAR
B and C       Yes               Not subject to TEFRA.          For additional information on filing BBA AARs, go to 
D             No                Not subject to TEFRA.          IRS.gov/bbaaar.

                                                               Item A

Item F                                                         If the "Yes" box is checked, complete Form 8979 and 
                                                               attach it to the AAR. See the Instructions for Form 8979, 
Check the box to indicate whether you're filing an             Partnership Representative Revocation, Designation, and 
amended return or an AAR.                                      Resignation, for more information.

Amended Return.    Check this box if you checked the             Note. If you're a BBA partnership, you may not file an 
“Not subject to TEFRA” box in item E, and you aren’t an        AAR solely for the purpose of changing the PR.
ELP. This means that you're filing a request to correct a 
previously filed nonTEFRA partnership return or REMIC          Item B
return.
  If your partnership or REMIC return meets the                BBA partnerships filing an AAR will need to determine if 
exception under section 860F(e) or section 6231 (prior to      the partnership adjustments result in an IU. See Figuring 
amendment by BBA), and doesn't file an election to be          the Imputed Underpayment (IU), later, for information as to 
treated as a TEFRA partnership under section 6231(a)(1)        how to figure the IU. The BBA partnership should consider 

Instructions for Form 1065-X (Rev. 08-2023)                                                                                7

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all available guidance issued by the IRS in making a aren’t included on the statements provided to the
determination of whether or not the AAR results in an IU. partners.
Also, see Part IV, later, for discussion of the IU.
Section 3—Partnership-Partner Amended
Item C1 Return Filed as Part of Modification of the
Imputed Underpayment (IU) During a BBA Audit
If the adjustments contained in the BBA AAR result in an Section 6225(c)(2) allows a BBA partnership under
IU, the partnership must pay the IU at the same time the examination to request specific types of modifications of
AAR is filed. However, under section 6227(b)(2), the an IU proposed by the IRS. One type of modification
partnership can elect to have its reviewed year partners applies when a partner or indirect partner, including a
take the adjustments into account. This is an election to partnership-partner, files an amended return for the tax
push out the adjustments to the partners as an alternative year of the partner which includes the end of the reviewed
to payment of the IU. See section 6226(a)(2) for details. If year of the BBA partnership under examination. See Form
this valid election is made, the partnership is no longer 8980, Item E, Part I, and Pub. 5346.
liable for the IU.
A BBA partnership under examination will be assigned
Item C2 a unique audit control number. A partnership-partner
using Form 1065-X to file an amended return as part of a
The partnership will need to furnish Forms 8986 to each modification under section 6225(c)(2) must include in
reviewed year partner reflecting the partner's share of Section 3 (Form 1065-X) the name, EIN, reviewed year,
adjustments for when the adjustments don't result in an IU and audit control number of the BBA partnership under
(for example, the adjustments in the BBA AAR result in an examination to which the amended return relates. In
IU of zero or less than zero; or there is a net negative addition, the partnership-partner shouldn’t furnish
adjustment). The partnership is also required to file with amended Schedules K-1 or K-3 to its partners, but instead
the AAR all Forms 8986 furnished to partners and Form must pay an amount computed like an IU on the
8985. See the instructions for these forms for further adjustments allocable to it, plus any penalties and interest.
information. See Part IV, later, for payment instructions.

Item D Part II—Amended or Administrative
Adjustment Request (AAR) Items for
Each reviewed year partner is required to take into
account its share of adjustments requested in a BBA AAR Partnerships Filing Form 1065 Only
if the partnership adjustments result in a positive IU and (ELPs and REMICs Use Part III)
the partnership makes the alternative to payment election
For information on income, deductions, credits, etc., see
discussed under Item C1, earlier. Additionally, each
the instructions for Form 1065, Schedules K, K-1, K-2,
reviewed year partner is required to take into account its
and K-3 for the tax year being amended or otherwise
share of any adjustments requested in a BBA AAR
adjusted. See the Instructions for Form 1065 for a list of
resulting in an IU of zero or less than zero, or that don't
forms that may be required.
result in an IU. The determination of whether or not an
adjustment results in an IU amount is discussed under Note. In Part II of Form 1065-X, “see instructions” refers
Item B, earlier. to the instructions for Form 1065 and Schedule K-1, not
the Instructions for Form 1065-X.
The partnership is required to furnish each reviewed
year partner with a Form 8986 reporting its share of the TEFRA partnerships filing AARs. A TEFRA partnership
BBA AAR adjustments. The PR must attest to the filing an AAR to change items that were reported on its
partnership’s compliance with this requirement. The PR original return must do the following.
will sign Form 1065-X under item D to declare, under 1. Determine the required changes to be made.
penalties of perjury, that all statements have been
2. Complete Form 1065-X to identify the changes
provided to the reviewed year partners, as required by
being made.
these instructions.
a. On Form 1065-X, check the “TEFRA AAR” box
Item E under Part I.
b. See later for how to complete Part II, columns (a)
Under section 6227(b)(1), the partnership may modify the through (c).
IU resulting from adjustments reported in a BBA AAR in 3. Complete Form 1065-X.
accordance with the provisions under section 6225(c), a. See Who Must Sign, earlier, for who must sign the
disregarding the provisions under paragraphs (2), (7), and Form 1065-X.
(9). Any modification made to the IU under section b. Attach amended Schedules K-1 showing the
6227(b)(1) must be disclosed and fully explained on Form corrected amounts for each partner.
8980 included with the AAR.
4. File Form 1065-X and attach any other supporting
Note. If the partnership makes an election to push out the documents required.
adjustments to the partners as an alternative to payment 5. Give a copy of the amended Schedules K-1 to the
of the IU, the modifications to the IU are disregarded and applicable partners.

8 Instructions for Form 1065-X (Rev. 08-2023)

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BBA partnerships filing AARs. A BBA partnership filing related calculations by a pass-through partner, if
an AAR to change items that were reported on its original applicable. See the instructions for these forms for further
return must do the following. information.

1. Determine the required changes to be made. Amended Schedules K-1
2. Complete Form 1065-X to identify the changes If a BBA partnership files an AAR and needs to make its
being made. partners aware of their allocable share of adjustments, it
a. On Form 1065-X, check the “BBA AAR” box under will furnish to each partner for the reviewed year Form
Part I. 8986 reflecting the partner’s share of the adjustments (and
b. See later for how to complete Part II, columns (a) shouldn’t provide amended Schedules K-1). The
through (c). partnership must also file all Forms 8986 furnished to
3. Figure an IU and determine if there are any partners and Form 8985 with the AAR. See the
adjustments that don’t result in an IU. instructions for these forms for further information. ELPs
filing a Form 1065-X as an AAR should see Part III, later.
4. Determine if you will pay the IU or push out the
All other partnerships should file amended Schedules K-1
adjustments to the partners.
with Form 1065-X and furnish copies of the amended
a. If paying an IU, report the IU appropriately in Part IV. Schedules K-1 to the partners.
Complete Forms 8985 and 8986 (pushout package)
pertaining to the adjustments that don’t result in an IU If a TEFRA partnership files Form 1065-X for an AAR, it
(if applicable). should inform the partners receiving the amended
b. If pushing out all the adjustments to the reviewed Schedules K-1 that the partnership is filing the AAR. If the
year partners, complete Forms 8985 and 8986 partnership isn’t subject to either the rules for
(pushout package). consolidated audit proceedings (TEFRA proceedings)
under sections 6221 through 6234 (prior to amendment by
5. File Form 1065-X and attach any other supporting
BBA) or to the centralized partnership audit regime under
documents required, including copies of Forms 8985 and
BBA, it must furnish the amended Schedules K-1 to its
8986 (if applicable).
partners. The partners must then file their own amended
6. If applicable, distribute the Forms 8986 to reviewed returns.
year partners according to the Form 8986 instructions.
Amended or Corrected Schedules K-2 and K-3
Column (a). Enter the amounts from Form 1065, for Tax Years Beginning on or After January 1,
Schedule K, as originally filed or as was previously
2021
adjusted. If the return was changed or audited by the IRS,
enter the amounts as adjusted. NonBBA partnership filing an amended return.
Column (b). Enter the net increase or decrease for each Attach the amended Schedule K-2 and on the header of
line being changed. Enter as a positive the amount by the schedule enter “As Amended.” Attach the amended
which column (c) exceeds column (a) or enter as a Schedules K-3 with the amended box checked at the top
negative the amount by which column (a) exceeds column of each. The partnership must furnish the amended
(c). Use parentheses around all amounts that are Schedules K-3 to its partners.
negative. Positive amounts are increases and negative BBA partnerships filing AARs. Attach the corrected
amounts are decreases. Explain the increase or decrease Schedule K-2 and on the header of the schedule enter “As
in Part V. per AAR.” When a BBA partnership files an AAR and
Column (c). Enter the correct amount. This will be the needs to make its partners aware of their allocable share
sum of column (a) and column (b). of adjustments, it shouldn’t issue amended Schedules K-3
but rather file Forms 8985 and 8986 with the AAR and
Forms 8985 and 8986 furnish Forms 8986 to partners. Refer to the instructions
for Forms 8985 and 8986.
If a BBA partnership files an AAR and it is making an
election under section 6227(b)(2) to have the adjustments Part III—Amended or Administrative
taken into account by the reviewed year partners, or (1)
when the adjustments in the BBA AAR result in an IU of Adjustment Request (AAR) Items for
zero or less than zero; or (2) the adjustments don't result ELPs and REMICs Only
in an IU, then it will furnish to each partner for the reviewed
year a Form 8986 reflecting the partner’s share of the ELPs only. An ELP may file an AAR to adjust its
adjustments to PRI as a result of a BBA audit or BBA AAR partnership items. Generally, the ELP has two choices for
for situations where the partners are taking into account handling the adjustment.
the adjustments. The partnership is also required to file 1. It may combine the adjustment with the same
with the AAR all Forms 8986 furnished to partners and partnership item for the year in which the IRS allows the
Form 8985. Form 8985 is used to summarize and transmit adjustment and pass it through to the current partners for
Forms 8986, in situations where the partners are taking that year. However, if the adjustment involves the
into account the adjustments. Adjustments shown on reduction in a credit which exceeds the amount of that
Form 1065-X, Part II, column (b), should tie to the credit for the partnership tax year in which the adjustment
adjustments reported on Form 8985, Part IV, column (f). is allowed, the partnership must pay tax in an amount
Form 8985 is also used to report payment(s) made and equal to the excess amount.

Instructions for Form 1065-X (Rev. 08-2023) 9

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2. It may elect to not pass the adjustment through to amount claimed on the original return. The IRS will figure
current partners by paying tax on any IU that results from any interest due and include it in the refund.
the adjustment. If the partnership elects to pay the tax,
enter it on Part III, line 16. Attach a computation of the tax Amended Schedules K-1 or Schedules Q
to Form 1065-X. If the ELP or REMIC is filing Form 1065-X for an AAR,
don’t furnish the amended Schedules K-1 or Schedules Q
In either case, the partnership is liable for any interest
to the partners or residual interest holders. If the REMIC
and penalties on IUs that result from the adjustment. See
isn’t filing for an AAR and isn’t subject to the rules for
section 6242(b) (prior to amendment by BBA) for details.
consolidated audit proceedings under sections 6221
Interest is figured on the IU for the period beginning on the
through 6231 (prior to amendment by BBA), the REMIC
day after the due date (excluding extensions) of the
must furnish the amended Schedules Q to its residual
partnership return for the tax year the adjustment takes
interest holders.
effect or, if earlier, the date the partnership paid the tax
due under (2) above. The adjusted year is the partnership Part IV—Imputed Underpayment (IU)
tax year in which the item being adjusted arose.
Under the Centralized Partnership
ELPs and REMICs. Identify in Part III the amount and
treatment of any item the partnership or REMIC is Audit Regime
changing from the way it was reported on the original BBA AARs must always include a computation of the IU
return. (even when the IU is zero or less than zero, or the
Column (a). Enter a description of the item that the adjustments don’t result in an IU), as determined under
partnership or REMIC is adjusting or amending. section 6225(b). Where the adjustments don’t result in an
IU, the IU should be shown as zero. Documentation
Column (b). Enter the amounts from the ELP's or should be included with the AAR that supports the
REMIC's return as originally filed or as it was later computation of the IU amount. If the resulting IU amount is
adjusted. If the return was changed or audited by the IRS, zero or less than zero, or the adjustments don’t result in an
enter the amounts as adjusted. IU, or if the partnership is making an election under
Column (c). Enter the net increase or net decrease for section 6227(b)(2) to have the adjustments taken into
each line being changed. Use parentheses around all account by the reviewed year partners, Part IV, line 1,
amounts that are decreases. Explain the increase or should be shown as zero. Otherwise, the IU amount
decrease in Part V. should be reported on Part IV, line 1.
Column (d). Enter the correct amount. This will be the If the adjustments requested in the AAR result in an IU,
sum of column (b) and column (c). generally the partnership takes the adjustments into
account and must pay the IU. Adjustments requested in
Line 6. Show any increase or decrease to the ELP's tax the AAR that result in zero, less than zero, or the
or other payments. adjustments don’t result in an IU must be taken into
Line 10. Enter the total tax as follows. account by each reviewed year partner as if the
ELPs. Enter the line 6 amounts on line 10. partnership had made an election under section 6227(b)
REMICs. Add the amounts on lines 7 through 9 and (2), but only with regard to those adjustments that don’t
enter the total for each column on line 10. result in an IU. In this instance, see Forms 8985 and 8986
and their related instructions for reporting amounts not
Line 11. Enter the amount of tax paid with Form 7004, included in the IU.
Application for Automatic Extension of Time To File
Certain Business Income Tax, Information, and Other The partnership may elect under section 6227(b)(2) to
Returns. have the reviewed year partners take into account
adjustments resulting in an IU. If the partnership makes
Line 14. Enter the amount from the “Overpayment” line of the election, the partnership isn’t liable for, nor required to
the original return, even if the ELP or REMIC chose to pay, the IU related to the adjustments. Additionally, if the
credit all or part of this amount to the next year's estimated IU calculation results in an amount that is zero, less than
tax. This amount must be considered in preparing Form zero, or the adjustments don’t result in an IU, then all
1065-X because any refund due from the original return adjustments are taken into account by the reviewed year
will be refunded separately from any additional refund partners. However, the partnership may have withholding
claimed on Form 1065-X. If the original return was and reporting obligations under chapter 3 or chapter 4
changed by the IRS and the result was an additional with respect to the adjustments taken into account by the
overpayment of tax, also include that amount on line 14. reviewed year foreign partners. See the instructions for
Line 16. If the ELP or REMIC doesn't use electronic fund Form 8985 and Form 8986.
transfers, including the Electronic Federal Tax Payment If the partnership elects under section 6227(b)(2) to
System (EFTPS), enclose a check with this form. Make have its reviewed year partners take all the adjustments
the check payable to “United States Treasury.” into account, all modifications by the partnership (that
Line 17. If the ELP or REMIC is entitled to a refund larger would have been allowed had the partnership paid an IU)
than the amount claimed on the original return, line 17 will aren’t allowed and are disregarded.
show only the additional amount of overpayment. This The partnership must always include an IU calculation,
additional amount will be refunded separately from the irrespective of whether the IU is zero (or less than zero, or
the adjustments don’t result in an IU) or the partnership

10 Instructions for Form 1065-X (Rev. 08-2023)

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elects under section 6227(b)(2) to have its reviewed year Residual grouping. Any adjustment to a PRI that
partners take all the adjustments into account. doesn’t belong in the reallocation, credit, or creditable
expenditure grouping is placed in the residual grouping.
Under section 6227(b)(1), the partnership may modify
This grouping also includes any adjustment to a PRI that
the IU resulting from adjustments reported in a BBA AAR
derives from an item that wouldn’t have been required to
in accordance with the provisions under section 6225(c),
be allocated by the partnership to a partner under section
disregarding the provisions under sections 6225(c)(2), (7),
704(b), such as an adjustment to a liability amount on the
and (9). Any modification made to the IU under section
balance sheet.
6227(b)(1) must be disclosed and fully explained in
documentation included with the AAR. Subgrouping. Each adjustment is subgrouped
according to how the adjustment would be required to be
If modifications are applied to the IU, complete and taken into account separately under section 702(a). In
attach Form 8980 and report the modified IU amount on general, a subgrouping follows Schedules K, K-1, K-2,
Part IV, line 1. See Part I, Section 2, Item E, earlier, for and K-3 line items, including any alpha codes related to a
more information on modification. Schedule K-1 line item.
The applicability of interest and penalties is discussed Negative adjustment. A negative adjustment is any
under Interest and penalties applicable to IU, earlier. The adjustment that is a decrease in an item of gain or income;
BBA AAR may include a prepayment for interest and an increase in an item of loss or deduction; an increase in
penalties. If making such prepayments, the AAR should an item of credit or creditable expenditure; a decrease in
include documentation that supports the calculations. A an item of tax, penalty, addition to tax, or additional
payment made with Form 1065-X should detail the amount for which the partnership is liable under chapter 1;
portions of the payment that are for the IU, prepaid or a decrease to an IU calculated by the partnership for
estimated interest, and prepaid estimated penalties. The the tax year.
total of all three should be reported on Part IV, line 2. Positive adjustment. A positive adjustment is any
adjustment that isn’t a negative adjustment.
Under section 6232(a)(2), partnerships filing a BBA
AAR that has adjustments that result in an IU, and don’t Net positive adjustment. An amount that is greater than
elect the alternative to payment of the IU (by not electing zero which results from netting adjustments within a
to push out the adjustments to the reviewed year grouping or subgrouping. A net positive adjustment
partners), must pay the IU. The IU should be shown on includes a positive adjustment that wasn’t netted with any
Form 1065-X, Part IV, line 1, at the time of filing the AAR. other adjustment. A net positive adjustment includes a net
When paying by check, include the name of the decrease in an item of credit (or creditable expenditure).
partnership, “Form 1065,” the TIN of the partnership, the Net negative adjustment. Any amount which results
tax year, and “BBA AAR Imputed Underpayment.” Checks from netting adjustments within a grouping or subgrouping
must be made payable to “United States Treasury” and that isn’t a net positive adjustment. A net negative
included with the BBA AAR. If making an electronic adjustment includes a negative adjustment that wasn’t
payment, choose the payment description “BBA AAR netted with any other adjustment.
Imputed Underpayment” from the list of payment types.
The payment amount, including any prepaid estimated Total netted partnership adjustments (TNPA). The
interest and penalties, should be reported on Part IV, sum of all net positive adjustments in the reallocation
line 3. grouping and the residual grouping.
Adjustments not resulting in an IU. If, after grouping,
Figuring the Imputed Underpayment (IU) subgrouping, and netting, the amount in any grouping or
subgrouping is a net negative or the calculation of the IU is
Definitions zero or less than zero, then the adjustments in those net
negative groups or in the calculation of the IU are
Reallocation grouping. In general, any adjustment that
adjustments that don’t result in an IU. Any adjustments
allocates or reallocates a PRI to and from a partner or
that don’t result in an IU are taken into account by the
partners is a reallocation adjustment, except for an
reviewed year partners in accordance with Regulations
adjustment to a credit or to a creditable expenditure. Each
section 301.6227-3.
reallocation adjustment generally results in at least two
separate adjustments, each of which becomes a separate
subgrouping. Formula for Figuring the IU

Credit grouping. Any adjustment to a PRI that is Figuring the IU
reported or could be reported by a partnership as a credit
on the partnership’s return, including a reallocation TNPA x rate* =
adjustment to such PRI, is placed in the credit grouping.
+ Sum of net positive adjustments
Creditable expenditure grouping. Any adjustment to a to creditable expenditure and
PRI where any person could take the item that is adjusted credit groupings:
(or item as adjusted if the item wasn’t originally reported = Total IU
by the partnership) as a credit, including a reallocation
* Highest rate in effect for the reviewed year under section 1 or 11.
adjustment to a creditable expenditure, is placed in the
creditable expenditure grouping.

Instructions for Form 1065-X (Rev. 08-2023) 11

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The process of taking the adjustments shown on the for any different allocation of the creditable expenditure
AAR and inputting them into the formula above requires between partners. Two or more adjustments to creditable
an understanding of the concepts of grouping, expenditures are included within the same subgrouping
subgrouping, and netting. There are seven steps only if each adjustment relates to creditable expenditures
necessary in figuring an IU. The first three steps focus on in the same separate category, and each adjusted PRI
grouping, subgrouping, and netting. would be allocated to the partners in the same ratio had
those items been properly reflected on the originally filed
Steps in Figuring the IU partnership return.
Residual grouping. The residual grouping contains all
Step 1—Grouping adjustments that don’t fit into one of the other groups.
Recharacterization adjustments. A recharacterization
Place each adjustment into one of four groupings: adjustment will generally result in at least two separate
reallocation, credit, creditable expenditure, and residual adjustments within the residual grouping.
groupings. • One adjustment reverses the improper characterization
Reallocation grouping. A reallocation adjustment of the PRI.
generally consists of at least two adjustments, one • The other adjustment makes the proper
positive and one negative, with each in a separate characterization of the PRI.
subgrouping. • The adjustments that result from a recharacterization
• One part of the reallocation adjustment reverses the are placed into separate subgroupings.
effect of the improper allocation of a PRI.
• The other part of the adjustment makes the proper Step 2—Subgrouping
allocation of the PRI.
• Under the AAR rules, if one of the reallocation Determine if any adjustment, within one of the four
adjustments is negative, such negative adjustment must groupings, needs to be subgrouped. Each adjustment is
be pushed out to the proper partner(s). subgrouped according to how the adjustment would be
Don’t net reallocation adjustments. As each part required to be taken into account separately under section
702(a). If any adjustment could be subject to any
! of a reallocation adjustment is placed in a preference, limitation, or restriction under the Internal
CAUTION separate subgrouping within the reallocation
grouping, those adjustments can’t be netted in Revenue Code (or not allowed, in whole or in part, against
accordance with the netting rules. ordinary income) if taken into account by any person, the
adjustment is placed in a separate subgrouping from all
Example. $100 of ordinary income is being other adjustments within the grouping.
reallocated from Partner A to Partner B. For purposes of
figuring the IU, there will be two adjustments, each in a Generally, each separate line item of Schedules K, K-1,
separate subgrouping: a negative adjustment of $100 K-2, and K-3 or return schedule (for example, Schedule L)
(reversing improper allocation to Partner A) and a positive represents a separate and distinct subgrouping.
adjustment of $100 (making proper allocation to Partner
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
Credit grouping. required to be separately stated under section 702(a).
• Generally, a decrease in credits is treated as a positive • Subgroupings generally reflect a line item from
adjustment, and an increase in credits is treated as a Schedules K, K-1, K-2, and K-3, including any
negative adjustment. subcategories of those lines (for example, alpha codes
• A reallocation adjustment relating to the credit grouping per the Schedule K-1 instructions or activities broken out
is placed into two separate subgroupings and won’t be via attached statements). If any line item on Schedules K
netted together nor will they be netted with other credit and K-1 or other schedules consists of multiple items and
adjustments. the components are required to be taken into account
separately under the Internal Revenue Code, regulations,
Creditable expenditure grouping. forms, instructions, or other IRS guidance, then such line
• Generally, a decrease in creditable expenditures is item must be further subgrouped.
treated as a positive adjustment to credits, and an
Example. 2019 Schedule K-1, box 13, code A (cash
increase in creditable expenditures is treated as a
contributions 60%), and box 13, code B (cash
negative adjustment.
contributions 30%), are two separate subgroupings.
• A reallocation adjustment relating to a creditable
expenditure grouping is placed into two separate • The ordinary income (loss) amount reported on
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

12 Instructions for Form 1065-X (Rev. 08-2023)

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considered a single subgrouping, except when such         excluded from the calculation of the TNPA because those 
amount is required to be separately allocated, such as    adjustments don’t result in an IU.
when the partnership has more than one trade or 
business. If the partnership has more than one trade or   Note. If a positive adjustment to an item is reflected in 
business reported on Form 1065, page 1, the net income    positive adjustments to other items, the positive 
(loss) from each trade or business must be separately     adjustment of equal or lesser magnitude that is reflected 
reported on Schedule K-1. Each separate activity will     may be treated as zero solely for purposes of calculating 
constitute a separate subgrouping and it must be          any IU.
determined which activity an adjustment to the page 1 
item of income and expense relates to for subgrouping     Step 5—Determine the Highest Tax Rate in Effect 
purposes.                                                 Under Section 1 or 11 in the Reviewed Year
• If you have a negative adjustment along with a positive 
adjustment in the same line item of Schedules K and K-1, 
you must consider whether they may be properly netted at  Step 6—Determine the Sum of Net Positive 
the partnership level and whether they are required to be Adjustments to Creditable Expenditures and 
taken into account separately by any partner. The         Credit Groupings That Will Increase the Product of 
adjustments may be subject to a limitation or preference  the TNPA Multiplied by the Highest Rate in Effect
under the Internal Revenue Code before you can place 
them in the same subgrouping (for example, passive and    • A net decrease to creditable expenditures is treated as 
nonpassive activities).                                   a net positive adjustment to credits and increases the 
• A negative adjustment that isn’t otherwise required to  product of the TNPA multiplied by the highest tax rate in 
be placed in its own subgrouping must be placed in the    effect. A net increase to creditable expenditures is treated 
same subgrouping as another adjustment if the negative    as a net negative adjustment that is excluded from the 
adjustment and the other adjustment would have been       calculation of the TNPA and is an adjustment that doesn't 
properly netted at the partnership level and such netted  result in an IU.
amount would have been required to be allocated to the    • For the credit grouping, a net positive adjustment will 
partners of the partnership as a single item for purposes increase the product of the TNPA multiplied by the highest 
of section 702(a) or other provision of the Internal      tax rate in effect. A net negative adjustment, including net 
Revenue Code and regulations.                             negative adjustments resulting from a credit reallocation 
                                                          adjustment, will be treated as an adjustment that doesn't 
Step 3—Netting                                            result in an IU.

Net all adjustments within each of the groupings and      Step 7—Figure the IU Based on the Results of 
subgroupings.                                             Steps 4 Through 6 and Insert Those Results Into 
• Positive adjustments may be netted with other positive 
                                                          the IU Formula
adjustments only if they are in the same grouping. 
Negative adjustments may be netted with other negative 
adjustments only if they are in the same grouping.                        Figuring the IU

• Positive and negative adjustments may only be netted                    TNPA x rate* =
against each other if they are in the same subgrouping.
• An adjustment in one grouping or subgrouping may not    + Sum of net positive adjustments 
be netted against an adjustment in any other grouping or    to creditable expenditure and 
                                                                          credit groupings: 
subgrouping.
• All adjustments within a subgrouping are netted to                      = Total IU
determine whether there is a net positive adjustment or     * Highest rate in effect for the reviewed year under section 1 or 11.
net negative adjustment for that subgrouping.
• Net positive adjustments from subgroupings or positive  Partnership-Partner Amended Return Filed as 
adjustments within a grouping (if subgroupings are 
unnecessary) are netted to determine the net positive     Part of Modification
adjustment for that grouping. Net negative adjustments    Partnership-partners who are filing amended returns as 
from sub groupings within a grouping are netted to        part of the modification of the IU during examination under 
determine the net negative adjustment for that grouping.  section 6225(c)(2) will report the applicable payment of 
                                                          tax on Part IV, line 1. The pass-through partner will 
Step 4—Figure the Total Netted Partnership                compute the amount like an IU on the adjustments 
                                                          allocated to it and make the payment with the filing of 
Adjustments (TNPA)
                                                          Form 1065-X. A payment made with Form 1065-X should 
• Each net positive adjustment in a grouping or           detail the portions that are for the payment of the IU, the 
subgrouping in the residual or reallocation grouping that interest, and the penalties. The partnership should 
results after netting the adjustments is included in the  consider all available guidance issued by the IRS when 
calculation of the TNPA.                                  figuring the amount due. In general, the partnership 
• Each net negative adjustment in a grouping or           should compute its amount due in accordance with the IU 
subgrouping that results after netting the adjustments is computation in these instructions. See Steps in Figuring 
                                                          the IU, earlier. The total of the IU, penalties, and interest 
                                                          should be reported on Part IV, line 2. When paying by 

Instructions for Form 1065-X (Rev. 08-2023)                                                                                      13

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check, include the name of the partnership-partner, “Form
Paperwork Reduction Act Notice. We ask for the
1065,” the TIN of the partnership-partner, the tax year, and
information on this form to carry out the Internal Revenue
“Partner Payment for BBA Modification.” Checks must be
laws of the United States. You're required to give us the
made payable to “United States Treasury” and included
information. We need it to ensure that you're complying
with the amended return. If making an electronic payment,
with these laws and to allow us to figure and collect the
choose the payment description “Partner Pymnt for BBA
right amount of tax.
Modification” from the list of payment types. The payment
amount, including interest and penalties, should be You aren’t required to provide the information requested
reported on Part IV, line 3. on a form that is subject to the Paperwork Reduction Act
unless the form displays a valid OMB control number.
Partnership-Partners Who Are Allocated
Books or records relating to a form or its instructions must
Adjustments That Don’t Result in an IU be retained as long as their contents may become
If a partnership-partner is paying an amount due as part of material in the administration of any Internal Revenue law.
an amended return submitted for purposes of Generally, tax returns and return information are
modification, any adjustments that don’t result in an IU confidential, as required by section 6103.
must be taken into account in the tax year that the amount
is paid by the partnership-partner. However, if there are The time needed to complete and file this form will vary
only adjustments that don’t result in an IU, those depending on individual circumstances. The estimated
adjustments are subject to modification by the ultimate burden for business taxpayers filing this form is approved
taxpayers who reported the original amounts and not by under OMB control number 1545-0123 and is included in
the partnership-partner itself. Refer to Regulations section the estimates shown in the instructions for their business
301.6225-3 for further guidance. income tax return.

Part V—Explanation of Changes to If you have suggestions for making this form simpler,
we would be happy to hear from you. You can send us
Items in Part II and Part III comments through IRS.gov/FormComments. Or, you can
For each amended item, explain in detail the reasons for write to: Internal Revenue Service, Tax Forms and
the change. Include any computations necessary to Publications Division, 1111 Constitution Ave. NW,
support the amended item. IR-6526, Washington, DC 20224. Don’t send Form
Changes in allocations. If there is a change in the 1065-X to this address. Instead, see Where To File,
allocation of income, gain, loss, deduction, or credit to a earlier.
partner, specify the nature and reasons for the changes.

14 Instructions for Form 1065-X (Rev. 08-2023)

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