Form 1065-X Instructions
Instructions for Form 1065-X, Amended Return or Administrative Adjustment Request (AAR)
Rev. August 2023
Related Forms
- Form 1065-X - Amended Return or Administrative Adjustment Request (AAR)
Department of the Treasury
Internal Revenue Service
Instructions for Form 1065-X
Amended Return or Administrative Adjustment Request (AAR)
(Rev. August 2023)
Section references are to the Internal Revenue Code
unless otherwise noted.
2018 version of Form 1065-X available at IRS.gov/pub/irs-
Part I, Section 2—BBA AAR. Item C2 has been added
to indicate when adjustments don’t result in an imputed
underpayment.
Part II, line 13, changed. Part II, line 13a, is changed
from “Contributions” to “Cash contributions.” New line 13b
is “Noncash contributions.” Prior year lines 13b, 13c, and
13d are changed to 13c, 13d, and 13e, respectively. This
follows similar changes on the 2023 Form 1065.
Contents
Page
Reminders
Part II—Amended or Administrative
The Bipartisan Budget Act of 2015 (BBA) created a new
centralized partnership audit regime generally effective for
partnership tax years beginning after 2017.
Adjustment Request (AAR) Items for
Partnerships Filing Form 1065 Only (ELPs
The Tax Equity and Fiscal Responsibility Act of 1982
(TEFRA) generally applied to tax years beginning before
2018. BBA repealed TEFRA and the electing large
partnership (ELP) rules. Consequently, former ELPs are
now treated as other partnerships under the BBA regime.
Although BBA repealed the ELP rules for partnership
tax years beginning after 2017, and although Form
1065-B and its instructions are obsolete for tax years
beginning after 2017, Form 1065-B is referred to in these
instructions to assist former ELPs filing amended returns.
Election into BBA for tax years beginning before
2018. A partnership may make an election into the
centralized partnership audit regime for tax years that
begin after November 2, 2015, and before January 1,
2018, by filing an AAR. Refer to Regulations section
301.9100-22 for detailed information. If the AAR is filed on
paper, the partnership uses Form 1065-X and must make
the election in accordance with section 1101(g)(4) of BBA.
Note. An AAR filed with respect to a 2018 short tax
period return by a partnership that is subject to the
centralized partnership audit regime must meet the
requirements under section 6227.
Amended/Corrected Sch. K-2, K-3, on/
Part III—Amended or Administrative
Adjustment Request (AAR) Items for ELPs
Part IV—Imputed Underpayment (IU) Under
Partnership-Partner Amended Return
Partnership-Partners Who Are Allocated
Adjustments That Don't Result in an
Part V—Explanation of Changes to Items in
Future Developments
For the latest information about developments related to
Form 1065-X and its instructions, such as legislation
enacted after they were published, go to IRS.gov/
Making the election for eligible tax years on an AAR
filed on paper. To make the election, the partnership
must write across the top of Form 1065-X used to file the
AAR, “Election under Section 1101(g)(4)” and attach a
statement to the AAR. For the statement requirement, the
partnership can use Form 7036, Election Under Section
1101(g)(4) of the Bipartisan Budget Act of 2015. If Form
7036 isn’t used, the partnership may prepare its own
statement with the following information.
For information pertaining to BBA partnerships filing Form
What’s New
Which revision of Form 1065–X to use. For tax years
beginning on or after January 1, 2023, use the August
2023 revision of Form 1065-X. For tax years beginning
after December 31, 2020, and before January 1, 2023,
use the December 2021 revision of Form 1065-X available
beginning prior to January 1, 2021, use the September
The partnership's name, the taxpayer identification
•
number (TIN), and the partnership tax year for which the
election is being made.
The name, TIN, address, and daytime telephone
•
number of the individual who signs the statement.
Language indicating that the partnership is electing
•
application of section 1101(c) of BBA for the partnership
return for the eligible tax year.
Dec 26, 2023
Cat. No. 57876S
The information required to properly designate the
and send Forms 8986 to its partners. The BBA
partnership isn’t required to provide the five items of
information again on Forms 8985 and 8986. The BBA
partners don’t need to attach the five items of information
to their original returns to which their Forms 8986 are
attached. For more information, see Research Credit
Claims (Section 41) on Amended Returns Frequently
Asked Questions at IRS.gov/businesses/corporations/
Schedules K-2 and K-3. For tax years beginning on or
after January 1, 2021, filers of Form 1065-X may need to
include amended Schedules K-2 and K-3 (Form 1065)
according to the type of partnership (for example, BBA vs.
•
partnership representative (PR), as defined by section
6223, which must include the name, TIN, address, and
daytime telephone number of the PR.
The following representations must be made with re-
gard to the statement attached to the election.
The partnership isn’t insolvent and doesn’t reasonably
•
anticipate becoming insolvent before resolution of any
adjustment with respect to the partnership tax year for
which the election is being made.
The partnership hasn’t voluntarily filed, and doesn't
•
reasonably anticipate filing, a petition for relief under title
11 of the United States Code.
The partnership isn’t subject to, and doesn't reasonably
•
anticipate becoming subject to, an involuntary petition for
relief under title 11 of the United States Code.
Note. Unless otherwise noted, references to sections
6221 through 6241 are to Internal Revenue Code
sections, as amended by BBA.
The partnership has sufficient assets, and reasonably
•
anticipates having sufficient assets, to pay a potential
imputed underpayment (IU) with respect to the
partnership tax year that may be determined under
subchapter C of chapter 63 of the Internal Revenue Code,
as amended by BBA.
General Instructions
A representation, signed under penalties of perjury, that
•
Purpose of Form
the individual signing the statement is duly authorized to
make the election described in Regulations section
301.9100-22 and that, to the best of the individual's
knowledge and belief, all of the information contained in
the statement is true, correct, and complete.
Use Form 1065-X, if you aren’t filing electronically, to:
Correct items on a previously filed Form 1065, Form
•
1065-B, or Form 1066;
Make an AAR for a previously filed Form 1065, Form
•
1065-B, or Form 1066; or
The statement must be signed and dated by the tax
matters partner (TMP), as defined under section 6231(a)
(7) (prior to amendment by BBA), and the applicable
regulations, or an individual who has the authority to sign
the partnership return for the tax year. The fact that an
individual dates and signs the statement making the
election shall be prima facie evidence that the individual is
authorized to make the election on behalf of the
partnership.
Increased research credit reported by a BBA partner-
ship. If an increased research credit is reported by a BBA
partnership, the BBA partnership doesn’t file an amended
return. Instead, the BBA partnership must file an AAR and
attach the following five items of information to that AAR.
File an amended return by a partnership-partner of a
•
BBA partnership as part of the modification process of a
BBA proceeding with respect to that BBA partnership.
Form 1065-X can’t be used to file a notice of
inconsistent treatment under section 6222 (TEFRA or
BBA) or a partner-level AAR under section 6227(d) (under
TEFRA proceedings). For a definition of TEFRA
proceedings, see Definitions, later. Continue to use Form
8082, Notice of Inconsistent Treatment or Administrative
Adjustment Request (AAR), to make those changes.
Bipartisan Budget Act (BBA). All partnerships with tax
years beginning after 2017 are subject to the centralized
partnership audit regime unless eligible partnerships elect
out by making a valid election under section 6221(b). For
purposes of these instructions (unless otherwise noted),
the centralized partnership audit regime proceedings
under sections 6221 through 6241 will be referred to as
“BBA proceedings.”
If you're a nonTEFRA partnership (see Definitions and
Section I, Part I, items B and C, later) or a nonBBA
partnership (defined under Definitions, later) filing an
amended return electronically, use Form 1065 and see the
related instructions. If you aren’t filing electronically, use
Form 1065-X.
Form 1065-X should only be used to make a paper
filing. For electronic filing, use Form 8082 in conjunction
with Form 1065 or 1065-B, as applicable.
Generally, the criteria used to determine whether the
original Form 1065 or Form 1065-B is required to be filed
electronically are also used to determine if the amended
return or AAR must be filed electronically.
1. Identify all the business components to which the
section 41 research credit relates for that tax year.
2. For each business component, identify all research
activities performed.
3. Name the individuals who performed each research
activity.
4. The information each individual sought to discover.
5. The total qualified employee wage expenses, total
qualified supply expenses, and total qualified contract
research expenses for the claim year. This may be done
using Form 6765, Credit for Increasing Research
Activities.
Because an increased research credit is being reported
in this circumstance, as part of the AAR process, the BBA
partnership will also submit Form 8985,
Pass-Through—Transmittal/Partnership Adjustment
Tracking Report, and Form 8986, Partner’s Share of
Adjustment(s) to Partnership-Related Item(s), to the IRS
For information regarding when Form 1065 is required
to be filed electronically, and how to electronically file an
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Instructions for Form 1065-X (Rev. 08-2023)
amended return or AAR for a partnership, see the
Instructions for Form 1065.
For information regarding when Form 1065-B is
required to be filed electronically, and how to file an AAR
for an ELP, see the Instructions for Form 1065-B.
When To File
Generally, a pass-through entity may file an amended
return or AAR to change items on its return:
Within 3 years after the later of the date on which the
•
partnership return for that year is filed, or the last day for
filing the partnership return for that year (excluding
extensions); and
Who Must File
Amended return. Partnerships and real estate mortgage
investment conduits (REMICs) that become aware of
incorrect items of income, deductions, etc., use Form
1065-X to correct their previously filed partnership or
REMIC return. See Specific Instructions, later, for
information on completing Form 1065-X as an amended
return.
In the case of a TEFRA partnership or REMIC, before a
•
notice of final partnership administrative adjustment for
that year is mailed to the TMP or tax matters person, or, in
the case of an ELP, before the mailing to the partnership of
a notice of partnership administrative adjustment with
respect to that year;
In the case of a BBA partnership, before a notice of an
•
administrative proceeding with respect to the tax year is
mailed under section 6231; or
AAR-Partnerships (except ELPs). Partnerships that are
subject to either BBA or TEFRA proceedings use Form
1065-X to file for an AAR. See Specific Instructions, later,
for information on completing Form 1065-X as an AAR.
In the case of a partnership that is a partner in a BBA
•
partnership which is filing an amended return for purposes
of BBA partnership modification under section 6225(c)(2),
in the time period specified under section 6225(c).
Protective TEFRA AARs. Generally, a protective AAR is
a request for credit or refund based on current litigation or
expected changes in tax law or other legislation. The TMP
or partner with authority (PWA) files a protective AAR
when the right to a refund is contingent on future events
and may not be determinable until after the period for filing
an AAR has expired. Protective AARs are subject to AAR
statutes set forth in sections 6227, 6228, and 6229 (prior
to amendment by BBA). If you're a TMP filing on behalf of
the partnership, the petition period described in section
6228 (prior to amendment by BBA) can be extended by
using Form 9248, Agreement to Extend the Time to File a
Petition for Adjustment by the Tax Matters Partner With
Respect to Partnership Items. A protective AAR must
clearly state that it is a protective AAR, alert the IRS to the
essential nature of the adjustment, and specify the line
item to be protected.
AAR under BBA. File Form 1065-X if you're the PR or
designated individual (DI) requesting an administrative
adjustment to correct a previously filed partnership return
on behalf of the BBA partnership. Go to IRS.gov/bbaaar
for additional information.
AAR-ELPs. ELPs that aren’t required to electronically file
Form 1065-B and need to correct errors on a previously
filed Form 1065-B use Form 1065-X to file for an AAR.
See Specific Instructions, later, for information on
completing Form 1065-X as an AAR.
What To Attach
If the corrected amount involves an item that must be
supported with a schedule, statement, or form, attach the
appropriate schedule, statement, or form to Form 1065-X.
Include the entity's name and employer identification
number (EIN) on any attachments. See the instructions for
Form 1065, 1065-B, or 1066 (as applicable) for a list of
forms that may be required.
If the attachments needed to support the corrected
amount include copies of forms or schedules from
previously filed tax returns, write at the top of each
previously filed form or schedule, “Copy Only—Do Not
Process.”
A BBA partnership must attach a schedule to Form
1065-X that supports the position(s) reported. If the
partnership doesn't make the election under section
6227(b)(2) to have the adjustments taken into account by
the reviewed year partners and would like to modify per
section 6227(b)(1), it must attach Form 8980, Partnership
Request for Modification of Imputed Underpayments
Under IRC Section 6225(c), to support any modifications
made to the IU, as described in sections 6225(b) and (c),
and as applied to a BBA AAR under section 6227(b)(1).
See Modifications to an Imputed Underpayment Included
in an Administrative Adjustment Request in Pub. 5346,
Instructions for Form 8980.
AAR-REMICs. REMICs that don’t meet the small REMIC
exception under sections 860F(e) and 6231 (prior to
amendment by BBA), and related regulations, or make the
election described in section 6231(a)(1)(B)(ii) (prior to
amendment by BBA) not to be treated as a small REMIC,
use Form 1065-X to file for an AAR. See Specific
Instructions, later, for information on completing Form
1065-X as an AAR.
In addition, if the ELP or REMIC requests that the IRS
electronically deposit a refund of $1 million or more, attach
Form 8302, Electronic Deposit of Tax Refund of $1 Million
or More.
Who Must Sign
NonTEFRA and nonBBA partnerships. Any partner or
limited liability company (LLC) member must sign the
return. Form 1065-X isn’t considered to be a return unless
it is signed. When a return is made for a partnership by a
receiver, trustee, or assignee, the fiduciary must sign the
return instead of the partner or LLC member. Returns and
forms signed by a receiver or trustee in bankruptcy on
behalf of a partnership must be accompanied by a copy of
When a partnership's or REMIC's federal return is
changed for any reason, it may affect its state
return. For more information, contact the state tax
TIP
agency with which the state return is filed.
Instructions for Form 1065-X (Rev. 08-2023)
3
the order or instructions of the court authorizing the
signing of the return or form.
Pass-through entity. A partnership (including an ELP),
S corporation, estate, trust, or REMIC.
BBA partnerships. The PR or DI, if applicable, must sign
for the definition of a PR.
TEFRA partnerships. The TMP must sign Form 1065-X.
TMP.
Item. Any item of a partnership, S corporation, estate,
trust, or REMIC required to be taken into account for the
pass-through entity's tax year by the partners,
shareholders, beneficiaries, owners, or residual interest
holders of that pass-through entity.
Tax matters partner (TMP). If the partnership is subject
to the TEFRA procedures, it can designate a partner as
the TMP for the tax year for which the return is filed. The
TMP is a general partner (in most cases, the TMP must
also be a U.S. person) designated by the partnership to
represent the partners in the consolidated audit and
litigation proceedings under sections 6221 through 6234
prior to amendment by BBA (TEFRA proceedings). The
designation is made by completing the Designation of Tax
Matters Partner section of Form 1065 used for tax years
beginning before 2018.
Additionally, a REMIC may designate a tax matters
person in the same manner in which a partnership may
designate a TMP under Regulations section 301.6231(a)
(7)-1. When applying that section, treat all holders of a
residual interest in the REMIC as general partners. The
designation may be made by completing the Designation
of Tax Matters Person section of Form 1066 for tax years
beginning before 2018.
with authority (PWA), later, for the definition of a PWA.
REMICs with a startup day after November 9, 1988.
For these REMICs, Form 1065-X may be signed by any
person who could sign the return of the entity in the
absence of the REMIC election. Thus, the return of a
REMIC that is a corporation or trust would be signed by a
corporate officer or a trustee, respectively. For REMICs
with only segregated pools of assets, the return would be
signed by any person who could sign the return of the
entity owning the assets of the REMIC under applicable
state law.
REMICs with a startup day before November 10,
1988. These REMICs may elect to apply the rules for
REMICs with a startup day after November 9, 1988 (as
described in Regulations section 1.860F-4(c)(2)(iii)).
Otherwise, Form 1066 must be signed by a residual
interest holder or, as provided in section 6903, by a
fiduciary, as defined in section 7701(a)(6), who is acting
for the REMIC and who has furnished adequate notice, as
described in Regulations section 301.6903-1(b).
In the prior paragraph, the term “startup day” means
any day selected by a REMIC that is on or before the first
day on which interests in such REMIC are issued.
Otherwise, the startup day is the day on which the REMIC
issued all of its regular and residual interests. However, a
sponsor may contribute property to a REMIC in exchange
for regular and residual interests over any period of 10
consecutive days and the REMIC may designate any 1 of
those 10 days as the startup day. The day so designated
is then the startup day, and all interests are treated as
issued on that day.
For an LLC, a member of the LLC is treated as a
partner and a member-manager is treated as a general
partner. A member-manager is any owner of an interest in
the LLC who, alone or together with others, has continuing
exclusive authority to make the management decisions
necessary to conduct the business for which the LLC was
formed. If there are no elected or designated
member-managers, each owner is treated as a
member-manager. For details, see Regulations section
301.6231(a)(7)-2.
BBA partnership. A partnership that is subject to the
centralized partnership audit regime is a “BBA
partnership.” All partnerships with tax years beginning
after 2017 are BBA partnerships unless they make a valid
election out of the centralized partnership audit regime. A
partner in a BBA partnership is a “BBA partner.” An AAR
filed by a BBA partnership is a “BBA AAR” and must be
information.
Partnership representative (PR). If the partnership is
subject to the centralized partnership audit regime,
section 6223 provides that the partnership must designate
a partner or other person with a substantial presence in
the United States as the PR who shall have the sole
authority to act on behalf of the partnership. If the PR is an
entity, the partnership must also appoint a DI to act on
behalf of the entity PR. The partnership and all partners
are bound by the actions of the PR in dealings with the
IRS under BBA.
Where To File
Form 1065-X must be filed with the service center where
the original return was filed.
Definitions
TEFRA partnership. The consolidated audit
proceedings of sections 6221 through 6234 (prior to
amendment by BBA) are “TEFRA proceedings” and
partnerships that are subject to TEFRA proceedings are
“TEFRA partnerships.” An AAR filed by the TMP of the
TEFRA partnership is a TEFRA AAR. Any partner in a
TEFRA partnership may file an AAR using Form 8082.
TEFRA proceedings won’t apply to partnerships with tax
years beginning after 2017.
Partner with authority (PWA). Each ELP must
designate a partner (or other person) as the PWA who
shall have the sole authority to act on behalf of the
partnership. See section 6255(b)(1) (prior to amendment
by BBA). If the partnership fails to designate a PWA, the
NonTEFRA partnership. A partnership with a tax year
beginning before 2018 that isn’t subject to TEFRA
proceedings and didn't elect into BBA for that tax year
beginning after November 2, 2015, and before January 1,
2018, is a “nonTEFRA partnership.”
4
Instructions for Form 1065-X (Rev. 08-2023)
IRS can select any partner to serve as the partner with
such authority. The PWA has the authority to file an AAR
on behalf of the partnership. The PWA does this by filing
Form 1065-X.
NonBBA partnership. Under BBA, certain partnerships
with 100 or fewer eligible partners for the tax year can
elect out of the centralized partnership audit regime. For
additional information, see the Instructions for Form 1065.
A partnership that elects out of the centralized partnership
audit regime is a “nonBBA partnership.”
Generally, anyone who is paid to prepare Form 1065-X
must do the following.
Sign the return in the space provided for the preparer's
•
signature.
Fill in the other blanks in the “Paid Preparer Use Only”
•
area of the return. A paid preparer can’t use a social
security number in the “Paid Preparer Use Only” box. The
paid preparer must use a preparer tax identification
number (PTIN).
Give the partnership or REMIC a copy of the return in
•
addition to the copy to be filed with the IRS.
Partnership-related item (PRI). For BBA partnerships,
under section 6241(2)(B), a PRI is any item or amount
with respect to the partnership that is relevant in
determining the income tax liability of any person, without
regard to whether the item or amount appears on the
partnership's return. This includes an IU and an item or
amount relating to any transaction with, basis in, or liability
of the partnership.
A paid preparer may sign original or amended
returns by rubber stamp, mechanical device, or
computer software program.
TIP
Interest and Penalties
Interest. Generally, interest is charged on taxes not paid
by the due date, even if an extension of time to file is
granted. Interest is also charged on penalties imposed for
negligence, fraud, substantial valuation misstatements,
substantial understatements of tax, and reportable
transaction understatements. The interest is charged from
the due date (including extensions) to the date of
payment. The interest charge is figured at a rate
determined under section 6621.
Adjustment year. For BBA partnerships, the adjustment
year is the partnership tax year in which:
An adjustment pursuant to the decision of a court in a
•
proceeding brought under section 6234 becomes final;
An AAR is filed under section 6227; or
•
•
A notice of final partnership adjustment is mailed under
section 6231 or, if the partnership waives the limitations
on assessments under section 6232(b), the waiver is
executed by the IRS.
Late payment penalty. The penalty for not paying the
tax when due is usually 1/2 of 1% of the unpaid tax for
each month or part of a month that the tax remains
unpaid. The penalty can’t exceed 25% of the unpaid tax.
Other penalties. Penalties can also be imposed for
negligence, substantial understatements of tax, reportable
transaction understatements, and fraud. See sections
6662, 6662A, and 6663.
Reviewed year. For BBA partnerships, the reviewed year
is the partnership’s tax year to which a partnership
adjustment relates.
Reviewed year pass-through partner. For purposes of
these instructions, under BBA, a reviewed year
pass-through partner is a pass-through entity that held an
interest in a BBA partnership at any time during the
reviewed year, which is the partnership tax year to which
the partnership adjustment relates. For example, if the
BBA AAR is filed to make an adjustment to income for the
2023 tax year, 2023 is the reviewed year.
Schedule K-1. Schedule K-1 is the annual schedule
reporting the partner's, shareholder's, or beneficiary's
share of income, deductions, credits, etc., from a
partnership, S corporation, estate, or domestic trust.
Schedule K-2. An extension of Form 1065, Schedule K,
used to report items of international tax relevance from the
operation of a partnership.
Schedule K-3. An extension of Schedule K-1 (Form
1065) generally used to report to partners their share of
the items reported on Schedule K-2.
Interest and penalties applicable to IU. Except when
the partnership elects to have its partners take into
account the adjustments, BBA partnership interest and
penalties are the following.
The interest figured with respect to any IU is the interest
•
which would be determined under chapter 67 for the
period beginning on the day after the return due date for
the reviewed year and ending on the return due date for
the adjustment year, as defined under section 6225(d)(2)
or, if earlier, the date the IU is paid.
Any penalty, addition to tax, or additional amount shall
•
be determined at the partnership level and is applied as if
such BBA partnership had been an individual subject to
tax under chapter 1 for the reviewed year and the IU were
an actual underpayment (or understatement) for such year
for purposes of part II of subchapter A or chapter 68.
Election to apply the alternative to payment of the IU.
If the partners must take into account the adjustments
because the BBA partnership filed an AAR and there are
adjustments that don’t result in an IU, or if a BBA
partnership elects the alternative to payment of the IU
under sections 6227(b)(2) and 6226(c), interest shall be
determined:
Schedule Q. Schedule Q is the quarterly schedule
reporting the residual interest holder's share of taxable
income or net loss from the REMIC.
Paid Preparer's Information
If a partner or an employee of the partnership or REMIC
completes Form 1065-X, the “Paid Preparer Use Only”
section should remain blank. In addition, anyone who
prepares Form 1065-X but doesn't charge the partnership
or REMIC shouldn’t complete this section.
At the partner level;
•
From the due date of the return for the tax year to which
•
the increase is attributable (determined by taking into
account any increases attributable to a change in tax
Instructions for Form 1065-X (Rev. 08-2023)
5
attributes for a tax year under section 6226(b)(2)), until the
date of payment; and
ELPs/REMICs The ELP procedures were repealed for
tax years beginning after 2017. However, ELPs filing a
non-e-filed AAR for a tax year that began before 2018 will
use Form 1065-X.
At the section 6621(a)(2) underpayment rate.
•
Judicial review of an AAR (for returns subject to the
TEFRA procedures or ELPs). If the IRS fails to act on
an AAR, the TMP or PWA may file a petition for judicial
review with the U.S. Tax Court, U.S. Court of Federal
Claims, or U.S. District Court. The TMP or PWA must file
the petition before the date that is 2 years after the date
the TMP or PWA filed the AAR, but not until after the date
that is 6 months from the date of such filing. The 2-year
period may be extended if the IRS and the TMP or PWA
agree in writing. For more details, see sections 6228 (prior
to amendment by BBA) and 6252.
For Partnership Tax Years Beginning After 2017
and Partnerships Electing Into BBA for Tax Years
Beginning After November 2, 2015, and Before
January 1, 2018
BBA AAR. All partnerships with tax years beginning after
2017 are subject to the centralized partnership audit
regime unless an eligible partnership makes a valid
election under section 6221(b) to elect out of the
centralized partnership audit regime. Partnerships electing
into BBA for tax years beginning after November 2, 2015,
and before January 1, 2018, are also subject to the
centralized partnership audit regime. Partnerships that are
subject to the centralized partnership audit procedures of
sections 6221 through 6241 are “BBA partnerships.” An
AAR filed by a BBA partnership is a BBA AAR.
nonBBA. A partnership with a tax year beginning after
2017 that isn't subject to BBA proceedings because it has
made a valid election under section 6221(b) is a “nonBBA
partnership.”
Specific Instructions
If, after reading the instructions, you're unable to complete
an item in Part I or Part II, enter “See Part V” in the entry
space for that item and provide the information there.
Name and Identifying Number
Enter the legal name of the entity and identifying number
on the appropriate lines. Include the suite, room, or other
unit number after the street address. If the Post Office
doesn't deliver mail to the street address and the entity
has a P.O. box, show the box number instead.
Partnership-Partner Amended Return Related to
Modification of Another Partnership’s IU
If the entity receives its mail in care of a third party
(such as an accountant or attorney), enter on the street
address line “C/O” followed by the third party's name and
street address or P.O. box.
A partner that is itself a partnership (partnership-partner)
that is filing an amended return as part of modification of
the IU under section 6225(c)(2) should check this box.
If the entity's address is outside the United States, or its
possessions or territories, enter the information on the line
for “City or town, state, and ZIP code” in the following
order: city, province or state, and foreign country. Follow
the foreign country's practice in placing the postal code in
the address. Don’t abbreviate the country name.
Section 1—TEFRA/NonTEFRA Determination
Item A
If the answer to item A is “Yes,” the partnership return isn’t
subject to the TEFRA proceedings. You should proceed to
item E and check the “Not subject to TEFRA” box.
Part I. Check the Appropriate Box
An AAR can be filed by a partnership subject to TEFRA
proceedings (TEFRA AAR), a partnership subject to BBA
proceedings (BBA AAR), an ELP, and a REMIC.
Items B Through E
These items are used to determine if the partnership is
subject to the rules for consolidated audit procedures
(TEFRA procedures).
If you're a BBA partnership that has received a notice of
administrative proceeding, you may not file an AAR. Also,
a partner may not file an AAR on behalf of the BBA
partnership in which it is a partner unless doing so in its
capacity as the PR for that partnership.
Consolidated REMIC proceedings. Generally, the tax
treatment of REMIC items is determined at the REMIC
level in a consolidated REMIC proceeding, rather than in
separate proceedings with individual residual interest
holders. A REMIC subject to consolidated REMIC
procedures will have checked the box on item G on
page 3 of its original Form 1066 (for tax years beginning
before January 1, 2018).
For Partnership Tax Years Beginning Before
January 1, 2018 (Unless Electing Into BBA)
TEFRA AAR. The consolidated audit proceedings of
sections 6221 through 6234 (prior to amendment by BBA)
are “TEFRA proceedings” and partnerships that are
subject to TEFRA proceedings are “TEFRA partnerships.”
An AAR filed by the TMP of the TEFRA partnership is a
TEFRA AAR. TEFRA proceedings won’t apply to
partnerships with tax years beginning after 2017.
nonTEFRA AAR. A partnership with a tax year beginning
before 2018 that isn’t subject to TEFRA proceedings is a
“nonTEFRA partnership.”
Items B and C
All partnerships with tax years beginning before 2018
(except ELPs) and REMICs are subject to TEFRA
partnership audit procedures unless the partnership or
REMIC is subject to the small partnership exception. See
section 6231(a)(1)(B) (prior to amendment by BBA).
6
Instructions for Form 1065-X (Rev. 08-2023)
A small partnership is a partnership with 10 or fewer
partners at all times during the year. All partners must be
U.S. individuals and their estates, resident alien
individuals, or C corporations.
(B)(ii) (prior to amendment by BBA), and related
regulations, and you received a corrected Form 1099 or
are making changes to income, deductions, or credits, but
there are no flow-through changes from a TEFRA
partnership, then you're filing an amended return. Check
the “Amended Return” box.
AAR. Check this box if you're filing a request to correct a
previously filed partnership or REMIC return and you're
one of the following.
Note. For making the small partnership determination, a
married couple, each spouse having their own partnership
interest, is considered one partner. An individual who has
passed away during the year and their estate are
considered one partner.
The TMP of the TEFRA partnership or REMIC. The
•
REMIC must be subject to consolidated REMIC
proceedings. For more information on consolidated
REMIC proceedings, see the Instructions for Form 1066.
Item D
A partnership defined as a small partnership can elect to
be treated as a TEFRA partnership for tax years beginning
before 2018. The partnership elects TEFRA treatment by
attaching a statement to the tax return for the first year
they wish the election to be effective. This statement must
be signed by all partners. See Regulations section
An ELP correcting a previously filed return.
•
Item G
A substituted return requests that the treatment of an item
shown on the AAR be substituted for the treatment of the
item on the pass-through entity's return.
301.6231(a)(1)-1(b). Form 8893, Election of Partnership
Level Tax Treatment, is the statement that can be used to
make this election. If you answer “Yes” to item D, enter the
tax year of the filing of this election in the space provided.
Check “Yes” if you're requesting substituted return
treatment for the partnership. If the IRS allows substituted
return treatment, the changes shown on the amended
return will be treated as corrections of mathematical or
clerical errors, and the IRS may assess any resulting tax
to the partners or residual interest holders without a
deficiency or entity-level proceeding. In this case, partners
or residual interest holders may file amended returns
requesting refunds. See section 6227(c)(1) (prior to
amendment by BBA).
Item E
If, at any time during the tax year, there are more than 10
partners or any of the following are partners in the
partnership, then the partnership isn’t a small partnership.
Another partnership.
•
An LLC which files as a partnership or is treated as a
•
disregarded entity.
If the IRS doesn’t allow substituted return treatment for
the partnership, the partners or residual interest holders
may file amended returns requesting refunds. The IRS
may conduct an examination of the pass-through entity's
return, or take no action on the request. When a request
isn’t treated as a substituted return, the IRS can’t assess
tax without a deficiency or entity-level proceeding. See
section 6227(c)(2) (prior to amendment by BBA).
Any type of trust, including a grantor trust.
A nominee.
•
•
•
•
A nonresident alien.
An S corporation.
Table for Determining Which Box To Check in Item E
IF in item...
The box
checked is...
THEN in item E, check...
ELPs. An ELP can’t request substituted treatment. See
B
No
No
Yes
Yes
No
Subject to TEFRA.
Subject to TEFRA.
Subject to TEFRA.
Not subject to TEFRA.
Not subject to TEFRA.
section 6227(c)(1) (prior to amendment by BBA).
C
D
Section 2—BBA AAR
For additional information on filing BBA AARs, go to
B and C
D
Item A
If the "Yes" box is checked, complete Form 8979 and
attach it to the AAR. See the Instructions for Form 8979,
Partnership Representative Revocation, Designation, and
Resignation, for more information.
Item F
Check the box to indicate whether you're filing an
amended return or an AAR.
Amended Return. Check this box if you checked the
“Not subject to TEFRA” box in item E, and you aren’t an
ELP. This means that you're filing a request to correct a
previously filed nonTEFRA partnership return or REMIC
return.
Note. If you're a BBA partnership, you may not file an
AAR solely for the purpose of changing the PR.
Item B
If your partnership or REMIC return meets the
BBA partnerships filing an AAR will need to determine if
the partnership adjustments result in an IU. See Figuring
the Imputed Underpayment (IU), later, for information as to
how to figure the IU. The BBA partnership should consider
exception under section 860F(e) or section 6231 (prior to
amendment by BBA), and doesn't file an election to be
treated as a TEFRA partnership under section 6231(a)(1)
Instructions for Form 1065-X (Rev. 08-2023)
7
all available guidance issued by the IRS in making a
determination of whether or not the AAR results in an IU.
aren’t included on the statements provided to the
partners.
Section 3—Partnership-Partner Amended
Return Filed as Part of Modification of the
Imputed Underpayment (IU) During a BBA Audit
Section 6225(c)(2) allows a BBA partnership under
examination to request specific types of modifications of
an IU proposed by the IRS. One type of modification
applies when a partner or indirect partner, including a
partnership-partner, files an amended return for the tax
year of the partner which includes the end of the reviewed
year of the BBA partnership under examination. See Form
8980, Item E, Part I, and Pub. 5346.
Item C1
If the adjustments contained in the BBA AAR result in an
IU, the partnership must pay the IU at the same time the
AAR is filed. However, under section 6227(b)(2), the
partnership can elect to have its reviewed year partners
take the adjustments into account. This is an election to
push out the adjustments to the partners as an alternative
to payment of the IU. See section 6226(a)(2) for details. If
this valid election is made, the partnership is no longer
liable for the IU.
A BBA partnership under examination will be assigned
a unique audit control number. A partnership-partner
using Form 1065-X to file an amended return as part of a
modification under section 6225(c)(2) must include in
Section 3 (Form 1065-X) the name, EIN, reviewed year,
and audit control number of the BBA partnership under
examination to which the amended return relates. In
addition, the partnership-partner shouldn’t furnish
amended Schedules K-1 or K-3 to its partners, but instead
must pay an amount computed like an IU on the
Item C2
The partnership will need to furnish Forms 8986 to each
reviewed year partner reflecting the partner's share of
adjustments for when the adjustments don't result in an IU
(for example, the adjustments in the BBA AAR result in an
IU of zero or less than zero; or there is a net negative
adjustment). The partnership is also required to file with
the AAR all Forms 8986 furnished to partners and Form
8985. See the instructions for these forms for further
information.
adjustments allocable to it, plus any penalties and interest.
Part II—Amended or Administrative
Adjustment Request (AAR) Items for
Partnerships Filing Form 1065 Only
(ELPs and REMICs Use Part III)
Item D
Each reviewed year partner is required to take into
account its share of adjustments requested in a BBA AAR
if the partnership adjustments result in a positive IU and
the partnership makes the alternative to payment election
discussed under Item C1, earlier. Additionally, each
reviewed year partner is required to take into account its
share of any adjustments requested in a BBA AAR
resulting in an IU of zero or less than zero, or that don't
result in an IU. The determination of whether or not an
adjustment results in an IU amount is discussed under
Item B, earlier.
For information on income, deductions, credits, etc., see
the instructions for Form 1065, Schedules K, K-1, K-2,
and K-3 for the tax year being amended or otherwise
adjusted. See the Instructions for Form 1065 for a list of
forms that may be required.
Note. In Part II of Form 1065-X, “see instructions” refers
to the instructions for Form 1065 and Schedule K-1, not
the Instructions for Form 1065-X.
TEFRA partnerships filing AARs. A TEFRA partnership
filing an AAR to change items that were reported on its
original return must do the following.
The partnership is required to furnish each reviewed
year partner with a Form 8986 reporting its share of the
BBA AAR adjustments. The PR must attest to the
partnership’s compliance with this requirement. The PR
will sign Form 1065-X under item D to declare, under
penalties of perjury, that all statements have been
provided to the reviewed year partners, as required by
these instructions.
1. Determine the required changes to be made.
2. Complete Form 1065-X to identify the changes
being made.
a. On Form 1065-X, check the “TEFRA AAR” box
under Part I.
Item E
b. See later for how to complete Part II, columns (a)
through (c).
Under section 6227(b)(1), the partnership may modify the
IU resulting from adjustments reported in a BBA AAR in
accordance with the provisions under section 6225(c),
disregarding the provisions under paragraphs (2), (7), and
(9). Any modification made to the IU under section
6227(b)(1) must be disclosed and fully explained on Form
8980 included with the AAR.
3. Complete Form 1065-X.
Form 1065-X.
b. Attach amended Schedules K-1 showing the
corrected amounts for each partner.
4. File Form 1065-X and attach any other supporting
documents required.
Note. If the partnership makes an election to push out the
adjustments to the partners as an alternative to payment
of the IU, the modifications to the IU are disregarded and
5. Give a copy of the amended Schedules K-1 to the
applicable partners.
8
Instructions for Form 1065-X (Rev. 08-2023)
related calculations by a pass-through partner, if
applicable. See the instructions for these forms for further
information.
BBA partnerships filing AARs. A BBA partnership filing
an AAR to change items that were reported on its original
return must do the following.
1. Determine the required changes to be made.
Amended Schedules K-1
2. Complete Form 1065-X to identify the changes
If a BBA partnership files an AAR and needs to make its
partners aware of their allocable share of adjustments, it
will furnish to each partner for the reviewed year Form
8986 reflecting the partner’s share of the adjustments (and
shouldn’t provide amended Schedules K-1). The
partnership must also file all Forms 8986 furnished to
partners and Form 8985 with the AAR. See the
being made.
a. On Form 1065-X, check the “BBA AAR” box under
Part I.
b. See later for how to complete Part II, columns (a)
through (c).
3. Figure an IU and determine if there are any
instructions for these forms for further information. ELPs
filing a Form 1065-X as an AAR should see Part III, later.
All other partnerships should file amended Schedules K-1
with Form 1065-X and furnish copies of the amended
Schedules K-1 to the partners.
adjustments that don’t result in an IU.
4. Determine if you will pay the IU or push out the
adjustments to the partners.
a. If paying an IU, report the IU appropriately in Part IV.
Complete Forms 8985 and 8986 (pushout package)
pertaining to the adjustments that don’t result in an IU
(if applicable).
If a TEFRA partnership files Form 1065-X for an AAR, it
should inform the partners receiving the amended
Schedules K-1 that the partnership is filing the AAR. If the
partnership isn’t subject to either the rules for
b. If pushing out all the adjustments to the reviewed
year partners, complete Forms 8985 and 8986
(pushout package).
consolidated audit proceedings (TEFRA proceedings)
under sections 6221 through 6234 (prior to amendment by
BBA) or to the centralized partnership audit regime under
BBA, it must furnish the amended Schedules K-1 to its
partners. The partners must then file their own amended
returns.
5. File Form 1065-X and attach any other supporting
documents required, including copies of Forms 8985 and
8986 (if applicable).
6. If applicable, distribute the Forms 8986 to reviewed
year partners according to the Form 8986 instructions.
Amended or Corrected Schedules K-2 and K-3
for Tax Years Beginning on or After January 1,
2021
NonBBA partnership filing an amended return.
Attach the amended Schedule K-2 and on the header of
the schedule enter “As Amended.” Attach the amended
Schedules K-3 with the amended box checked at the top
of each. The partnership must furnish the amended
Schedules K-3 to its partners.
BBA partnerships filing AARs. Attach the corrected
Schedule K-2 and on the header of the schedule enter “As
per AAR.” When a BBA partnership files an AAR and
needs to make its partners aware of their allocable share
of adjustments, it shouldn’t issue amended Schedules K-3
but rather file Forms 8985 and 8986 with the AAR and
furnish Forms 8986 to partners. Refer to the instructions
for Forms 8985 and 8986.
Column (a). Enter the amounts from Form 1065,
Schedule K, as originally filed or as was previously
adjusted. If the return was changed or audited by the IRS,
enter the amounts as adjusted.
Column (b). Enter the net increase or decrease for each
line being changed. Enter as a positive the amount by
which column (c) exceeds column (a) or enter as a
negative the amount by which column (a) exceeds column
(c). Use parentheses around all amounts that are
negative. Positive amounts are increases and negative
amounts are decreases. Explain the increase or decrease
in Part V.
Column (c). Enter the correct amount. This will be the
sum of column (a) and column (b).
Forms 8985 and 8986
If a BBA partnership files an AAR and it is making an
election under section 6227(b)(2) to have the adjustments
taken into account by the reviewed year partners, or (1)
when the adjustments in the BBA AAR result in an IU of
zero or less than zero; or (2) the adjustments don't result
in an IU, then it will furnish to each partner for the reviewed
year a Form 8986 reflecting the partner’s share of the
adjustments to PRI as a result of a BBA audit or BBA AAR
for situations where the partners are taking into account
the adjustments. The partnership is also required to file
with the AAR all Forms 8986 furnished to partners and
Form 8985. Form 8985 is used to summarize and transmit
Forms 8986, in situations where the partners are taking
into account the adjustments. Adjustments shown on
Form 1065-X, Part II, column (b), should tie to the
Part III—Amended or Administrative
Adjustment Request (AAR) Items for
ELPs and REMICs Only
ELPs only. An ELP may file an AAR to adjust its
partnership items. Generally, the ELP has two choices for
handling the adjustment.
1. It may combine the adjustment with the same
partnership item for the year in which the IRS allows the
adjustment and pass it through to the current partners for
that year. However, if the adjustment involves the
reduction in a credit which exceeds the amount of that
credit for the partnership tax year in which the adjustment
is allowed, the partnership must pay tax in an amount
equal to the excess amount.
adjustments reported on Form 8985, Part IV, column (f).
Form 8985 is also used to report payment(s) made and
Instructions for Form 1065-X (Rev. 08-2023)
9
2. It may elect to not pass the adjustment through to
current partners by paying tax on any IU that results from
the adjustment. If the partnership elects to pay the tax,
enter it on Part III, line 16. Attach a computation of the tax
to Form 1065-X.
amount claimed on the original return. The IRS will figure
any interest due and include it in the refund.
Amended Schedules K-1 or Schedules Q
If the ELP or REMIC is filing Form 1065-X for an AAR,
don’t furnish the amended Schedules K-1 or Schedules Q
to the partners or residual interest holders. If the REMIC
isn’t filing for an AAR and isn’t subject to the rules for
consolidated audit proceedings under sections 6221
through 6231 (prior to amendment by BBA), the REMIC
must furnish the amended Schedules Q to its residual
interest holders.
In either case, the partnership is liable for any interest
and penalties on IUs that result from the adjustment. See
section 6242(b) (prior to amendment by BBA) for details.
Interest is figured on the IU for the period beginning on the
day after the due date (excluding extensions) of the
partnership return for the tax year the adjustment takes
effect or, if earlier, the date the partnership paid the tax
due under (2) above. The adjusted year is the partnership
tax year in which the item being adjusted arose.
ELPs and REMICs. Identify in Part III the amount and
treatment of any item the partnership or REMIC is
changing from the way it was reported on the original
return.
Part IV—Imputed Underpayment (IU)
Under the Centralized Partnership
Audit Regime
BBA AARs must always include a computation of the IU
(even when the IU is zero or less than zero, or the
adjustments don’t result in an IU), as determined under
section 6225(b). Where the adjustments don’t result in an
IU, the IU should be shown as zero. Documentation
should be included with the AAR that supports the
computation of the IU amount. If the resulting IU amount is
zero or less than zero, or the adjustments don’t result in an
IU, or if the partnership is making an election under
section 6227(b)(2) to have the adjustments taken into
account by the reviewed year partners, Part IV, line 1,
should be shown as zero. Otherwise, the IU amount
should be reported on Part IV, line 1.
Column (a). Enter a description of the item that the
partnership or REMIC is adjusting or amending.
Column (b). Enter the amounts from the ELP's or
REMIC's return as originally filed or as it was later
adjusted. If the return was changed or audited by the IRS,
enter the amounts as adjusted.
Column (c). Enter the net increase or net decrease for
each line being changed. Use parentheses around all
amounts that are decreases. Explain the increase or
decrease in Part V.
If the adjustments requested in the AAR result in an IU,
generally the partnership takes the adjustments into
account and must pay the IU. Adjustments requested in
the AAR that result in zero, less than zero, or the
adjustments don’t result in an IU must be taken into
account by each reviewed year partner as if the
partnership had made an election under section 6227(b)
(2), but only with regard to those adjustments that don’t
result in an IU. In this instance, see Forms 8985 and 8986
and their related instructions for reporting amounts not
included in the IU.
The partnership may elect under section 6227(b)(2) to
have the reviewed year partners take into account
adjustments resulting in an IU. If the partnership makes
the election, the partnership isn’t liable for, nor required to
pay, the IU related to the adjustments. Additionally, if the
IU calculation results in an amount that is zero, less than
zero, or the adjustments don’t result in an IU, then all
adjustments are taken into account by the reviewed year
partners. However, the partnership may have withholding
and reporting obligations under chapter 3 or chapter 4
with respect to the adjustments taken into account by the
reviewed year foreign partners. See the instructions for
Form 8985 and Form 8986.
Column (d). Enter the correct amount. This will be the
sum of column (b) and column (c).
Line 6. Show any increase or decrease to the ELP's tax
or other payments.
Line 10. Enter the total tax as follows.
ELPs. Enter the line 6 amounts on line 10.
REMICs. Add the amounts on lines 7 through 9 and
enter the total for each column on line 10.
Line 11. Enter the amount of tax paid with Form 7004,
Application for Automatic Extension of Time To File
Certain Business Income Tax, Information, and Other
Returns.
Line 14. Enter the amount from the “Overpayment” line of
the original return, even if the ELP or REMIC chose to
credit all or part of this amount to the next year's estimated
tax. This amount must be considered in preparing Form
1065-X because any refund due from the original return
will be refunded separately from any additional refund
claimed on Form 1065-X. If the original return was
changed by the IRS and the result was an additional
overpayment of tax, also include that amount on line 14.
Line 16. If the ELP or REMIC doesn't use electronic fund
transfers, including the Electronic Federal Tax Payment
System (EFTPS), enclose a check with this form. Make
the check payable to “United States Treasury.”
Line 17. If the ELP or REMIC is entitled to a refund larger
than the amount claimed on the original return, line 17 will
show only the additional amount of overpayment. This
additional amount will be refunded separately from the
If the partnership elects under section 6227(b)(2) to
have its reviewed year partners take all the adjustments
into account, all modifications by the partnership (that
would have been allowed had the partnership paid an IU)
aren’t allowed and are disregarded.
The partnership must always include an IU calculation,
irrespective of whether the IU is zero (or less than zero, or
the adjustments don’t result in an IU) or the partnership
10
Instructions for Form 1065-X (Rev. 08-2023)
elects under section 6227(b)(2) to have its reviewed year
partners take all the adjustments into account.
Residual grouping. Any adjustment to a PRI that
doesn’t belong in the reallocation, credit, or creditable
expenditure grouping is placed in the residual grouping.
This grouping also includes any adjustment to a PRI that
derives from an item that wouldn’t have been required to
be allocated by the partnership to a partner under section
704(b), such as an adjustment to a liability amount on the
balance sheet.
Subgrouping. Each adjustment is subgrouped
according to how the adjustment would be required to be
taken into account separately under section 702(a). In
general, a subgrouping follows Schedules K, K-1, K-2,
and K-3 line items, including any alpha codes related to a
Schedule K-1 line item.
Under section 6227(b)(1), the partnership may modify
the IU resulting from adjustments reported in a BBA AAR
in accordance with the provisions under section 6225(c),
disregarding the provisions under sections 6225(c)(2), (7),
and (9). Any modification made to the IU under section
6227(b)(1) must be disclosed and fully explained in
documentation included with the AAR.
If modifications are applied to the IU, complete and
attach Form 8980 and report the modified IU amount on
more information on modification.
Negative adjustment. A negative adjustment is any
adjustment that is a decrease in an item of gain or income;
an increase in an item of loss or deduction; an increase in
an item of credit or creditable expenditure; a decrease in
an item of tax, penalty, addition to tax, or additional
amount for which the partnership is liable under chapter 1;
or a decrease to an IU calculated by the partnership for
the tax year.
The applicability of interest and penalties is discussed
BBA AAR may include a prepayment for interest and
penalties. If making such prepayments, the AAR should
include documentation that supports the calculations. A
payment made with Form 1065-X should detail the
portions of the payment that are for the IU, prepaid
estimated interest, and prepaid estimated penalties. The
total of all three should be reported on Part IV, line 2.
Positive adjustment. A positive adjustment is any
adjustment that isn’t a negative adjustment.
Under section 6232(a)(2), partnerships filing a BBA
AAR that has adjustments that result in an IU, and don’t
elect the alternative to payment of the IU (by not electing
to push out the adjustments to the reviewed year
partners), must pay the IU. The IU should be shown on
Form 1065-X, Part IV, line 1, at the time of filing the AAR.
When paying by check, include the name of the
partnership, “Form 1065,” the TIN of the partnership, the
tax year, and “BBA AAR Imputed Underpayment.” Checks
must be made payable to “United States Treasury” and
included with the BBA AAR. If making an electronic
payment, choose the payment description “BBA AAR
Imputed Underpayment” from the list of payment types.
The payment amount, including any prepaid estimated
interest and penalties, should be reported on Part IV,
line 3.
Net positive adjustment. An amount that is greater than
zero which results from netting adjustments within a
grouping or subgrouping. A net positive adjustment
includes a positive adjustment that wasn’t netted with any
other adjustment. A net positive adjustment includes a net
decrease in an item of credit (or creditable expenditure).
Net negative adjustment. Any amount which results
from netting adjustments within a grouping or subgrouping
that isn’t a net positive adjustment. A net negative
adjustment includes a negative adjustment that wasn’t
netted with any other adjustment.
Total netted partnership adjustments (TNPA). The
sum of all net positive adjustments in the reallocation
grouping and the residual grouping.
Adjustments not resulting in an IU. If, after grouping,
subgrouping, and netting, the amount in any grouping or
subgrouping is a net negative or the calculation of the IU is
zero or less than zero, then the adjustments in those net
negative groups or in the calculation of the IU are
adjustments that don’t result in an IU. Any adjustments
that don’t result in an IU are taken into account by the
reviewed year partners in accordance with Regulations
section 301.6227-3.
Figuring the Imputed Underpayment (IU)
Definitions
Reallocation grouping. In general, any adjustment that
allocates or reallocates a PRI to and from a partner or
partners is a reallocation adjustment, except for an
adjustment to a credit or to a creditable expenditure. Each
reallocation adjustment generally results in at least two
separate adjustments, each of which becomes a separate
subgrouping.
Formula for Figuring the IU
Credit grouping. Any adjustment to a PRI that is
reported or could be reported by a partnership as a credit
on the partnership’s return, including a reallocation
adjustment to such PRI, is placed in the credit grouping.
Creditable expenditure grouping. Any adjustment to a
PRI where any person could take the item that is adjusted
(or item as adjusted if the item wasn’t originally reported
by the partnership) as a credit, including a reallocation
adjustment to a creditable expenditure, is placed in the
creditable expenditure grouping.
Figuring the IU
TNPA x rate* =
+ Sum of net positive adjustments
to creditable expenditure and
credit groupings:
= Total IU
* Highest rate in effect for the reviewed year under section 1 or 11.
Instructions for Form 1065-X (Rev. 08-2023)
11
The process of taking the adjustments shown on the
AAR and inputting them into the formula above requires
an understanding of the concepts of grouping,
subgrouping, and netting. There are seven steps
necessary in figuring an IU. The first three steps focus on
grouping, subgrouping, and netting.
for any different allocation of the creditable expenditure
between partners. Two or more adjustments to creditable
expenditures are included within the same subgrouping
only if each adjustment relates to creditable expenditures
in the same separate category, and each adjusted PRI
would be allocated to the partners in the same ratio had
those items been properly reflected on the originally filed
partnership return.
Steps in Figuring the IU
Residual grouping. The residual grouping contains all
adjustments that don’t fit into one of the other groups.
Step 1—Grouping
Recharacterization adjustments. A recharacterization
adjustment will generally result in at least two separate
adjustments within the residual grouping.
Place each adjustment into one of four groupings:
reallocation, credit, creditable expenditure, and residual
groupings.
Reallocation grouping. A reallocation adjustment
generally consists of at least two adjustments, one
positive and one negative, with each in a separate
subgrouping.
One adjustment reverses the improper characterization
•
of the PRI.
The other adjustment makes the proper
•
characterization of the PRI.
The adjustments that result from a recharacterization
•
are placed into separate subgroupings.
One part of the reallocation adjustment reverses the
•
effect of the improper allocation of a PRI.
The other part of the adjustment makes the proper
•
Step 2—Subgrouping
allocation of the PRI.
Under the AAR rules, if one of the reallocation
•
Determine if any adjustment, within one of the four
groupings, needs to be subgrouped. Each adjustment is
subgrouped according to how the adjustment would be
required to be taken into account separately under section
702(a). If any adjustment could be subject to any
preference, limitation, or restriction under the Internal
Revenue Code (or not allowed, in whole or in part, against
ordinary income) if taken into account by any person, the
adjustment is placed in a separate subgrouping from all
other adjustments within the grouping.
adjustments is negative, such negative adjustment must
be pushed out to the proper partner(s).
Don’t net reallocation adjustments. As each part
of a reallocation adjustment is placed in a
!
CAUTION
separate subgrouping within the reallocation
grouping, those adjustments can’t be netted in
accordance with the netting rules.
Example. $100 of ordinary income is being
reallocated from Partner A to Partner B. For purposes of
figuring the IU, there will be two adjustments, each in a
separate subgrouping: a negative adjustment of $100
(reversing improper allocation to Partner A) and a positive
adjustment of $100 (making proper allocation to Partner
B). These two adjustments can’t be netted. As a result, the
total net positive adjustment in the reallocation grouping is
$100 and will be included in the TNPA.
Generally, each separate line item of Schedules K, K-1,
K-2, and K-3 or return schedule (for example, Schedule L)
represents a separate and distinct subgrouping.
Example. Adjustments to ordinary income must be
placed in a different subgrouping than capital gain income
or interest income because each of those items is
required to be separately stated under section 702(a).
Credit grouping.
Subgroupings generally reflect a line item from
•
Generally, a decrease in credits is treated as a positive
•
Schedules K, K-1, K-2, and K-3, including any
adjustment, and an increase in credits is treated as a
negative adjustment.
subcategories of those lines (for example, alpha codes
per the Schedule K-1 instructions or activities broken out
via attached statements). If any line item on Schedules K
and K-1 or other schedules consists of multiple items and
the components are required to be taken into account
separately under the Internal Revenue Code, regulations,
forms, instructions, or other IRS guidance, then such line
item must be further subgrouped.
A reallocation adjustment relating to the credit grouping
•
is placed into two separate subgroupings and won’t be
netted together nor will they be netted with other credit
adjustments.
Creditable expenditure grouping.
Generally, a decrease in creditable expenditures is
•
treated as a positive adjustment to credits, and an
increase in creditable expenditures is treated as a
negative adjustment.
Example. 2019 Schedule K-1, box 13, code A (cash
contributions 60%), and box 13, code B (cash
contributions 30%), are two separate subgroupings.
A reallocation adjustment relating to a creditable
•
The ordinary income (loss) amount reported on
•
expenditure grouping is placed into two separate
subgroupings and won’t be netted together.
Schedule K, line 1, and in box 1 of Schedule K-1 is
sourced from Form 1065, page 1, and is a net amount
consisting of various page 1 line items of income and
expenses. Although those separate page 1 line items are
distinct items of income and expenses, if they are
appropriately netted and included on Schedule K, line 1,
and in box 1 of Schedule K-1, the net amount will be
A creditable expenditure is treated in this manner even
•
if the partners claimed a deduction in lieu of a credit.
Each adjustment to a creditable expenditure is
•
subgrouped based on the separate category of income to
which the creditable expenditure relates and to account
12
Instructions for Form 1065-X (Rev. 08-2023)
considered a single subgrouping, except when such
amount is required to be separately allocated, such as
when the partnership has more than one trade or
business. If the partnership has more than one trade or
business reported on Form 1065, page 1, the net income
(loss) from each trade or business must be separately
reported on Schedule K-1. Each separate activity will
constitute a separate subgrouping and it must be
determined which activity an adjustment to the page 1
item of income and expense relates to for subgrouping
purposes.
excluded from the calculation of the TNPA because those
adjustments don’t result in an IU.
Note. If a positive adjustment to an item is reflected in
positive adjustments to other items, the positive
adjustment of equal or lesser magnitude that is reflected
may be treated as zero solely for purposes of calculating
any IU.
Step 5—Determine the Highest Tax Rate in Effect
Under Section 1 or 11 in the Reviewed Year
If you have a negative adjustment along with a positive
•
adjustment in the same line item of Schedules K and K-1,
you must consider whether they may be properly netted at
the partnership level and whether they are required to be
taken into account separately by any partner. The
adjustments may be subject to a limitation or preference
under the Internal Revenue Code before you can place
them in the same subgrouping (for example, passive and
nonpassive activities).
Step 6—Determine the Sum of Net Positive
Adjustments to Creditable Expenditures and
Credit Groupings That Will Increase the Product of
the TNPA Multiplied by the Highest Rate in Effect
A net decrease to creditable expenditures is treated as
•
a net positive adjustment to credits and increases the
product of the TNPA multiplied by the highest tax rate in
effect. A net increase to creditable expenditures is treated
as a net negative adjustment that is excluded from the
calculation of the TNPA and is an adjustment that doesn't
result in an IU.
A negative adjustment that isn’t otherwise required to
•
be placed in its own subgrouping must be placed in the
same subgrouping as another adjustment if the negative
adjustment and the other adjustment would have been
properly netted at the partnership level and such netted
amount would have been required to be allocated to the
partners of the partnership as a single item for purposes
of section 702(a) or other provision of the Internal
Revenue Code and regulations.
For the credit grouping, a net positive adjustment will
•
increase the product of the TNPA multiplied by the highest
tax rate in effect. A net negative adjustment, including net
negative adjustments resulting from a credit reallocation
adjustment, will be treated as an adjustment that doesn't
result in an IU.
Step 3—Netting
Net all adjustments within each of the groupings and
subgroupings.
Step 7—Figure the IU Based on the Results of
Steps 4 Through 6 and Insert Those Results Into
the IU Formula
Positive adjustments may be netted with other positive
•
adjustments only if they are in the same grouping.
Negative adjustments may be netted with other negative
adjustments only if they are in the same grouping.
Figuring the IU
Positive and negative adjustments may only be netted
•
TNPA x rate* =
against each other if they are in the same subgrouping.
+ Sum of net positive adjustments
to creditable expenditure and
credit groupings:
An adjustment in one grouping or subgrouping may not
•
be netted against an adjustment in any other grouping or
subgrouping.
= Total IU
All adjustments within a subgrouping are netted to
•
determine whether there is a net positive adjustment or
net negative adjustment for that subgrouping.
* Highest rate in effect for the reviewed year under section 1 or 11.
Net positive adjustments from subgroupings or positive
•
Partnership-Partner Amended Return Filed as
Part of Modification
adjustments within a grouping (if subgroupings are
unnecessary) are netted to determine the net positive
adjustment for that grouping. Net negative adjustments
from sub groupings within a grouping are netted to
determine the net negative adjustment for that grouping.
Partnership-partners who are filing amended returns as
part of the modification of the IU during examination under
section 6225(c)(2) will report the applicable payment of
tax on Part IV, line 1. The pass-through partner will
compute the amount like an IU on the adjustments
allocated to it and make the payment with the filing of
Form 1065-X. A payment made with Form 1065-X should
detail the portions that are for the payment of the IU, the
interest, and the penalties. The partnership should
consider all available guidance issued by the IRS when
figuring the amount due. In general, the partnership
should compute its amount due in accordance with the IU
computation in these instructions. See Steps in Figuring
the IU, earlier. The total of the IU, penalties, and interest
should be reported on Part IV, line 2. When paying by
Step 4—Figure the Total Netted Partnership
Adjustments (TNPA)
Each net positive adjustment in a grouping or
•
subgrouping in the residual or reallocation grouping that
results after netting the adjustments is included in the
calculation of the TNPA.
Each net negative adjustment in a grouping or
•
subgrouping that results after netting the adjustments is
Instructions for Form 1065-X (Rev. 08-2023)
13
check, include the name of the partnership-partner, “Form
1065,” the TIN of the partnership-partner, the tax year, and
“Partner Payment for BBA Modification.” Checks must be
made payable to “United States Treasury” and included
with the amended return. If making an electronic payment,
choose the payment description “Partner Pymnt for BBA
Modification” from the list of payment types. The payment
amount, including interest and penalties, should be
reported on Part IV, line 3.
Paperwork Reduction Act Notice. We ask for the
information on this form to carry out the Internal Revenue
laws of the United States. You're required to give us the
information. We need it to ensure that you're complying
with these laws and to allow us to figure and collect the
right amount of tax.
You aren’t required to provide the information requested
on a form that is subject to the Paperwork Reduction Act
unless the form displays a valid OMB control number.
Books or records relating to a form or its instructions must
be retained as long as their contents may become
material in the administration of any Internal Revenue law.
Generally, tax returns and return information are
Partnership-Partners Who Are Allocated
Adjustments That Don’t Result in an IU
If a partnership-partner is paying an amount due as part of
an amended return submitted for purposes of
modification, any adjustments that don’t result in an IU
must be taken into account in the tax year that the amount
is paid by the partnership-partner. However, if there are
only adjustments that don’t result in an IU, those
adjustments are subject to modification by the ultimate
taxpayers who reported the original amounts and not by
the partnership-partner itself. Refer to Regulations section
301.6225-3 for further guidance.
confidential, as required by section 6103.
The time needed to complete and file this form will vary
depending on individual circumstances. The estimated
burden for business taxpayers filing this form is approved
under OMB control number 1545-0123 and is included in
the estimates shown in the instructions for their business
income tax return.
Part V—Explanation of Changes to
Items in Part II and Part III
If you have suggestions for making this form simpler,
we would be happy to hear from you. You can send us
write to: Internal Revenue Service, Tax Forms and
Publications Division, 1111 Constitution Ave. NW,
IR-6526, Washington, DC 20224. Don’t send Form
earlier.
For each amended item, explain in detail the reasons for
the change. Include any computations necessary to
support the amended item.
Changes in allocations. If there is a change in the
allocation of income, gain, loss, deduction, or credit to a
partner, specify the nature and reasons for the changes.
14
Instructions for Form 1065-X (Rev. 08-2023)