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

(Rev. December 2021)
Amended Return or Administrative Adjustment Request (AAR)

Contents Page partnership tax years beginning after The following representations must be
Reminders . . . . . . . . . . . . . . . . . . . 1 2017. made with regard to the statement at-
Purpose of Form . . . . . . . . . . . . . . . 1 The Tax Equity and Fiscal tached to the election.
Who Must File . . . . . . . . . . . . . . . . 2 Responsibility Act of 1982 (TEFRA) • The partnership is not insolvent and
What To Attach . . . . . . . . . . . . . . . . 2 generally applied to tax years beginning does not reasonably anticipate becoming
Definitions . . . . . . . . . . . . . . . . . . . 3 before 2018. BBA repealed TEFRA and insolvent before resolution of any
Specific Instructions . . . . . . . . . . . . . 4 the electing large partnership (ELP) rules. adjustment with respect to the partnership
Part I. Classification of Filer . . . . . . . . 4 Consequently, former ELPs are now tax year for which the election is being
Part II—Amended or treated as other partnerships under the made.
Administrative Adjustment BBA regime. • The partnership has not voluntarily filed,
and does not reasonably anticipate filing,
Request (AAR) Items for Election into BBA for tax years begin- a petition for relief under title 11 of the
Partnerships Filing Form 1065
Only (ELPs and REMICs Use ning before 2018. A partnership may United States Code.
Part III) . . . . . . . . . . . . . . . . . . 6 make an election into the centralized • The partnership is not subject to, and
Forms 8985 and 8986 . . . . . . . . 7 partnership audit regime for tax years that does not reasonably anticipate becoming
Amended Schedules K-1 . . . . . . 7 begin after November 2, 2015, and before subject to, an involuntary petition for relief
Amended Sch. K-2, K-3, on/ January 1, 2018, by filing an AAR. Refer to under title 11 of the United States Code.
after 1-1-2021 . . . . . . . . . . . 7 Regulations section 301.9100-22 for • The partnership has sufficient assets,
Part III—Amended or detailed information. If the AAR is filed on and reasonably anticipates having
Administrative Adjustment paper, the partnership uses Form 1065-X, sufficient assets, to pay a potential
Request (AAR) Items for Amended Return or Administrative imputed underpayment (IU) with respect
ELPs and REMICs Only . . . . . . . 7 Adjustment Request (AAR), and must to the partnership tax year that may be
Amended Schedules K-1 or make the election in accordance with determined under subchapter C of
Schedules Q . . . . . . . . . . . . 8 section 1101(g)(4) of BBA. chapter 63 of the Internal Revenue Code,
Part IV—Imputed Underpayment Note. An AAR filed with respect to a as amended by BBA.
(IU) Under the Centralized 2018 short tax period return by a • A representation, signed under
Partnership Audit Regime . . . . . . 8 partnership that is subject to the penalties of perjury, that the individual
Figuring the IU . . . . . . . . . . . . . 9 centralized partnership audit regime must signing the statement is duly authorized to
Partnership-Partner meet the requirements under section make the election described in
Amended Return Filed as 6227. Regulations section 301.9100-22 and that,
Part of Modification . . . . . . . 11 to the best of the individual's knowledge
Partnership-Partners Who Making the election for eligible tax and belief, all of the information contained
Are Allocated years on an AAR filed on paper. To in the statement is true, correct, and
Adjustments That Do Not make the election, the partnership must complete.
Result in an IU. . . . . . . . . . . 11 write across the top of Form 1065-X used
Part V—Explanation of Changes to to file the AAR, “Election under Section The statement must be signed and
Items in Part II and Part III . . . . . 11 1101(g)(4)” and attach a statement to the dated by the tax matters partner, as
Section references are to the Internal Revenue AAR. For the statement requirement, the defined under section 6231(a)(7) (prior to
Code unless otherwise noted. partnership can use Form 7036, Election the amendment by BBA), and the
Under Section 1101(g)(4) of the Bipartisan applicable regulations, or an individual
What’s New Budget Act of 2015. If Form 7036 is not who has the authority to sign the
For tax years beginning on or after used, the partnership may prepare its own partnership return for the tax year. The
January 1, 2021, filers of Form 1065-X statement with the following information. fact that an individual dates and signs the
may need to include amended Schedules • The partnership's name, taxpayer statement making the election shall be
K-2 and K-3 (Form 1065). See Amended identification number, and the partnership prima facie evidence that the individual is
Schedules K-2 and K-3 for Tax Years tax year for which the election is being authorized to make the election on behalf
Beginning on or After January 1, 2021, made. of the partnership.
later. • The name, taxpayer identification
number, address, and daytime telephone Note. Unless otherwise noted, references
number of the individual who signs the to sections 6221 through 6241 are to
Future Developments statement. Internal Revenue Code sections, as
For the latest information about • Language indicating that the amended by BBA.
developments related to Form 1065-X and partnership is electing application of
its instructions, such as legislation section 1101(c) of BBA for the partnership Purpose of Form
enacted after they were published, go to return for the eligible tax year. Use Form 1065-X, if you are not filing
IRS.gov/Form1065-X. • The information required to properly electronically, to:
designate the partnership representative, • Correct items on a previously filed Form
Reminders as defined by section 6223, which must 1065, Form 1065-B, or Form 1066;
The Bipartisan Budget Act of 2015 (BBA) include the name, taxpayer identification • Make an AAR for a previously filed
created a new centralized partnership number, address, and daytime telephone Form 1065, Form 1065-B, or Form 1066;
audit regime generally effective for number of the partnership representative. or

Dec 07, 2021 Cat. No. 57876S

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• File an amended return by a                 AAR-Partnerships (except ELPs).              • Within 3 years after the later of the date 
partnership-partner of a BBA partnership      Partnerships that are subject to either BBA  on which the partnership return for that 
as part of the modification process of a      or TEFRA proceedings use Form 1065-X         year is filed, or the last day for filing the 
BBA proceeding with respect to that BBA       to file for an AAR. See Specific             partnership return for that year (excluding 
partnership.                                  Instructions, later, for information on      extensions); and
  Form 1065-X cannot be used to file a        completing Form 1065-X as an AAR.            • In the case of a TEFRA partnership or 
                                                                                           REMIC, before a notice of final partnership 
notice of inconsistent treatment under        Protective TEFRA AARs.  Generally, a         administrative adjustment for that year is 
section 6222 (TEFRA or BBA) or a              protective AAR is a request for credit or    mailed to the TMP or Tax Matters Person, 
partner-level AAR under section 6227(d)       refund based on current litigation or        or, in the case of an ELP, before the 
(under TEFRA proceedings). For a              expected changes in tax law or other         mailing to the partnership of a notice of 
definition of TEFRA proceedings, see          legislation. The tax matters partner (TMP)   partnership administrative adjustment with 
Definitions, later. Continue to use Form      or partner with authority (PWA) files a      respect to that year.
8082, Notice of Inconsistent Treatment or     protective AAR when the right to a refund    • In the case of a BBA partnership, 
Administrative Adjustment Request             is contingent on future events and may not   before a notice of an administrative 
(AAR), to make those changes.                 be determinable until after the period for   proceeding with respect to the tax year is 
Bipartisan Budget Act (BBA).     All          filing an AAR has expired. Protective        mailed under section 6231.
partnerships with tax years beginning after   AARs are subject to AAR statutes set forth   • In the case of a partnership that is a 
2017 are subject to the centralized           in sections 6227, 6228, and 6229 (prior to   partner in a BBA partnership which is filing 
partnership audit regime unless eligible      amendment by BBA). If you are a TMP          an amended return for purposes of BBA 
partnerships elect out by making a valid      filing on behalf of the partnership, the     partnership modification under section 
election under section 6221(b). For           petition period described in section 6228    6225(c)(2), in the time period specified 
purposes of these instructions (unless        (prior to amendment by BBA) can be           under section 6225(c).
otherwise noted), the centralized             extended by using Form 9248, Agreement 
partnership audit regime proceedings          to Extend the Time to File a Petition for    What To Attach
under sections 6221 through 6241 will be      Adjustment by the Tax Matters Partner 
referred to as “BBA proceedings.”             With Respect to Partnership Items. A         If the corrected amount involves an item 
                                              protective AAR must clearly state that it is that must be supported with a schedule, 
  If you are a nonTEFRA partnership           a protective AAR, alert the IRS to the       statement, or form, attach the appropriate 
(see Definitions and items B and C in Part    essential nature of the adjustment, and      schedule, statement, or form to Form 
I, Section 1, later) or a nonBBA              specify the line item to be protected.       1065-X. Include the entity's name and 
partnership (defined under Definitions,                                                    employer identification number (EIN) on 
later) filing an amended return               AAR under BBA.      File Form 1065-X if you  any attachments. See the Instructions for 
electronically, use Form 1065 and see the     are the partnership representative or        Form 1065, 1065-B, or 1066 (as 
related instructions. If you are not filing   designated individual requesting an          applicable) for a list of forms that may be 
electronically, use Form 1065-X.              administrative adjustment to correct a       required.
  Form 1065-X should only be used to          previously filed partnership return on 
make a paper filing. For electronic filing,   behalf of the BBA partnership.                 If the attachments needed to support 
                                                                                           the corrected amount include copies of 
use Form 8082 in conjunction with Form        AAR-ELPs.   Electing large partnerships      forms or schedules from previously filed 
1065 or 1065-B, as applicable.                (ELPs) that are not required to              tax returns, write at the top of each 
  Generally, the criteria used to             electronically file Form 1065-B and need     previously filed form or schedule, “Copy 
determine whether the original Form 1065      to correct errors on a previously filed Form Only—Do Not Process.”
or Form 1065-B is required to be filed        1065-B use Form 1065-X to file for an 
electronically are also used to determine if  AAR. See Specific Instructions, later, for     A BBA partnership must attach a 
the amended return or AAR must be filed       information on completing Form 1065-X        schedule to Form 1065-X that supports 
electronically.                               as an AAR.                                   the position(s) reported. If the partnership 
                                                                                           does not make the election under section 
  For information regarding when Form         AAR-REMICs.      REMICs that do not meet     6227(b)(2) to have the adjustments taken 
1065 is required to be filed electronically,  the small REMIC exception under sections     into account by the reviewed year partners 
and how to electronically file an amended     860F(e) and 6231 (prior to amendment by      and would like to modify per section 
return or AAR for a partnership, see the      BBA), and related regulations, or make the   6227(b)(1), it must attach Form 8980, 
Instructions for Form 1065.                   election described in section 6231(a)(1)     Partnership Request for Modification of 
  For information regarding when Form         (B)(ii) (prior to amendment by BBA) not to   Imputed Underpayments Under IRC 
1065-B is required to be filed                be treated as a small REMIC, use Form        Section 6225(c), to support any 
electronically, and how to file an AAR for    1065-X to file for an AAR. See Specific      modifications made to the IU, as 
an electing large partnership, see the        Instructions, later, for information on      described in sections 6225(b) and 
Instructions for Form 1065-B.                 completing Form 1065-X as an AAR.            6225(c), and as applied to a BBA AAR 
                                                  When a partnership's or REMIC's          under section 6227(b)(1). See 
Who Must File                                 TIP federal return is changed for any        Modifications to an Imputed 
                                                  reason, it may affect its state          Underpayment Included in an 
Amended return. Partnerships and real         return. For more information, contact the    Administrative Adjustment Request in the 
estate mortgage investment conduits           state tax agency with which the state        Instructions for Form 8980, (Pub. 5346).
(REMICs) that become aware of incorrect       return is filed.                               In addition, if the ELP or REMIC 
items of income, deductions, etc., use 
Form 1065-X to correct their previously                                                    requests that the IRS electronically 
filed partnership or REMIC return. See        When To File                                 deposit a refund of $1 million or more, 
Specific Instructions, later, for information Generally, a pass-through entity may file    attach Form 8302, Electronic Deposit of 
on completing Form 1065-X as an               an amended return or AAR to change           Tax Refund of $1 Million or More.
amended return.                               items on its return:

                                                                  -2-                  Instructions for Form 1065-X (Rev. Dec. 2021)

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Who Must Sign                                designate any one of those 10 days as the    exclusive authority to make the 
                                             startup day. The day so designated is then   management decisions necessary to 
NonTEFRA and nonBBA partnerships.            the startup day, and all interests are       conduct the business for which the LLC 
Any partner or limited liability company     treated as issued on that day.               was formed. If there are no elected or 
(LLC) member must sign the return. Form                                                   designated member-managers, each 
1065-X is not considered to be a return      Where To File                                owner is treated as a member-manager. 
unless it is signed. When a return is made                                                For details, see Regulations section 
                                             Form 1065-X must be filed with the 
for a partnership by a receiver, trustee, or                                              301.6231(a)(7)-2.
                                             service center where the original return 
assignee, the fiduciary must sign the 
                                             was filed.
return instead of the partner or LLC                                                      BBA partnership. A partnership that is 
member. Returns and forms signed by a                                                     subject to the centralized partnership audit 
receiver or trustee in bankruptcy on behalf  Definitions                                  regime is a “BBA partnership.” All 
                                                                                          partnerships with tax years beginning after 
of a partnership must be accompanied by      TEFRA partnership.   The consolidated        2017 are BBA partnerships unless they 
a copy of the order or instructions of the   audit proceedings of sections 6221           make a valid election out of the centralized 
court authorizing the signing of the return  through 6234 (prior to amendment by          partnership audit regime. A partner in a 
or form.                                     BBA) are “TEFRA proceedings” and             BBA partnership is a “BBA partner.” An 
BBA partnerships.   The partnership          partnerships that are subject to TEFRA       AAR filed by a BBA partnership is a “BBA 
representative (PR) or designated            proceedings are “TEFRA partnerships.”        AAR” and must be filed by the PR.
individual, if applicable, must sign the     An AAR filed by the TMP of the TEFRA 
Form 1065-X. See Partnership                 partnership is a TEFRA AAR. Any partner      Partnership representative (PR).       If the 
representative (PR) below for the            in a TEFRA partnership may file an AAR       partnership is subject to the centralized 
definition of a PR.                          using Form 8082. TEFRA proceedings will      partnership audit regime, section 6223 
                                             not apply to partnerships with tax years     provides that the partnership must 
TEFRA partnerships. The TMP must             beginning after 2017. A partnership with a   designate a partner or other person with a 
sign the Form 1065-X. See Tax matters        tax year beginning before 2018 that is not   substantial presence in the United States 
partner (TMP) below for the definition of a  subject to TEFRA proceedings is a            as the PR who shall have the sole 
TMP.                                         “nonTEFRA partnership.”                      authority to act on behalf of the 
                                                                                          partnership. If the PR is an entity, the 
ELPs. The PWA must sign the Form             Pass-through entity.  A partnership          partnership must also appoint a 
1065-X. See Partner with authority (PWA)     (including an ELP), S corporation, estate,   designated individual (DI) to act on behalf 
below for the definition of a PWA.           trust, or REMIC.                             of the entity PR. The partnership and all 
REMICs with a startup day after No-          Item.  Any item of a partnership, S          partners are bound by the actions of the 
vember 9, 1988. For these REMICs,            corporation, estate, trust, or REMIC         PR in dealings with the IRS under BBA.
Form 1065-X may be signed by any             required to be taken into account for the    Partner with authority (PWA).      Each 
person who could sign the return of the      pass-through entity's tax year by the        ELP must designate a partner (or other 
entity in the absence of the REMIC           partners, shareholders, beneficiaries,       person) as the PWA who shall have the 
election. Thus, the return of a REMIC that   owners, or residual interest holders of that sole authority to act on behalf of the 
is a corporation or trust would be signed    pass-through entity.                         partnership. See section 6255(b)(1) (prior 
by a corporate officer or a trustee, 
respectively. For REMICs with only           Tax matters partner (TMP).     If the        to amendment by BBA). If the partnership 
segregated pools of assets, the return       partnership is subject to the TEFRA          fails to designate a PWA, the IRS can 
would be signed by any person who could      procedures, it can designate a partner as    select any partner to serve as the partner 
sign the return of the entity owning the     the TMP for the tax year for which the       with such authority. The PWA has the 
assets of the REMIC under applicable         return is filed. The TMP is a general        authority to file an AAR on behalf of the 
state law.                                   partner (in most cases, the TMP must also    partnership. The PWA does this by filing 
                                             be a U.S. person) designated by the          Form 1065-X.
REMICs with a startup day before No-         partnership to represent the partners in     NonBBA partnership. Under the BBA, 
vember 10, 1988.    These REMICs may         the consolidated audit and litigation        certain partnerships with 100 or fewer 
elect to apply the rules for REMICs with a   proceedings under sections 6221 through      eligible partners for the tax year can elect 
startup day after November 9, 1988 (as       6234 prior to amendment by BBA               out of the centralized partnership audit 
described in Regulations section             (“TEFRA proceedings”). The designation       regime. Additional details regarding the 
1.860F-4(c)(2)(iii)). Otherwise, Form 1066   is made by completing the Designation of     election out of the centralized partnership 
must be signed by a residual interest        Tax Matters Partner section of Form 1065     audit regime can be found in the 
holder or, as provided in section 6903, by   used for tax years beginning before 2018.    Instructions for Form 1065. A partnership 
a fiduciary, as defined in section 7701(a)   Additionally, a REMIC may designate a        that elects out of the centralized 
(6), who is acting for the REMIC and who     tax matters person in the same manner in     partnership audit regime is a “nonBBA 
has furnished adequate notice, as            which a partnership may designate a TMP      partnership.”
described in Regulations section             under Regulations section 301.6231(a) 
301.6903-1(b).                               (7)-1. When applying that section, treat all Partnership-related item (PRI).    For 
In the prior paragraph, the term “startup    holders of a residual interest in the REMIC  BBA partnerships, under section 6241(2)
day” means any day selected by a REMIC       as general partners. The designation may     (B), a partnership-related item is any item 
that is on or before the first day on which  be made by completing the Designation of     or amount with respect to the partnership 
interests in such REMIC are issued.          Tax Matters Person section of Form 1066      that is relevant in determining the income 
Otherwise, startup day is the day on which   for tax years beginning before 2018.         tax liability of any person, without regard to 
the REMIC issued all of its regular and      For an LLC, a member of the LLC is           whether the item or amount appears on 
residual interests. However, a sponsor       treated as a partner and a                   the partnership's return. This includes an 
may contribute property to a REMIC in        member-manager is treated as a general       IU and an item or amount relating to any 
exchange for regular and residual            partner. A member-manager is any owner       transaction with, basis in, or liability of the 
interests over any period of 10              of an interest in the LLC who, alone or      partnership.
consecutive days and the REMIC may           together with others, has continuing 

Instructions for Form 1065-X (Rev. Dec. 2021)                   -3-

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Adjustment year. For BBA partnerships, Note. A paid preparer may sign original or under section 6226(b)(2)), until the date of
the adjustment year is the partnership tax amended returns by rubber stamp, payment; and
year in which: mechanical device, or computer software • At the section 6621(a)(2)
• In the case of an adjustment pursuant program. underpayment rate.
to the decision of a court in a proceeding Judicial review of an AAR (for returns
brought under section 6234, such decision Interest and Penalties subject to the TEFRA procedures or
becomes final; Interest. Generally, interest is charged on ELPs). If the IRS fails to act on an AAR,
• In the case of an AAR under section taxes not paid by the due date, even if an the TMP or PWA may file a petition for
6227, such AAR is filed; or extension of time to file is granted. Interest judicial review with the U.S. Tax Court,
• In any other case, a notice of final is also charged on penalties imposed for U.S. Court of Federal Claims, or U.S.
partnership adjustment is mailed under negligence, fraud, substantial valuation District Court. The TMP or PWA must file
section 6231 or, if the partnership waives misstatements, substantial the petition before the date that is 2 years
the restrictions under section 6232(b) understatements of tax, and reportable after the date the TMP or PWA filed the
(regarding limitations on assessments), transaction understatements. The interest AAR, but not until after the date that is 6
the waiver is executed by the IRS. is charged from the due date (including months from the date of such filing. The
Reviewed year. For BBA partnerships, extensions) to the date of payment. The 2-year period may be extended if the IRS
the reviewed year is the partnership’s tax interest charge is figured at a rate and the TMP or PWA agree in writing. For
year to which a partnership adjustment determined under section 6621. more details, see sections 6228 (prior to
amendment by BBA) and 6252.
relates. Late payment penalty. The penalty for
Reviewed year pass-through partner. not paying the tax when due is usually /1 2
For purposes of these instructions, under of 1% of the unpaid tax for each month or Specific Instructions
the BBA, a reviewed year pass-through part of a month that the tax remains If, after reading the instructions, you are
partner is a pass-through entity that held unpaid. The penalty cannot exceed 25% unable to complete an item in Part I or Part
an interest in a BBA partnership at any of the unpaid tax. II, enter “See Part V” in the entry space for
that item and provide the information
time during the reviewed year, which is the Other penalties. Penalties can also be there.
partnership tax year to which the imposed for negligence, substantial
partnership adjustment relates. For understatements of tax, reportable Name and Identifying Number
example, if the BBA AAR is filed to make transaction understatements, and fraud. Print or type the legal name of the entity
an adjustment to income for the 2021 tax See sections 6662, 6662A, and 6663. and identifying number on the appropriate
year, 2021 is the reviewed year. lines. Include the suite, room, or other unit
Interest and penalties applicable to IU.
Schedule K-1. Schedule K-1 is the Except when the partnership elects to number after the street address. If the
annual schedule reporting the partner's, have its partners take into account the Post Office does not deliver mail to the
shareholder's, or beneficiary's share of adjustments, BBA partnership interest and street address and the entity has a P.O.
income, deductions, credits, etc., from a penalties are the following. box, show the box number instead.
domestic trust. •
partnership, S corporation, estate, or The interest figured with respect to any If the entity receives its mail in care of a
IU is the interest which would be third party (such as an accountant or
Schedule Q. Schedule Q is the quarterly determined under chapter 67 for the attorney), enter on the street address line
schedule reporting the residual interest period beginning on the day after the “C/O” followed by the third party's name
holder's share of taxable income or net return due date for the reviewed year and and street address or P.O. box.
loss from the REMIC. ending on the return due date for the
adjustment year, as defined under section If the entity's address is outside the
Paid Preparer's 6225(d)(2) or, if earlier, the date the IU is United States, or its possessions or
paid. territories, enter the information on the line
Information • Any penalty, addition to tax, or for “City or town, state, and ZIP code” in
If a partner or an employee of the additional amount shall be determined at the following order: city, province or state,
partnership or REMIC completes Form the partnership level and is applied as if and foreign country. Follow the foreign
1065-X, the “Paid Preparer Use Only” such BBA partnership had been an country's practice in placing the postal
space should remain blank. In addition, individual subject to tax under chapter 1 code in the address. Do not abbreviate the
anyone who prepares Form 1065-X but for the reviewed year and the IU were an country name.
does not charge the partnership or REMIC actual underpayment (or understatement)
should not complete this section. for such year for purposes of part II of Part I. Check the
Generally, anyone who is paid to subchapter A or chapter 68. Appropriate Box
prepare Form 1065-X must do the Election to apply the alternative to An AAR can be filed by a partnership
following. payment of the IU. If the partners must subject to TEFRA proceedings (TEFRA
• Sign the return in the space provided take into account the adjustments AAR), a partnership subject to BBA
for the preparer's signature. because the BBA partnership filed an AAR proceedings (BBA AAR), an ELP, and a
• Fill in the other blanks in the “Paid and there are adjustments that do not REMIC.
Preparer Use Only” area of the return. A result in an IU, or if a BBA partnership
paid preparer cannot use a social security elects the alternative to payment of the IU If you are a BBA partnership that has
number in the “Paid Preparer Use Only” under sections 6227(b)(2) and 6226(c), received a notice of administrative
box. The paid preparer must use a interest shall be determined: proceeding, you may not file an AAR.
preparer tax identification number (PTIN). • At the partner level; Also, a partner may not file an AAR on
• Give the partnership or REMIC a copy • From the due date of the return for the behalf of the BBA partnership in which it is
of the return in addition to the copy to be tax year to which the increase is a partner unless doing so in its capacity as
filed with the IRS. attributable (determined by taking into the PR for that partnership.
account any increases attributable to a An AAR can also be filed by the
change in tax attributes for a tax year following partners.

-4- Instructions for Form 1065-X (Rev. Dec. 2021)

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• Partners of a TEFRA partnership,         Section 1—TEFRA/NonTEFRA                       • Another partnership.
• Residual interest holders,                                                              • An LLC which files as a partnership or 
                                           Determination
• Partnerships (but only for purposes of                                                  is treated as a disregarded entity.
providing notice of inconsistent treatment Item A                                         • Any type of trust, including a grantor 
with the AAR.) See Regulations section     If the answer to item A is “Yes,” the          trust.
301.6227-1(a), referring to Regulations    partnership return is not subject to the       • A nominee.
section 301.6222-1.                        TEFRA proceedings. You should proceed          • A nonresident alien.
See Part II below.                         to item E and check the “Not subject to        • An S corporation.
For partnership tax years beginning        TEFRA” box.
before January 1, 2018 (unless elect-                                                     Table for Determining Which Box To Check in 
ing into BBA).                             Items B Through E                                                 Item E
                                           These items are used to determine if the       IF in item... The box THEN in item E, 
  TEFRA AAR.   The consolidated audit      partnership is subject to the rules for                      checked check...
proceedings of sections 6221 through       consolidated audit procedures (TEFRA                         is...
6234 (prior to amendment by BBA) are       procedures).                                   B             No      Subject to TEFRA.
“TEFRA proceedings” and partnerships 
that are subject to TEFRA proceedings      Consolidated REMIC proceedings.                C             No      Subject to TEFRA.
are “TEFRA partnerships.” An AAR filed     Generally, the tax treatment of REMIC          D             Yes     Subject to TEFRA.
by the TMP of the TEFRA partnership is a   items is determined at the REMIC level in 
TEFRA AAR. Form 8082 is also used by       a consolidated REMIC proceeding, rather        B and C       Yes     Not subject to TEFRA.
any partner in a TEFRA partnership filing  than in separate proceedings with              D             No      Not subject to TEFRA.
an AAR. TEFRA proceedings will not         individual residual interest holders. A 
apply to partnerships with tax years       REMIC subject to consolidated REMIC 
beginning after 2017. A partnership with a procedures will have checked the box on 
tax year beginning before 2018 that is not item G on page 3 of its original Form 1066.    Item F
                                                                                          Check the box to indicate whether you are 
subject to TEFRA proceedings is a          Items B and C                                  filing an amended return or an AAR.
“nonTEFRA partnership.”
                                           All partnerships with tax years beginning      Amended Return.      Check this box if you 
  ELP AAR.  The ELP procedures were        before 2018 (except ELPs) and REMICs           checked the “Not subject to TEFRA” box 
repealed for tax years beginning after     ARE subject to TEFRA partnership audit         in item E, and you are not an ELP. This 
2017. However, ELPs filing a non-e-filed   procedures unless the partnership or           means that you are filing a request to 
AAR for a tax year that began before 2018  REMIC is subject to the small partnership      correct a previously filed nonTEFRA 
will use Form 1065-X.                      exception. See section 6231(a)(1)(B)           partnership return or REMIC return.
For partnership tax years beginning        (prior to amendment by BBA).
                                                                                            If your partnership or REMIC return 
after 2017 and partnerships electing       A small partnership is a partnership           meets the exception under section 
into BBA for tax years beginning after     with 10 or fewer partners at all times         860F(e) or section 6231 (prior to 
November 2, 2015, and before January       during the year. All partners must be U.S.     amendment by BBA), and does not file an 
1, 2018.                                   individuals and their estates; resident alien  election to be treated as a TEFRA 
  BBA AAR.  All partnerships with tax      individuals; or C corporations.                partnership under section 6231(a)(1)(B)(ii) 
years beginning after 2017 are subject to                                                 (prior to amendment by BBA), and related 
the centralized partnership audit regime   Note. For making the small partnership         regulations, and you received a corrected 
unless an eligible partnership makes a     determination, a husband and wife each         Form 1099 or are making changes to 
valid election under section 6221(b) to    having their own partnership interest are      income, deductions, or credits, but there 
elect out of the centralized partnership   considered one partner. An individual who      are no flow-through changes from a 
audit regime. Partnerships electing into   has passed away during the year and their      TEFRA partnership, then you are filing an 
BBA for tax years beginning after          estate are considered one partner.             amended return. Check the “Amended 
November 2, 2015, and before January 1,    Item D                                         Return” box.
2018, are also subject to the centralized  A partnership defined as a small               Administrative Adjustment Request 
partnership audit regime. Partnerships     partnership can elect to be treated as a       (AAR). Check this box if you are filing a 
that are subject to the centralized        TEFRA partnership for tax years                request to correct a previously filed 
partnership audit procedures of sections   beginning before 2018. The partnership         partnership or REMIC return and you are 
6221 through 6241 are “BBA                 elects TEFRA treatment by attaching a          one of the following.
partnerships.” A partnership with a tax    statement to the tax return for the first year • The TMP of the TEFRA partnership or 
year beginning after 2017 that is not      they wish the election to be effective. This   REMIC. The REMIC must be subject to 
subject to BBA proceedings because it      statement must be signed by all partners.      consolidated REMIC proceedings. For 
has made a valid election under section    See Regulations section 301.6231(a)            more information on consolidated REMIC 
6221(b) is a nonBBA partnership. An AAR    (1)-1(b). Form 8893, Election of               proceedings, see the Instructions for Form 
filed by a BBA partnership is a BBA AAR.   Partnership Level Tax Treatment, is the        1066.
  Partnership-partner amended              statement that can be used to make this        • An ELP correcting a previously filed 
return related to modification of          election. If you answer “Yes” to item D,       return.
another partnership’s IU.    If a partner  also enter the tax year of the filing of this 
that is itself a partnership               election in the space provided.                Item G
(partnership-partner) is filing an amended                                                A substituted return requests that the 
return as part of modification of the IU   Item E                                         treatment of an item shown on the AAR be 
under section 6225(c)(2), check this box.  If, at any time during the tax year, there     substituted for the treatment of the item on 
                                           are more than 10 partners or any of the        the pass-through entity's return. If the IRS 
                                           following are partners in the partnership,     allows substituted return treatment, the 
                                           then the partnership is not a small            changes shown on the amended return 
                                           partnership.                                   will be treated as corrections of 

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mathematical or clerical errors, and the the IU. See section 6226(a)(2) for details. Section 3—Partnership-Partner
IRS may assess any resulting tax to the If this valid election is made, the
Amended Return Filed as Part
partners or residual interest holders partnership is no longer liable for the IU,
without a deficiency or entity level and no payment from the partnership is to of Modification of the Imputed
proceeding. In this case, partners or be made for the IU. If the adjustments Underpayment (IU) During a
residual interest holders may file amended contained in the BBA AAR do not result in BBA Audit
returns requesting refunds. See section a positive IU or the BBA partnership
6227(c)(1) (prior to amendment by BBA). makes a valid election under section Section 6225(c)(2) allows a BBA
6227(b)(2), the partnership must furnish to partnership under examination to request
If the request is not treated as a each partner of the partnership for the specific types of modifications of an IU
substituted return, the partners or residual reviewed year a Form 8986, Partner’s proposed by the IRS. One type of
interest holders may file amended returns Share of Adjustment(s) to modification applies when a partner or
requesting refunds. The IRS may conduct Partnership-Related Item(s), reflecting the indirect partner, including
an examination of the pass-through partner’s share of the adjustments. The partnership-partners, file an amended
entity's return, or take no action on the partnership is also required to file with the return for the tax year of the partner which
request. When a request is not treated as AAR all Forms 8986 furnished to partners includes the end of the reviewed year of
a substituted return, the IRS cannot and Form 8985, Pass-Through the BBA partnership under examination.
assess tax without a deficiency or entity Statement—Transmittal/Partnership See Part I of Form 8980 and the related
level proceeding. See section 6227(c)(2) Adjustment Tracking Report. See the instructions.
(prior to amendment by BBA). instructions for these forms for further A BBA partnership under examination
ELPs. An ELP cannot request substituted information. will be assigned a unique audit control
treatment. See section 6251(b) (prior to number. A partnership-partner using a
amendment by BBA). Item D Form 1065-X to file an amended return as
Each reviewed year partner is required to part of a modification under section
Section 2—BBA AAR take into account its share of adjustments 6225(c)(2), must include in Section 3 of
requested in a BBA AAR if the partnership Form 1065-X, the name, EIN, reviewed
Item A adjustments result in an IU and the year, and audit control number of the BBA
If the "Yes" box is checked, complete partnership makes the alternative to partnership under examination to which
Form 8979 and attach it to the AAR. See payment election discussed under Item C, the amended return relates. In addition, if
the Instructions for Form 8979, earlier. Additionally, each reviewed year the partnership-partner should not furnish
Partnership Representative Revocation, partner is required to take into account its amended Schedule K-1s to its partners,
Designation, and Resignation for more share of any adjustments requested in a but instead must pay an amount
information. BBA AAR that do not result in an IU. The computed like an IU on the adjustments
Note: If you are a BBA partnership, you determination of whether or not an allocable to it, plus any penalties and
may not file an AAR solely for the purpose adjustment results in an IU amount is interest, see Part IV Imputed
of changing the PR. discussed in Item B, earlier. Underpayment Under the Centralized
The partnership is required to furnish Partnership Audit Regime, for payment
Item B each reviewed year partner with a Form instructions.
BBA partnerships filing an AAR will need 8986 with its share of the BBA AAR
to determine if the partnership adjustments. The partnership Part II—Amended or
adjustments result in an IU. See Figuring representative must attest to the Administrative Adjustment
the Imputed Underpayment (IU) below, for partnership’s compliance with this
information as to how to figure the imputed requirement. The PR will sign the Form Request (AAR) Items for
underpayment. The BBA partnership 1065-X under item D to declare, under Partnerships Filing Form
should consider all available guidance penalties of perjury, that all statements 1065 Only (ELPs and
issued by the IRS in making a have been provided to the reviewed year
determination of whether or not the AAR partners, as required by these REMICs Use Part III)
results in an IU. Also, see Part IV Imputed instructions. For information on income, deductions,
Underpayment Under the Centralized credits, etc., see the instructions for Form
Partnership Audit Regime below, for Item E 1065, Schedules K and K-1, for the tax
discussion of the imputed underpayment. Under section 6227(b)(1), the partnership year being amended or otherwise
may modify the IU resulting from adjusted. See the Instructions for Form
Note. An IU calculation must always be adjustments reported in a BBA AAR in 1065 for a list of forms that may be
made and presented on the AAR even if accordance with the provisions under required.
that IU results in a zero or less than zero or section 6225(c), disregarding the TEFRA partnerships filing AARs. A
the adjustments do not result in an IU. For provisions under paragraphs (2), (7), and TEFRA partnership filing an AAR to
additional information, see Figuring the (9). Any modification made to the IU under change items that were reported on its
Imputed Underpayment (IU). section 6227(b)(1) must be disclosed and original return must do the following.
Item C fully explained on Form 8980, Partnership
Request for Modification of Imputed 1. Determine the required changes to
If the adjustments contained in the BBA Underpayments Under IRC Section be made.
AAR result in a positive IU, the partnership 6225(c), included with the AAR. 2. Complete Form 1065-X to identify
generally takes the adjustments into the changes being made.
account and pays the IU at the time that Note. If the partnership makes an election a. On Form 1065-X, check the
the AAR is filed. However, under section to push out the adjustments to the
“TEFRA AAR” box under Part I.
6227(b)(2), the partnership can elect to partners as an alternative to payment of b. See below for how to complete
have its reviewed year partners take the the IU, the modifications to the IU are
columns (a) through (c) of Part II.
adjustments into account. This is an disregarded and are not included on the
election to push out the adjustments to the statements provided to the partners. 3. Complete Form 1065-X.
partners as an alternative to payment of

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

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paying tax on any IU that results from the additional overpayment of tax, also instructions for reporting amounts not
adjustment. If the partnership elects to pay include that amount on line 14. included in the IU.
the tax, enter it on Part III, line 16. Attach a
Line 16. If the ELP or REMIC does not
computation of the tax to Form 1065-X. The partnership may elect under
use electronic fund transfers, including the section 6227(b)(2) to have the reviewed
In either case, the partnership is liable Electronic Federal Tax Payment System year partners take into account,
for any interest and penalties on IUs that (EFTPS), enclose a check with this form. adjustments resulting in an IU. If the
result from the adjustment. See section Make the check payable to “United States partnership makes the election, the
6242(b) (prior to amendment by BBA) for Treasury.” partnership is not liable for, nor required to
details. Interest is figured on the IU for the Line 17. If the ELP or REMIC is entitled to pay, the IU related to the adjustments.
period beginning on the day after the due a refund larger than the amount claimed Additionally, if the IU calculation results in
date (excluding extensions) of the on the original return, line 17 will show an amount that is zero or less than zero, or
partnership return for the tax year the only the additional amount of the adjustments do not result in an IU,
adjustment takes effect, or, if earlier, the overpayment. This additional amount will then all adjustments are taken into
date the partnership paid the tax due be refunded separately from the amount account by the reviewed year partners.
under (2) above. The adjusted year is the claimed on the original return. The IRS will However, the partnership may have
partnership tax year in which the item figure any interest due and include it in the withholding and reporting obligations
being adjusted arose. refund. under chapter 3 or chapter 4 with respect
to the adjustments taken into account by
ELPs and REMICs. Identify in Part III of
Form 1065-X the amount and treatment of Amended Schedules K-1 or the reviewed year foreign partners. See
any item the partnership or REMIC is Schedules Q the Instructions for Form 8985 and Form
8986.
changing from the way it was reported on If the ELP or REMIC is filing Form 1065-X
the original return. for an AAR, do not furnish the amended If the partnership elects under section
Column (a). Enter a description of the Schedules K-1 or Schedules Q to the 6227(b)(2) to have its reviewed year
item that the partnership or REMIC is partners or residual interest holders. If the partners take all the adjustments into
adjusting or amending. REMIC is not filing for an AAR and is not account, all modifications by the
subject to the rules for consolidated audit partnership (that would have been allowed
Column (b). Enter the amounts from the proceedings under sections 6221 through had the partnership paid an IU) are not
ELP's or REMIC's return as originally filed 6231 (prior to amendment by BBA), the allowed and disregarded.
or as it was later adjusted. If the return REMIC must furnish the amended
was changed or audited by the IRS, enter Schedules Q to its residual interest The partnership must always include
the amounts as adjusted. holders. an IU calculation, irrespective of whether
the IU is zero (or less than zero or the
Column (c). Enter the net increase or net adjustments don’t result in an IU) or the
decrease for each line being changed. Part IV—Imputed partnership elects under section 6227(b)
Use parentheses around all amounts that Underpayment (IU) Under (2) to have its reviewed year partners take
are decreases. Explain the increase or all the adjustments into account.
decrease in Part V. the Centralized
Partnership Audit Regime Under section 6227(b)(1), the
Column (d). Enter the correct amount. partnership may modify the IU resulting
This will be the sum of column (b) and BBA AARs must always include a
column (c). computation of the IU (even when the IU is from adjustments reported in a BBA AAR
zero or less than zero or the adjustments in accordance with the provisions under
Line 6. Show any increase or decrease to do not result in an IU) as determined section 6225(c), disregarding the
the ELP's tax or other payments. under section 6225(b). Where the provisions under section 6225(c)(2), (7),
Line 10. Enter total tax as follows. adjustments do not result in an IU, the IU and (9). Any modification made to the IU
should be shown as zero. Documentation under section 6227(b)(1) must be
ELPs. Enter the line 6 amounts on should be included with the AAR that disclosed and fully explained in
line 10. supports the computation of the IU documentation included with the AAR.
amount. If the resulting IU amount is zero If modifications are applied to the IU,
REMICs. Add the amounts on lines 7 or less than zero or the adjustments do not complete and attach Form 8980 and
through 9 and enter the total for each result in an IU, or if the partnership is report the modified IU amount in Part IV,
column on line 10. making an election under section 6227(b) line 1. See Part I, Section 2, Item E,
Line 11. Enter the amount of tax (2) to have the adjustments taken into earlier, for more information on
deposited with Form 7004, Application for account by the reviewed year partners, modification.
Automatic Extension of Time To File line 1 of Part IV should be shown as zero.
Certain Business Income Tax, Information, Otherwise, the IU amount should be The applicability of interest and
and Other Returns. reported on line 1 of Part IV. penalties is discussed under Interest and
penalties applicable to IU. The BBA AAR
Line 14. Enter the amount from the If the adjustments requested in the may include a prepayment for interest and
“Overpayment” line of the original return, AAR result in an IU, generally the penalties. If making such prepayments,
even if the ELP or REMIC chose to credit partnership takes the adjustments into the AAR should include documentation
all or part of this amount to the next year's account and must pay the IU. Adjustments that supports the calculations. A payment
estimated tax. This amount must be requested in the AAR that result in a zero made with Form 1065-X should detail the
considered in preparing Form 1065-X IU (or less than zero or the adjustments do portion of the payment that is for the IU,
because any refund due from the original not result in an IU) must be taken into the portion that is for prepaid estimated
return will be refunded separately from account by each reviewed year partner as interest, and the portion that is for prepaid
any additional refund claimed on Form if the partnership had made an election estimated penalties. The total of all three
1065-X. If the original return was changed under section 6227(b)(2), but only with should be reflected on line 2 of Part IV.
by the IRS and the result was an regard to those adjustments that do not
result in an IU. In this instance, see Forms Under section 6232(a)(2), partnerships
8985 and 8986 and their related filing a BBA AAR that have adjustments

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that result in an IU, and do not elect the any alpha codes related to a Schedule K-1 IU. The first three steps focus on grouping,
alternative to payment of the IU (by not line item. subgrouping, and netting.
electing to push out the adjustments to the
reviewed year partners), must pay the IU, Negative adjustment. A negative
which should be shown on line 2 in Part IV adjustment is any adjustment that is a Steps in Figuring the IU
of Form 1065-X at the time of filing the decrease in an item of gain or income, an
AAR. Information to include on the increase in item of loss or deduction, or an
payment made by check is the name of increase in an item of credit or creditable Step 1—Grouping
the partnership, “Form 1065,” the taxpayer expenditure. Place each adjustment into one of four
groupings: reallocation, credit, creditable
identification number of the partnership, Positive adjustment. A positive expenditure, and residual groupings.
the tax year, and “BBA AAR Imputed adjustment is any adjustment that is not a
Underpayment.” Checks must be payable negative adjustment. Reallocation grouping. A
to “United States Treasury” and included reallocation adjustment generally consists
with the BBA AAR. If making an electronic Net positive adjustment. An amount of at least two adjustments, one positive
payment, choose the payment description that is greater than zero which results from and one negative, with each in a separate
“BBA AAR Imputed Underpayment” from netting adjustments within a grouping or subgrouping.
the list of payment types. The payment subgrouping. A net positive adjustment • One part of the reallocation adjustment
amount, including any prepaid estimated includes a positive adjustment that was reverses the effect of the improper
interest and penalties, should be reported not netted with any other adjustment. A allocation of a PRI.
in Part IV, line 3. net positive adjustment includes a net • The other part of the adjustment makes
decrease in an item of credit (or creditable the proper allocation of the PRI.
Figuring the Imputed expenditure). • Under the AAR rules, if one of the
Underpayment (IU) Net negative adjustment. Any reallocation adjustments is negative, such
amount which results from netting negative adjustment must be pushed out
Definitions adjustments within a grouping or to the proper partner(s).
subgrouping that is not a net positive Do not net reallocation
Reallocation grouping. In general, adjustment. A net negative adjustment ! adjustments. As each part of a
any adjustment that allocates or includes a negative adjustment that was CAUTION reallocation adjustment is placed
reallocates a partnership-related item not netted with any other adjustment. in a separate subgrouping within the
(PRI) to and from a partner or partners is a reallocation grouping, those adjustments
reallocation adjustment, except for an Total netted partnership
adjustment to a credit or to a creditable adjustments (TNPA). The sum of all net cannot be netted in accordance with the
expenditure. Each reallocation adjustment positive adjustments in the reallocation netting rules.
generally results in at least two separate grouping and the residual grouping. Example. $100 of ordinary income is
adjustments, each of which becomes a Adjustments not resulting in an IU. being reallocated from Partner A to
separate subgrouping. If, after grouping, subgrouping, and Partner B. For purposes of figuring the IU,
Credit grouping. Any adjustment to a netting, the amount in any grouping or there will be two adjustments, each in a
PRI that is reported or could be reported subgrouping is a net negative or the separate subgrouping: a negative
by a partnership as a credit on the calculation of the IU is zero or less than adjustment of $100 (reversing improper
partnership’s return, including a zero, then the adjustments in those net allocation to Partner A) and a positive
reallocation adjustment to such PRI, is negative groups or in the calculation of the adjustment of $100 (making proper
placed in the credit grouping. IU are adjustments that do not result in an allocation to Partner B). These two
IU. Any adjustments that do not result in adjustments cannot be netted. As a result,
Creditable expenditure grouping. an IU are taken into account by the the total net positive adjustment in the
Any adjustment to a PRI where any reviewed year partners in accordance with reallocation grouping is $100 and will be
person could take the item that is adjusted Regulations section 301.6227-3. included in the TNPA.
(or item as adjusted if the item was not
Credit grouping.
originally reported by the partnership) as a Formula for Figuring the IU • Generally, a decrease in credits is
credit, including a reallocation adjustment
treated as a positive adjustment, and an
to a creditable expenditure, is placed in
the creditable expenditure grouping. Figuring the IU increase in credits is treated as a negative
adjustment.
Residual grouping. Any adjustment TNPA x rate* = • A reallocation adjustment relating to the
to a PRI that doesn’t belong in the + Sum of net positive credit grouping is placed into two separate
reallocation, credit, or creditable adjustments to subgroupings and will not be netted
expenditure grouping is placed in the creditable expenditure together nor will they be netted with other
residual grouping. This grouping also and credit groupings: credit adjustments.
includes any adjustment to a PRI that = Total Imputed Creditable expenditure grouping.
derives from an item that would not have Underpayment (IU) • Generally, a decrease in creditable
been required to be allocated by the
partnership to a partner under section * Highest rate in effect for the reviewed year expenditures is treated as a positive
under section 1 or 11. adjustment to credits, and an increase in
704(b), such as an adjustment to a liability
creditable expenditures is treated as a
amount on the balance sheet.
The process of taking the adjustments negative adjustment.
Subgrouping. Each adjustment is shown on the AAR and inputting them into • A reallocation adjustment relating to a
subgrouped according to how the the formula above requires an creditable expenditure grouping is placed
adjustment would be required to be taken understanding of the concepts of into two separate subgroupings and will
into account separately under section grouping, subgrouping, and netting. There not be netted together.
702(a). In general, a subgrouping follows are seven steps necessary in figuring an
the Schedule K/K-1 line items, including

Instructions for Form 1065-X (Rev. Dec. 2021) -9-

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• A creditable expenditure is treated in      components are required to be taken into     adjustment in any other grouping or 
this manner even if the partners claimed a    account separately under the Internal        subgrouping.
deduction in lieu of a credit.                Revenue Code, regulations, forms,            • All adjustments within a subgrouping 
• Each adjustment to a creditable             instructions, or other IRS guidance, then    are netted to determine whether there is a 
expenditure is subgrouped based upon          such line item must be further               net positive adjustment or net negative 
the separate category of income to which      subgrouped.                                  adjustment for that subgrouping.
the creditable expenditure relates and to       Example.  2019 Schedule K-1, box 13, 
account for any different allocation of the   code A (cash contributions 60%), and         Step 4—Figure the Total Netted 
creditable expenditure between partners.      box 13, code B (cash contributions 30%),     Partnership Adjustments (TNPA)
Two or more adjustments to creditable         are two separate subgroupings.
expenditures are included within the same     • The ordinary income/(loss) amount          • Each net positive adjustment in a 
subgrouping only if each adjustment           reflected on line 1 of Schedule K and        grouping or subgrouping in the residual or 
relates to creditable expenditures in the     box 1 of Schedule K-1 is sourced from        reallocation grouping that results after 
same separate category, and each              Form 1065, page 1, and is a net amount       netting the adjustments is included in the 
adjusted PRI would be allocated to the        consisting of various page 1 line items of   calculation of the TNPA.
partners in the same ratio had those items    income and expenses. Although those          • Each net negative adjustment in a 
been properly reflected on the originally     separate page 1 line items are distinct      grouping or subgrouping that results after 
filed partnership return.                     items of income and expense, if they are     netting the adjustments is excluded from 
  Residual grouping.      The residual        appropriately netted and included on line 1  the calculation of the TNPA because those 
grouping contains all adjustments that do     of Schedule K and box 1 of Schedule K-1,     adjustments do not result in an IU.
not fit into one of the other groups.         the net amount will be considered a single 
                                              subgrouping, unless such amount is           Step 5—Determine the Highest Tax 
  Recharacterization adjustments.         A   required to be separately allocated, such    Rate in Effect Under Section 1 or 
recharacterization adjustment will            as when the partnership has more than 
generally result in at least two separate     one trade or business. If the partnership    11 in the Reviewed Year
adjustments within the residual grouping.     has more than one trade or business 
• One adjustment reverses the improper        activity, the net income/loss from each      Step 6—Determine the Sum of Net 
characterization of the PRI.                  separate activity must be reported on 
• The other adjustment makes the proper       Schedule K-1. Each separate activity will    Positive Adjustments to Creditable 
characterization of the PRI.                  constitute a separate subgrouping and it     Expenditure and Credit Groupings 
• The adjustments that result from a          must be determined which activity an         That Will Increase the Product of 
recharacterization are placed into            adjustment to the page 1 item of income      the TNPA Multiplied by the Highest 
separate subgroupings.                        and expense relates to for subgrouping 
                                              purposes.                                    Rate in Effect
Step 2—Subgrouping                            • If you have a negative adjustment along    • A net decrease to creditable 
                                              with a positive adjustment in the same line  expenditures is treated as a net positive 
Determine if any adjustment, within one of    item of Schedule K/K-1, you must             adjustment to credits and increases the 
the four groupings, needs to be               consider whether they may be properly        product of the TNPA multiplied by the 
subgrouped. Each adjustment is                netted at the partnership level and          highest tax rate in effect. A net increase to 
subgrouped according to how the               whether they are required to be taken into   creditable expenditures is treated as a net 
adjustment would be required to be taken      account separately by any partner            negative adjustment that is excluded from 
into account separately under section         because it may be subject to a limitation or the calculation of the TNPA and is an 
702(a). If any adjustment could be subject    preference under the Internal Revenue        adjustment that does not result in an IU.
to any preference, limitation, or restriction Code before you can place them in the        • For the credit grouping, a net positive 
under the Internal Revenue Code (or not       same subgrouping (for example, passive/      adjustment will increase the product of the 
allowed, in whole or in part, against         active for separate activities).             TNPA multiplied by the highest tax rate in 
ordinary income) if taken into account by       A negative adjustment that is not          effect. A net negative adjustment, 
any person, the adjustment is placed in a     •
                                              otherwise required to be placed in its own   including net negative adjustments 
separate subgrouping from all other           subgrouping must be placed in the same       resulting from a credit reallocation 
adjustments within the grouping.              subgrouping as another adjustment if the     adjustment, will be treated as an 
                                              negative adjustment and the other            adjustment that does not result in an IU.
  Generally, each separate line item of       adjustment would have been properly 
Schedule K/K-1 or return schedule (that is,   netted at the partnership level and such 
Schedule L, etc.) represents a separate       netted amount would have been required 
and distinct subgrouping.                     to be allocated to the partners of the 
                                              partnership as a single item for purposes 
  Example. Adjustments to ordinary            of section 702(a) or other provision of the 
income must be placed in a different          Internal Revenue Code and regulations.
subgrouping than capital gain income or 
interest income since each of those items 
is required to be separately stated under     Step 3—Netting
section 702(a).                               Net all adjustments within each of the 
• Subgroupings generally reflect a line       groupings and subgroupings.
item from Schedule K/K-1, including any       • Positive and negative adjustments may 
subcategories of those lines (for example,    only be netted against each other if they 
alpha codes per the Schedule K-1              are in the same subgrouping.
instructions or activities broken out via     • An adjustment in one grouping or 
attached statements). If any line item on     subgrouping may not be netted against an 
Schedule K/K-1 or other schedules 
consists of multiple items and the 

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Step 7—Figure the IU Based on the the payment is the name of the loss, deduction, or credit to a partner,
Results of Steps 4 Through 6 and partnership-partner, “Form 1065,” the check the box in Part V and specify the
taxpayer identification number of the nature and reasons for the changes.
Insert Those Results Into the IU partnership-partner, tax year, and “Partner
Formula Payment for BBA Modification.” Checks Paperwork Reduction Act Notice. We
must be payable to the “United States ask for the information on this form to carry
Figuring the IU Treasury” and included with the amended out the Internal Revenue laws of the
return. If making an electronic payment, United States. You are required to give us
TNPA x rate* = choose the payment description “Partner the information. We need it to ensure that
+ Sum of net positive Pymnt for BBA Modification” from the list you are complying with these laws and to
adjustments to of payment types. The payment amount, allow us to figure and collect the right
creditable expenditure including interest and penalties, should be amount of tax.
and credit groupings: reported in Part IV, line 3. You are not required to provide the
information requested on a form that is
= Total Imputed Partnership-Partners Who Are subject to the Paperwork Reduction Act
Underpayment (IU)
Allocated Adjustments That Do unless the form displays a valid OMB
* Highest rate in effect for the reviewed year Not Result in an Imputed control number. Books or records relating
under section 1 or 11. to a form or its instructions must be
Underpayment
retained as long as their contents may
Partnership-Partner Amended If a partnership-partner is paying an become material in the administration of
Return Filed as Part of amount due as part of an amended return any Internal Revenue law. Generally, tax
submitted for purposes of modification, returns and return information are
Modification any adjustments that do not result in an IU confidential, as required by section 6103.
Partnership-partners who are filing must be taken into account in the tax year
amended returns as part of the that the amount is paid by the The time needed to complete and file
modification of the IU during examination partnership-partner. However, if there are this form will vary depending on individual
under section 6225(c)(2) will report the only adjustments that do not result in an circumstances. The estimated burden for
applicable payment of tax in Part IV, line 1. IU, those adjustments are subject to business taxpayers filing this form is
The pass-through partner will compute the modification by the ultimate taxpayers who approved under OMB control number
amount like an IU on the adjustments reported the original amounts and not by 1545-0123 and is included in the
allocated to it and make the payment with the partnership-partner itself. Refer to estimates shown in the instructions for
the filing of the Form 1065-X. A payment Regulations section 301.6225-3 for further their business income tax return.
made with Form 1065-X should detail the guidance. If you have suggestions for making this
portion of the payment that is for the form simpler, we would be happy to hear
payment of the IU and the portion that is Part V—Explanation of from you. You can send us comments
for interest and penalties. The partnership from IRS.gov/FormComments. Or you can
should consider all available guidance Changes to Items in Part II write to: Internal Revenue Service, Tax
issued by the IRS when figuring the and Part III Forms and Publications Division, 1111
amount due. In general, the partnership For each amended item, explain in detail Constitution Ave. NW, IR-6526,
should compute its amount due in the reasons for the change. Include any Washington, DC 20224. Do not send
accordance with the IU computation in computations necessary to support the Form 1065-X to this address. Instead, see
these instructions. See Steps in Figuring amended item. Where To File, earlier, near the beginning
the IU. The total of all three should be of the instructions.
reflected in Part IV, line 2. If the payment is Changes in allocations. If there is a
made by check, information to include on change in the allocation of income, gain,

Instructions for Form 1065-X (Rev. Dec. 2021) -11-

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