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Department of the Treasury
Internal Revenue Service
Instructions for Form 8978

(Including Schedule A)

(Rev. December 2021)
Partner’s Additional Reporting Year Tax
(For use with Form 8978 (Dec. 2019) and Schedule A (Form 8978) (Dec. 2019))

Contents Page administrative adjustment request (AAR) partnership furnished the Forms 8986 to
What’s New . . . . . . . . . . . . . . . . . . 1 under section 6227. its partners. The date the audited
Purpose of This Form . . . . . . . . . . . . 1 Additional reporting year tax is the partnership furnished Forms 8986 to its
partner’s change in chapter 1 tax for the partners is found on Form 8986, Part II,
Definitions . . . . . . . . . . . . . . . . . . . 1 reporting year after taking into account the item G. For example, if the Form 8986,
General Instructions . . . . . . . . . . . . . 1 adjustments. Part II, item G, date is 06/15/2021 and the
Who Must File . . . . . . . . . . . . . 1 Affected partner is a partner that held an partner receiving the Form 8986 is a
Where and When To File . . . . . . 1 interest in a pass-through partner at any calendar-year-end partner, that partner’s
Completing Form 8978 and time during the tax year of the reporting year is tax year ending
Schedule A . . . . . . . . . . . . . 1 pass-through partner to which the 12/31/2021.
Specific Instructions for Form adjustments in the statement relate. Reviewed year is the audited
8978 . . . . . . . . . . . . . . . . . . . 4 Applicable tax year is any tax year that is partnership’s tax year to which the
Specific Instructions for impacted by the audit adjustments shown partnership adjustment(s) relates.
Schedule A (Form 8978) . . . . . . . 4 on Form 8986. For example, if the Reviewed year partner is any person
Inconsistent Positions . . . . . . . . . . . 5 adjustments are from tax year 2020 (first that held an interest in the audited
Illustrations for Examples . . . . . . . . . 6 affected year), that year would be partnership at any time during the
Section references are to the Internal Revenue impacted as well as any year between the partnership’s reviewed year.
Code unless otherwise noted.
first affected year and the reporting year
that had related changes to partner-level General Instructions
Future Developments tax attributes.
For the latest information about Audited partnership, for purposes of Who Must File
developments related to Form 8978 and Form 8978, is a BBA partnership that Every partner (except pass-through
its instructions, such as legislation made the election under section 6226 to partners) that receives a Form 8986 from
enacted after they were published, go to have its partners take into account their a pass-through entity must file Form 8978
IRS.gov/Form8978. share of adjustments for to report any additional reporting year tax
partnership-related items. as a result of taking into account the
What’s New BBA AAR is an administrative adjustment partner’s share of the reviewed year(s)
Updates are provided on how positive and request filed by a BBA partnership. adjustments.
negative adjustments received by partners BBA partnership is a partnership that is
on Forms 8986 should be reported on subject to the centralized partnership audit Where and When To File
Form 8978 and its Schedule A. Updates regime that was enacted into law by A reviewed year partner or affected
are also provided on reporting a section section 1101 of the Bipartisan Budget Act partner must file Form 8978 with a federal
199A qualified business income deduction of 2015 (BBA). income tax return for the partner’s
on Form 8978 and its Schedule A. First affected year is the partner’s tax reporting year.
year that includes the end of the audited Example 1. Where and when to file.
Purpose of This Form partnership’s reviewed year(s). Each On March 1, 2020, an audited partnership
reviewed year of an audited partnership
Partners (other than pass-through furnishes Forms 8986 to its two partners.
should have a corresponding first affected
partners such as partnerships or S One of these reviewed year partners is a
year for each partner.
corporations) use Form 8978 and calendar year individual and the other is a
Intervening years include the partner’s
Schedule A (Form 8978) to report pass-through partner. On January 15,
tax years that end after the first affected
adjustments shown on Forms 8986 2021, the pass-through partner, in turn,
year and before the reporting year.
received from partnerships that have furnishes Forms 8986 to its two partners
Non-pass-through partner is a partner
elected to push out adjustments to who are calendar year individuals. The
that is other than a pass-through partner.
partnership-related items to their partners. reporting year for all three individuals is
Pass-through partner is a pass-through the tax year that includes March 1, 2020.
The Schedule A (Form 8978) lists all entity that holds an interest in a Because the partners all have a calendar
the adjustments a partner receives on partnership. Pass-through entities include year end, the reporting year is the 2020
Form 8986. Schedule A is also used to partnerships required to file a return under tax year. The partners must each attach a
report any related amounts and section 6031(a), S corporations, trusts completed Form 8978 to their individual
adjustments not reported on Form 8986 (other than wholly owned trusts income tax returns which are due April 15,
which may result from changes to disregarded as separate from their owners 2021 (without regard to extensions).
partner-level tax attributes as a result of for federal tax purposes), and decedents’
adjustments from Form 8986. estates. For this purpose, a pass-through Completing Form 8978 and
entity is not a wholly owned entity Schedule A
Definitions disregarded as separate from its owner for
AAR partnership is a BBA partnership federal tax purposes. What to report on Form 8978 and
(see below) which has filed an Reporting year is the partner’s tax Schedule A (Form 8978). The specific
year(s) that includes the date the audited adjustments listed on Form 8986 received

Dec 23, 2021 Cat. No. 69657Z

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by a reviewed year or affected partner, Note. If all of the adjustments from Forms and a $10,000 decrease to other
and other adjustments from partner-level 8986 cannot fit on one Schedule A (Form deductions, both shown as negative
tax attributes that have changed as a 8986), multiple Schedules A can be amounts in Part V of Form 8986. The
result of taking into account the attached. If more than one Schedule A is Form 8986 indicates that the substantial
adjustments, should be listed on the needed, enter the totals from all understatement penalty of section 6662
partner’s Schedule A under lines 1, 3, and Schedule A lines 2, 4, and 6 on the applies to all the adjustments that increase
5 for income, deductions, and credits, corresponding Form 8978 lines 1b, 3b, tax.
respectively, for the applicable tax year. and 9b, respectively. Bill determines that the adjustments
The totals on lines 2, 4, and 6 of shown on Form 8986 are from a
Reporting adjustments related to an
Schedule A are reported on lines 1b, 3b, partnership that he treats as a section 469
AAR. Adjustments from an AAR are
and 9b, respectively, of Form 8978. passive activity for tax purposes.
reported separately from adjustments from
Note. Tax attribute schedules should be a BBA audit on Forms 8978 and Bill previously reported no capital gains
adjusted to the extent adjustments to Schedules A. A checkmark in box 1 or 2 of or losses on his Forms 1040 in 2018 and
non-income items were received. For Part I, item A of Form 8986 indicates the 2019, and now has a $6,000 decrease to
example, if the partner’s Form 8986 adjustments are related to an audit of a capital gains (increased capital loss). Due
reflected a decrease to the partner’s share BBA partnership. A checkmark in box 3 or to the $3,000 annual capital loss limitation,
of recourse liabilities, this could change 4 of Part I, item A of Form 8986 indicates the $6,000 capital loss adjustment is taken
the partner’s amount at risk, which in turn the adjustments are related to an AAR. If a in $3,000 annual increments. So, Bill
could result in an adjustment on partner has no adjustments from a Form claims a $3,000 capital loss in 2018 and
Schedule A to reduce the allowable loss 8986 that are related to an audit, but only the remaining $3,000 capital loss in 2019.
from the partnership. In this example the adjustments related to an AAR, only the Bill enters the ordinary income, the
partner's at risk schedule should be AAR-related Form 8978 and Schedule A capital gain/loss adjustments, and the
adjusted and an increase to income need to be included. appropriate tracking numbers on
should be reported on Schedule A to If one or more adjustments are from a Schedule A (Form 8978), lines 1a and 1b,
reflect the decrease to the previously Form 8986 that is related to an AAR, a respectively. After taking into account the
reported loss from the partnership. separate Form 8978 and Schedule A BBA income adjustment for 2018, 2019,
(Form 8978) must be completed to report and 2020, Bill determines that there are
Tax calculations. Taxes should be the tax impact of these adjustments and $5,000 in previously suspended passive
figured and shown on a separate calculate the correct interest. The Form activity losses that can be used. He enters
statement. In general, non-pass-through 8978 and its Schedule A should be filled the $5,000 that he has determined is
partners that receive adjustments from a out in the same way as for an audit-related available for offset as a negative amount
Form 8986 should figure the additional Form 8978 and its Schedule A, except an on line 1c.
reporting year tax as if all the adjustments indication of “AAR” should be made on the The Form 8986 that Bill received
on Form 8986 had been included on the top of the Form 8978. Also, in the tracking indicated that it was determined in the
partner’s first affected year return using a number field on the Form 8978 and BBA exam that the adjustments also
statement attached to Form 8978 to Schedule A, indicate “AAR” and enter the impact QBI for the purposes of IRC 199A.
support the amounts reported on lines 6 employer identification number of the This results in a section 199A deduction of
and 7 of the Form 8978. The additional entity that issued the Form 8986. See the $2,800 which he reports on line 3b of the
reporting year tax from line 14 is then AAR-related items in Example 3, later. Schedule A (entered as a positive amount
reported on the partner’s reporting year
because it increases deductions). See
income tax return. Note. If all adjustments are AAR-related,
Bill’s Schedule A (Form 8978) for Audit
Columns (a) through (d). Columns (a) only one Form 8978 and one Schedule A
through (d) on Form 8978 and Schedule A need to be completed. Adjustments, later.
Bill carries the totals from lines 2 and 4
can be used for adjustments for the first Reporting adjustments related to a of Schedule A to Form 8978, lines 1b and
affected year or intervening years. See BBA audit. The following example shows 3b, respectively. Bill also completes lines
Receipt of multiple Forms 8986, later. how adjustments reported on Form 8986 1a, 2, 3a, and 4 on the Form 8978,
Years to include and exclude on Form related to a BBA audit are reported on according to the instructions. See Bill’s
8978 and Schedule A. Only applicable Form 8986 and its Schedule A. Form 8978 for Audit Adjustments, later.
tax years (see Definitions, earlier) need to Example 2. Completing Form 8978 Bill attaches to Form 8978 a statement
be shown on Form 8978 and Schedule A. and Schedule A for an audit-related that shows how his tax year 2018
A year that is not impacted does not have Form 8986. On June 10, 2020, Bill corrected taxable income, income tax, and
to be shown on the form or schedule. For Jones, who files as a single individual, AMT, if applicable, were figured. He
example, if the first affected year is 2020 calendar-year taxpayer, receives a Form includes the income adjustment as an
and the reporting year is 2025, years 8986 from an audited partnership of which increase to income and the deduction
2021–2024 are considered intervening Bill is a partner. The Form 8986 is for adjustment as a decrease to deductions.
years. If the only intervening year reviewed year 2018. Part II, box G, of the
impacted is 2022 (that is, 2022 is the only Form 8986 indicates that the audited Bill carries the amounts figured in the
intervening year that had related changes partnership issued Forms 8986 to its statement to lines 5, 6, and 8 of Form
to partner-level tax attributes as a result of partners on June 8, 2020. Because June 8978. He enters his corrected tax liability
the 2020 adjustments), the form and 8, 2020, is within Bill’s tax year ending for tax year 2018 on line 11 of Form 8978.
schedule only need to show 2020 and December 31, 2020, Bill must report these He enters his income tax as previously
2022. adjustments on his 2020 Form 1040 reported for tax year 2018 on line 12 of
Receipt of multiple Forms 8986. If a income tax return and attach Form 8978. Form 8978 and subtracts this amount from
the amount on line 11 to obtain the
partner receives multiple Forms 8986 for The Form 8986 indicates that Bill’s increase or decrease to tax, which he
different years, a column on the form and share of adjustments includes a $15,000 enters on line 13.
schedule could be both an affected year increase to ordinary income, shown as a
and an intervening year. positive amount in Part V of Form 8986, If any applicable penalties are shown
and a $6,000 decrease to capital gains, on Form 8986, Part V, Bill must attach a

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statement to his Form 8978 that shows procedures for completing Form 8978 and Frank attaches the forms shown for
how the additional penalties that result Schedule A, and include those with its tax Example 3 to his 2019 Form 1040 and
from the additional tax were figured. If year 2020 income tax return. The includes payment of the additional $1,200
penalties are applicable, Bill needs to additional tax, penalties, and interest in tax, following the Instructions for Form
include this amount on line 15 of Form would be reported and paid following the 1040 with regard to amounts from Form
8978. Because Part V of the Form 8986 instructions for the corporation’s income 8978. The amount of interest is figured on
Bill received indicates that the section tax return. the audit-related increase to tax on line 13
6662 substantial understatement penalty of the audit-related Form 8978 using the
Reporting adjustments from both an
applies, Bill prepares a separate short-term quarterly rate plus 5%; interest
audit and from an AAR. If a partner
calculation which shows that the additional runs from the due date of Frank’s 2018
receives one or more audit-related Forms
$3,408 in tax reported on line 13, column Form 1040 to the date of payment. This
8986 and also one or more AAR-related
(a), of the Form 8978 does not exceed the amount is reported on lines 17 and 18 of
Forms 8986, the partner’s Form 8978
$5,000 threshold required for the penalty the audit-related Form 8978.
related to the AAR adjustments should be
to apply. He attaches this separate penalty Because the AAR-related Form 8978
completed first. The numbers shown on
calculation statement to his return and showed a decrease to tax, no interest is
this first Form 8978 should be included in
enters zero on line 15 of his Form 8978. shown on that Form 8978. If the
the “as previously reported” numbers on
Bill figures his additional interest on the the Form 8978 related to the audit AAR-related Form 8978 had an increase
increase in tax shown on line 14 of his adjustments. Each Form 8978 should to tax, the interest would be figured using
Form 8978 from April 15, 2019, (the due have applicable lines completed, and the the same dates as for the audit-related
date of his 2018 return) up to the date the partner should add all the amounts on Form 8978, but the rate would be the
additional reporting year tax is paid. If line 14 (total increase/decrease to tax) short-term quarterly rate plus 3%, and the
penalties had been shown on his Form from all the Forms 8978 and report the amount would have been reported on
8978, Bill would have figured interest on sum on the appropriate line of the tax line 17 of the AAR-related Form 8978.
penalties from the due date of his 2018 return. Assuming that no tax attributes were
return, or the extended due date of his impacted by the adjustments, Frank
2018 return, if a valid extension request Example 3. Completing Forms 8978 should complete the forms as shown in
had been filed. and Schedules A for an audit-related the Example 3 illustrations.
Form 8986 and an AAR-related Form
Note. The reduction in tax for 2019 8986. Frank Smith files as a single More than 4 applicable tax years. If
reflected in column (b) of the Form 8978 is individual. On May 15, 2019, Frank there are more than 4 applicable tax years
included in the total increase to tax received a Form 8986 related to an AAR (see Definitions, earlier), additional Forms
reported on line 14, but is not included in that was filed by a partnership in which he 8978 should be prepared for the additional
the interest calculation. is a partner. This Form 8986 reflects an years. Each Form 8978 should have all
increase of $5,000 to Frank’s share of lines completed and the total of all the
If there were any positive intervening other deductions. On June 12, 2019, he line 14 amounts should be reported on the
year partner-level adjustments, Bill would received a Form 8986 related to an audit, appropriate line of the partner’s return.
have done similar calculations for those showing an additional $10,000 in income. Include a Schedule A for each Form 8978.
years. For example, if any of the No penalties were noted on either Form Foreign corporate partners that re-
adjustments made for 2018 or 2019 would 8986. According to the date shown on ceive Forms 8986. Foreign corporate
also apply to Bill’s 2020 tax year, Bill Parts II, item D of the Forms 8986, both partners that receive Forms 8986 must
would complete column (c) for 2020 on relate to adjustments made to the 2018 complete separate Forms 8978 and
Schedule A (Form 8978) and column (c) tax year. Schedules A (Form 8978) to report
for 2020 on Form 8978, showing the
positive partner-level adjustments. Frank’s first step is to complete a Form adjustments pertaining to effectively
8978 and Schedule A (Form 8978) for the connected income (ECI) under section
Bill must report the additional reporting AAR-related adjustments. He calculates a 882, and fixed, determinable, annual,
year tax from line 14 of Form 8978 on the decrease in tax of $1,200 from the AAR- periodical (FDAP) income under section
appropriate line on his 2020 Form 1040, related adjustments and reports that 881. ECI is income effectively connected
following the Instructions for Form 1040. amount on line 14 of the AAR-related with the conduct of a trade or business in
Bill’s payment accompanying his 2020 8978. See Frank’s Schedule A (Form the United States; FDAP income is income
Form 1040 should include the tax and 8978) for AAR Adjustments and Frank’s from U.S. sources not effectively
interest. If a penalty had been applicable, Form 8978 for AAR Adjustments, later. connected with the conduct of a trade or
he would include that in his payment as Frank’s second step is to complete business in the United States. The Forms
well. another Form 8978 and Schedule A (Form 8978 and related Schedules A should
Bill must attach Form 8978, Schedule A 8978) for the audit-related adjustments. clearly indicate whether they reflect ECI or
(Form 8978), and the calculation On this second Form 8978 (the FDAP income. Each “ECI Form 8978” and
statements to the Form 1040 he files for audit-related Form 8978), he includes the its Schedule A should only include ECI
2020. In this example, Bill should include amounts from the AAR-related Form 8978 figures, and each “FDAP Form 8978” and
statements for tax and penalty in the “previously reported” amounts on its Schedule A should only include FDAP
calculations related to Form 8978. He lines 1a, 3a, 9a, and 12. He figures a total figures.
should also attach his section 469 increase to tax of $2,400 from the
suspended loss and section 199A audit-related adjustments and reports this Note. Attach a statement to each “ECI
schedules; these should include the on line 14 of the audit-related Form 8978. Form 8978” and each “FDAP Form 8978”
adjustments shown on his Schedule A He reports the total net amount of $1,200 explaining how all line 13 income tax
(Form 8978). Bill’s Form 8978 and on the appropriate line of his Form 1040, numbers were calculated. Enter the total
Schedule A are shown in the Example 2 referring to the Instructions for Form 1040. of all the line 13 amounts on line 14. Enter
illustrations. See Frank’s Schedule A (Form 8978) for the amounts from line 14 on the applicable
If a corporation received a Form 8986 Audit Adjustments and Frank’s Form 8978 lines on the partner’s reporting year
identical to the one that Bill received, the for Audit Adjustments, later. income tax return. See the instructions for
the applicable income tax return.
corporation would follow the same

Instructions for Form 8978 (Dec. 2021) -3-

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Specific Instructions for                    amount of credits shown on your original      Note.  Interest should not be calculated 
                                             or amended return, or as adjusted by the      on any decreases in tax on line 13 for a 
Form 8978                                    IRS.                                          tax year.
Part I—Computation of                        Line 9b—Adjustments to credits.               Note. Interest on penalties is figured in 
Additional Reporting Year Tax                Enter the amount from Schedule A, line 6,     the same manner as interest on tax, 
Each column, (a) through (d), is figured     Total adjustments to credits.                 except it is figured from the due date of the 
separately for lines 1 through 13.           Line 10—Total corrected credits.              partner’s return including any valid 
Line 1a—Total income per original            Combine the amounts on lines 9a and 9b        extensions that were filed by the partner.
return or as previously adjusted.            and enter the result on line 10.              Where to report additional reporting 
Enter the total income amount as shown       Line 11—Total corrected income tax            year tax. The total additional reporting 
on your original or amended return, or as    liability. Subtract line 10 from line 8 to    year tax from Form 8978, Part I, line 14, is 
adjusted by the IRS. Enter negative          obtain the corrected income tax liability.    reported on the appropriate lines of the 
amounts in parentheses.                      This amount should not include any            partner’s reporting year return (see the 
Line1b—Adjustments to income.                non-income taxes. If, as a result of          instructions for the applicable reporting 
Enter the amount from Schedule A, line 2,    changes not reflected on a line item on the   year tax return). The additional penalties 
Total adjustments to income.                 form or schedule, corrected income tax        and interest should be included in the net 
                                             liability after credits is different from the payment calculation for the partner’s 
Line 2—Corrected income.           Enter     result obtained by subtracting line 10 from   reporting tax year but these are not 
the total of lines 1a and 1b.                line 8, include a separate statement          reported on the partner’s reporting year 
                                             showing how the corrected liability was       return and are not included in the 
Line 3a—Total deductions per                 figured and enter that correct amount on      additional reporting year tax.
return or as previously adjusted.    Enter   line 11.
the total amount of deductions shown on                                                    Specific Instructions for 
your original or amended return, or as       Line 12—Total tax shown on return 
adjusted by the IRS.                         or as previously adjusted.    Enter the       Schedule A (Form 8978)
                                             amount shown on your original or              Adjustments.   Enter the description of the 
Line 3b—Adjustments to                       amended return, or as adjusted by the         item that corresponds to the Schedule K-1 
deductions. Enter the amount from            IRS.                                          or Schedule K-3 line number and title as 
Schedule A, line 4, Total adjustments to 
deductions.                                  Line 13—Increase/decrease to tax.             reflected in columns (a) and (b) of Form 
                                             Subtract the amount shown on line 12          8986, Part V. For example, if Form 8986, 
Line 4—Corrected deductions.                 from the amount on line 11 and enter the      Part V, column (a), shows “1” and column 
Combine the amount on line 3b with the       result.                                       (b) shows “Ordinary business income,” 
amount on line 3a and enter the result.                                                    enter on Schedule A, Adjustments 
                                             Line 14—Total additional reporting            column, “Schedule K-1, line 1, Ordinary 
Line 5—Corrected taxable income.             year tax.  Enter the sum of line 13,          business income.” For adjustments due to 
Subtract line 4 from line 2 and enter the    columns (a) through (d). Report this          changes in partner tax attributes, use the 
result. This should be the corrected         amount on the appropriate line of your        description used on the partner’s return.
taxable income. If, as a result of changes   income tax return for the reporting year.     Note. Schedule K-3 (Form 1065) 
in tax attributes, corrected taxable income 
is different from the result obtained by     Line 15.     Form 8986, Part V,               adjustments that do not directly increase 
subtracting line 4 from line 2, include a    Applicable Penalties, lists which penalties,  or decrease a partner's taxable income 
separate statement showing how the           if any, apply and which line items are        should be reported with a zero amount on 
corrected taxable income amount was          affected. If penalties apply, include a       Schedule A (Form 8978), with any 
figured and enter that corrected amount      statement showing how the penalties were      corresponding change to the partner's tax 
on line 5.                                   figured and enter the amount of penalties     attributes such as the foreign tax credit 
                                             in the applicable column(s) of Form 8978.     shown as a positive (increase) or negative 
Line 6—Income tax.       Include a           Penalties for each applicable tax year        (decrease) amount.
separate statement showing how the           should be reported on line 15, columns (a)    Tracking number.  If an adjustment is 
corrected income tax was figured and         through (d).                                  from a Form 8986 that is related to an 
enter that corrected income tax on line 6. 
See the Instructions for Form 1040 or the    Line 17.     Interest on any increase in      audited partnership, the tracking number 
instructions for your income tax return for  income tax is figured from the original due   column should be completed for that 
the appropriate year(s).                     date of your income tax return for each tax   adjustment line. If applicable, the tracking 
                                             year to which an increase in tax is           number can be found at the top of the 
Line 7—Alternative minimum tax               attributable, as determined under section     Form 8986. If the tracking number is not 
(AMT). If AMT applies, include a separate    6226(b)(3). Interest is computed at the       on the Form 8986, use the audit control 
statement showing how the corrected          underpayment rate under section 6621(a)       number at the top of the Form 8986. If an 
AMT, including the applicable                (2), but substituting “five percentage        adjustment is from a Form 8986 that is 
adjustment(s) shown on Schedule A, was       points” for “three percentage points” for     related to an AAR partnership, indicate 
figured and enter the corrected AMT on       purposes of section 6621(a)(2)(B) (that is,   “AAR” and enter the tax identification 
line 7. See the Instructions for Form 1040   the sum of the federal short-term rate plus   number of the entity that issued the Form 
or the instructions for your income tax      five percentage points instead of three       8986. Leave the tracking number field 
return for the appropriate year(s) to figure percentage points). For additional            blank for all adjustments to partner-level 
the corrected AMT.                           reporting year tax reported as a result of a  tax attributes.
Line 8—Total corrected income tax.           Form 8986 from an AAR, this substitution      Reporting amounts from Form 8986. 
Enter the sum of lines 6 and 7.              is not made. Interest for each applicable     All adjustments (positive and negative) 
                                             tax year should be reported on line 17,       from a Form 8986 should be shown as 
Line 9a—Total credits per return or          columns (a) through (d).                      reported on that form. When entering 
as previously adjusted.  Enter the total                                                   adjustments from a Form 8986, enter 

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amounts from Form 8986, Part V, column 179 deduction. Also include related 1040 or 1040-SR, he would be taking a
(h), which reflect the adjustments net of amounts and adjustments not on Form $30 inconsistent position on his Form
any approved modifications (column (g) of 8986 that result from changes to 1040 or 1040-SR. If he subsequently
Form 8986). These amounts should be partner-level tax attributes as a result of receives a Form 8986 for affected tax year
entered in the applicable columns (a) adjustments from Form 8986. 2020, with an audit adjustment reflecting a
through (d) that correspond to the $50 increase to the Schedule K-1, line 1,
partner’s affected year. However, if Form Line 4—Total adjustments to Ordinary business income amount, he
8986 is a result of an AAR partnership deductions. Enter the total of all would have two amounts to enter on
(and not an audited partnership), no adjustments from line 3. Carry the total of Schedule A (Form 8978). First, X would
modifications should be shown on Part V, each column to the corresponding column enter on line 1a “Schedule K-1, line 1,
column (g), of that Form 8986 and no on Form 8978, line 3b. Ordinary business income” in the
modifications should be reported on Line 5—Credits. Enter all the adjustments column and $50 in column
Schedule A. adjustments individually from Form 8986, (a), which would be labelled “12/31/2020.”
Schedule A line instructions. Part V, that affect tax credits. Also include Second, X would enter on line 1b
related amounts and adjustments not on “Inconsistent position previously taken on
Line 1—Income. Enter all the Form 8986 that result from changes to line 1a item” in the adjustments column
adjustments individually from Form 8986, partner-level tax attributes as a result of and $30 in column (a). If he had no other
Part V, that affect taxable income. adjustments from Form 8986. adjustments, the amount of his total
Generally, this includes adjustments to adjustments to income on line 2 of
ordinary income, rental income, interest Line 6—Total adjustments to Schedule A, column (a), would be $80. He
income, dividends, royalties, gains and credits. Enter the total of all adjustments would carry this amount to Form 8978,
losses, and other income. Also include from line 5. Carry the total of each column line 1b, column (a).
related amounts and adjustments not on to the corresponding column on Form
Form 8986 that result from changes to 8978, line 9b. Note. A partner’s requirement to treat
partnership-related items consistently
partner-level tax attributes and other items Inconsistent Positions applies to adjustments that result from an
as a result of adjustments from Form
If you originally reported an amount for an
8986. audited partnership or an AAR partnership
item inconsistent with the amount reported regardless of whether the partner
Line 2—Total adjustments to to you by the partnership on Schedule K-1 previously treated the item inconsistently.
income. Enter the total of all adjustments or Schedule K-3, and this same item is However, partners that properly and timely
from line 1. Carry the total of each column included as an adjustment on the Form file a subsequent Form 8082, Notice of
to the corresponding column on Form 8986 received, you should also include Inconsistent Treatment or Administrative
8978, line 1b. the amount of inconsistency for that item Adjustment Request (AAR), for items that
on Schedule A (Form 8978). For example, are adjusted as part of an AAR filing are
Line 3—Deductions. Enter all the if partner X, a calendar year taxpayer, not required to treat the items on
adjustments individually from Form 8986, received a tax year 2020 Schedule K-1 Schedule A (Form 8978) consistent with
Part V, that affect deductions from income. with $100 of ordinary business income, the partnership’s treatment.
Generally, this includes adjustments to and he only reported $70 on his Form
separately stated items such as a section

Instructions for Form 8978 (Dec. 2021) -5-

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Illustrations for Examples
Example 2. Schedule A (Form 8978), 
Audit Adjustments
SCHEDULE A                   Partner’s Additional Reporting Year Tax 
(Form 8978)                                 (Schedule of Adjustments)                                            OMB No. 1545-0123
(December 2019)                                     Attach to Form 8978. 
Internal Revenue Service 
Department of the Treasury    Go to www.irs.gov/Form8978 for the latest information.
Name of partner(s)                                                                                Partner tax ID number
Bill Jones                                                                                        XXX-XX-1111
  Adjustments                Tracking Number                            (a)            (b)          (c)                  (d) 
  (see instructions)                                    Tax Year Ended            Tax Year Ended  Tax Year Ended       Tax Year Ended 
                                                        12/31              /20 18 12 / 31/20 19   /    /20             /    /20 
1 Income:                                                                                                                     
a K-1, Line 1, Ordinary Inc.            9999999999                      15000

b K-1, Line 9a, Net LTCG/L              9999999999                      -3000          -3000

c Prev. Suspended PAL                                                   -5000

d

e

f

g
2 Total adjustments to income (add lines 1a through 1g 
  in each column (a) through (d))  . .  . .    . . . .                     7000        -3000
3 Deductions:                                                                                                                 
a K-1, Line 13, Other Ded.              9999999999                      -10000

b Additional 199A Ded.                                                     2800

c

d

e

f

g
4 Total adjustments to deductions (add lines 3a through 
  3g in each column (a) through (d))  . . .    . . . .                  -7200
5 Credits:                                                                                                                     
a

b

c

d

e

f

g
6 Total adjustments to credits (add lines 5a through 5g 
  in each column (a) through (d))  . .  . .    . . . .
For Paperwork Reduction Act Notice, see the Instructions for Form 1065.           Cat. No. 70970F   Schedule A (Form 8978) (12-2019) 

                                                        -6-                                       Instructions for Form 8978 (Dec. 2021)

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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Example 2. Form 8978, 
Audit Adjustments

Form  8978                          Partner’s Additional Reporting Year Tax                                            OMB No. 1545-0123
(December 2019)
Department of the Treasury         Go to www.irs.gov/Form8978 for instructions and the latest information.            Attachment   
Internal Revenue Service                                                                                               Sequence No. 57
Name of partner(s)                                                                                 Partner tax ID number
Bill Jones                                                                                           XXX-XX-1111
Part I     Computation of Additional Reporting Year Tax (see instructions)
                                                                      (a)              (b)                    (c)              (d) 
                                                                  Tax Year Ended   Tax Year Ended    Tax Year Ended     Tax Year Ended 
                                                                12  /31 /20  18 12   /31  /20 19            /    /20         /      /20 
1a    Total income per original return or as previously 
      adjusted  .        .  . . . . . .   . .   . .  .       1a       150000           150000
b     Adjustments to income from Schedule A (Form 
      8978), line 2, columns (a) through (d)  . . .  .       1b           7000         -3000
2     Combine lines 1a and 1b and enter the corrected 
      income. See instructions  .   . .   . .   . .  .       2        157000           147000
3a    Total  deductions  per  original  return  or  as 
      previously adjusted       . . . .   . .   . .  .       3a       50000            50000
b     Adjustments  to  deductions  from  Schedule  A 
      (Form 8978), line 4, columns (a) through (d) . .       3b       -7200                      0
4     Combine lines 3a and 3b and enter the corrected 
      deductions. See instructions    .   . .   . .  .       4        42800            50000
5     Corrected taxable income. Subtract line 4 from 
      line 2  .    .     .  . . . . . .   . .   . .  .       5        114200           97000

6     Income tax on line 5 (see instructions)   . .  .       6        21888            17760

7     Alternative minimum tax on line 5 (see instructions)   7               0                   0

8     Total corrected income tax. Add lines 6 and 7  .       8        21888            17760
9a    Total credits per original return or as previously 
      adjusted  .        .  . . . . . .   . .   . .  .       9a              0                   0
b     Adjustments  to  credits  from  Schedule  A  (Form 
      8978), line 6, columns (a) through (d)  . . .  .       9b              0                   0
10    Combine lines 9a and 9b and enter the corrected 
      credits. See instructions  .  . .   . .   . .  .       10              0                   0
11    Total corrected income tax liability. Subtract line 
      10 from line 8        . . . . . .   . .   . .  .       11       21888            17760
12    Total income tax shown on original return or as 
      previously adjusted       . . . .   . .   . .  .       12       18480            18480
13    Increase/Decrease to tax. Subtract line 12 from 
      line 11, columns (a) through (d) .  . .   . .  .       13           3408             -720
14    Total increase/decrease to reporting year tax. Add line 13, columns (a) through (d). Enter here and on
      the appropriate line on your tax return  .  .  .     . .  . . . .    . .   . . . .    .    . . .      . .      14             2688
Part II    Penalties (see instructions)                                                                                             

15    Penalties  .       .  . . . . . .   . .   . .  .       15              0                   0

16    Total penalties. Add line 15, columns (a) through (d)  .  . . . .    . .   . . . .    .    . . .      . .      16
Part III   Interest (see instructions)                                                                                              

17    Interest     .     .  . . . . . .   . .   . .  .       17            475                   0

18    Total interest. Add line 17, columns (a) through (d)  .   . . . .    . .   . . . .    .    . . .      . .      18             475
For Paperwork Reduction Act Notice, see separate instructions.                   Cat. No. 37802K                        Form 8978 (12-2019) 

Instructions for Form 8978 (Dec. 2021)                            -7-

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Example 3. Schedule A (Form 8978), 
AAR Adjustments                                          AAR
SCHEDULE A                  Partner’s Additional Reporting Year Tax 
(Form 8978)                                 (Schedule of Adjustments)                                            OMB No. 1545-0123
(December 2019)                                     Attach to Form 8978. 
Internal Revenue Service 
Department of the Treasury   Go to www.irs.gov/Form8978 for the latest information.
Name of partner(s)                                                                                Partner tax ID number
Frank Smith                                                                                       XXX-XX-2222
  Adjustments               Tracking Number                             (a)         (b)             (c)                  (d) 
  (see instructions)                                    Tax Year Ended            Tax Year Ended  Tax Year Ended       Tax Year Ended 
                                                        12 31/             /20 18 /    /20        /    /20             /    /20 
1 Income:                                                                                                                     
a

b

c

d

e

f

g
2 Total adjustments to income (add lines 1a through 1g 
  in each column (a) through (d))  . .  . .    . . . .
3 Deductions:                                                                                                                 
a K-1, Line 13, Other Ded.           (AAR) 99-9999999                   5000

b

c

d

e

f

g
4 Total adjustments to deductions (add lines 3a through 
  3g in each column (a) through (d))  . . .    . . . .                  5000
5 Credits:                                                                                                                     
a

b

c

d

e

f

g
6 Total adjustments to credits (add lines 5a through 5g 
  in each column (a) through (d))  . .  . .    . . . .
For Paperwork Reduction Act Notice, see the Instructions for Form 1065.           Cat. No. 70970F   Schedule A (Form 8978) (12-2019) 

                                                        -8-                                       Instructions for Form 8978 (Dec. 2021)

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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Example 3. Form 8978, 
AAR Adjustments
                                                                 AAR
Form  8978                          Partner’s Additional Reporting Year Tax                                            OMB No. 1545-0123
(December 2019)
Department of the Treasury         Go to www.irs.gov/Form8978 for instructions and the latest information.            Attachment   
Internal Revenue Service                                                                                               Sequence No. 57
Name of partner(s)                                                                                 Partner tax ID number
Frank Smith                                                                                          XXX-XX-2222
Part I   Computation of Additional Reporting Year Tax (see instructions)
                                                                      (a)              (b)                    (c)              (d) 
                                                                  Tax Year Ended   Tax Year Ended    Tax Year Ended     Tax Year Ended 
                                                                12 /31/20    18      /    /20               /    /20         /      /20 
1a    Total income per original return or as previously 
      adjusted  .        .  . . . . . .   . .   . .  .       1a       150000
b     Adjustments to income from Schedule A (Form 
      8978), line 2, columns (a) through (d)  . . .  .       1b              0
2     Combine lines 1a and 1b and enter the corrected 
      income. See instructions  .   . .   . .   . .  .       2        150000
3a    Total  deductions  per  original  return  or  as 
      previously adjusted       . . . .   . .   . .  .       3a       50000
b     Adjustments  to  deductions  from  Schedule  A 
      (Form 8978), line 4, columns (a) through (d) . .       3b           5000
4     Combine lines 3a and 3b and enter the corrected 
      deductions. See instructions    .   . .   . .  .       4        55000
5     Corrected taxable income. Subtract line 4 from 
      line 2  .    .     .  . . . . . .   . .   . .  .       5        95000

6     Income tax on line 5 (see instructions)   . .  .       6        17280

7     Alternative minimum tax on line 5 (see instructions)   7               0

8     Total corrected income tax. Add lines 6 and 7  .       8        17280
9a    Total credits per original return or as previously 
      adjusted  .        .  . . . . . .   . .   . .  .       9a              0
b     Adjustments  to  credits  from  Schedule  A  (Form 
      8978), line 6, columns (a) through (d)  . . .  .       9b              0
10    Combine lines 9a and 9b and enter the corrected 
      credits. See instructions  .  . .   . .   . .  .       10              0
11    Total corrected income tax liability. Subtract line 
      10 from line 8        . . . . . .   . .   . .  .       11       17280
12    Total income tax shown on original return or as 
      previously adjusted       . . . .   . .   . .  .       12       18480
13    Increase/Decrease to tax. Subtract line 12 from 
      line 11, columns (a) through (d) .  . .   . .  .       13       -1200
14    Total increase/decrease to reporting year tax. Add line 13, columns (a) through (d). Enter here and on
      the appropriate line on your tax return  .  .  .     . .  . . . .    . .   . . . .    .    . . .      . .      14        -1200
Part II  Penalties (see instructions)                                                                                               

15    Penalties  .       .  . . . . . .   . .   . .  .       15

16    Total penalties. Add line 15, columns (a) through (d)  .  . . . .    . .   . . . .    .    . . .      . .      16
Part III Interest (see instructions)                                                                                                

17    Interest     .     .  . . . . . .   . .   . .  .       17

18    Total interest. Add line 17, columns (a) through (d)  .   . . . .    . .   . . . .    .    . . .      . .      18
For Paperwork Reduction Act Notice, see separate instructions.                   Cat. No. 37802K                        Form 8978 (12-2019) 

Instructions for Form 8978 (Dec. 2021)                            -9-

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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Example 3. Schedule A (Form 8978), 
Audit Adjustments

SCHEDULE A                  Partner’s Additional Reporting Year Tax 
(Form 8978)                                 (Schedule of Adjustments)                                          OMB No. 1545-0123
(December 2019)                                     Attach to Form 8978. 
Internal Revenue Service 
Department of the Treasury   Go to www.irs.gov/Form8978 for the latest information.
Name of partner(s)                                                                              Partner tax ID number
Frank Smith                                                                                     XXX-XX-2222
  Adjustments               Tracking Number                             (a)       (b)             (c)                  (d) 
  (see instructions)                                    Tax Year Ended          Tax Year Ended  Tax Year Ended       Tax Year Ended 
                                                        12 /31/20            18 /    /20        /    /20             /    /20 
1 Income:                                                                                                                   
a K-1, Line 1, Income       99-888888888                                10000

b

c

d

e

f

g
2 Total adjustments to income (add lines 1a through 1g 
  in each column (a) through (d))  . .  . .    . . . .                  10000
3 Deductions:                                                                                                               
a

b

c

d

e

f

g
4 Total adjustments to deductions (add lines 3a through 
  3g in each column (a) through (d))  . . .    . . . .
5 Credits:                                                                                                                   
a

b

c

d

e

f

g
6 Total adjustments to credits (add lines 5a through 5g 
  in each column (a) through (d))  . .  . .    . . . .
For Paperwork Reduction Act Notice, see the Instructions for Form 1065.         Cat. No. 70970F   Schedule A (Form 8978) (12-2019) 

                                                        -10-                                    Instructions for Form 8978 (Dec. 2021)

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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Example 3. Form 8978, 
Audit Adjustments
Form  8978                          Partner’s Additional Reporting Year Tax                                            OMB No. 1545-0123
(December 2019)
Department of the Treasury         Go to www.irs.gov/Form8978 for instructions and the latest information.            Attachment   
Internal Revenue Service                                                                                               Sequence No. 57
Name of partner(s)                                                                                 Partner tax ID number
Frank  Smith                                                                                         XXX-XX-2222
Part I   Computation of Additional Reporting Year Tax (see instructions)
                                                                      (a)              (b)                    (c)              (d) 
                                                                  Tax Year Ended   Tax Year Ended    Tax Year Ended     Tax Year Ended 
                                                                12 /31/20    18      /    /20               /    /20         /      /20 
1a    Total income per original return or as previously 
      adjusted  .        .  . . . . . .   . .   . .  .       1a       150000
b     Adjustments to income from Schedule A (Form 
      8978), line 2, columns (a) through (d)  . . .  .       1b       10000
2     Combine lines 1a and 1b and enter the corrected 
      income. See instructions  .   . .   . .   . .  .       2        160000
3a    Total  deductions  per  original  return  or  as 
      previously adjusted       . . . .   . .   . .  .       3a       55000
b     Adjustments  to  deductions  from  Schedule  A 
      (Form 8978), line 4, columns (a) through (d) . .       3b              0
4     Combine lines 3a and 3b and enter the corrected 
      deductions. See instructions    .   . .   . .  .       4        55000
5     Corrected taxable income. Subtract line 4 from 
      line 2  .    .     .  . . . . . .   . .   . .  .       5        105000

6     Income tax on line 5 (see instructions)   . .  .       6        19680

7     Alternative minimum tax on line 5 (see instructions)   7               0

8     Total corrected income tax. Add lines 6 and 7  .       8        19680
9a    Total credits per original return or as previously 
      adjusted  .        .  . . . . . .   . .   . .  .       9a              0
b     Adjustments  to  credits  from  Schedule  A  (Form 
      8978), line 6, columns (a) through (d)  . . .  .       9b              0
10    Combine lines 9a and 9b and enter the corrected 
      credits. See instructions  .  . .   . .   . .  .       10              0
11    Total corrected income tax liability. Subtract line 
      10 from line 8        . . . . . .   . .   . .  .       11       19680
12    Total income tax shown on original return or as 
      previously adjusted       . . . .   . .   . .  .       12       17280
13    Increase/Decrease to tax. Subtract line 12 from 
      line 11, columns (a) through (d) .  . .   . .  .       13           2400
14    Total increase/decrease to reporting year tax. Add line 13, columns (a) through (d). Enter here and on
      the appropriate line on your tax return  .  .  .     . .  . . . .    . .   . . . .    .    . . .      . .      14             2400
Part II  Penalties (see instructions)                                                                                               

15    Penalties  .       .  . . . . . .   . .   . .  .       15              0                                                          0

16    Total penalties. Add line 15, columns (a) through (d)  .  . . . .    . .   . . . .    .    . . .      . .      16
Part III Interest (see instructions)                                                                                                

17    Interest     .     .  . . . . . .   . .   . .  .       17            170                                                      170

18    Total interest. Add line 17, columns (a) through (d)  .   . . . .    . .   . . . .    .    . . .      . .      18             170
For Paperwork Reduction Act Notice, see separate instructions.                   Cat. No. 37802K                        Form 8978 (12-2019) 

Instructions for Form 8978 (Dec. 2021)                            -11-

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                                              unless the form displays a valid OMB        approved under OMB control number 
Paperwork Reduction Act Notice.      We       control number. Books or records relating   1545-0123 and is included in the 
ask for the information on this form to carry to a form or its instructions must be       estimates shown in the instructions for 
out the Internal Revenue laws of the          retained as long as their contents may      their business income tax return.
United States. You are required to give us    become material in the administration of 
the information. We need it to ensure that    any Internal Revenue law. Generally, tax    If you have comments concerning the 
you are complying with these laws and to      returns and return information are          accuracy of these time estimates or 
allow us to figure and collect the right      confidential, as required by section 6103.  suggestions for making this form simpler, 
amount of tax.                                                                            we would be happy to hear from you. See 
You are not required to provide the           The time needed to complete and file        the instructions for the tax return with 
information requested on a form that is       this form will vary depending on individual which this form is filed.
subject to the Paperwork Reduction Act        circumstances. The estimated burden for 
                                              business taxpayers filing this form is 

                                              -12-                                        Instructions for Form 8978 (Dec. 2021)

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