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 non-BBA 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.

If you’re a BBA partnership filing an AAR, Form 1065-X should only be used to make a paper filing. For electronic filing, use Form 8082 in conjunction with Form 1065.

Generally, the criteria used to determine whether the original Form 1065 is required to be filed electronically are also used to determine if the amended return or AAR must be filed electronically.

For information regarding when Form 1065 is required to be filed electronically, and how to electronically file an amended return or AAR for a partnership, see the Instructions for Form 1065.

Caution:

Form 1065-X isn’t used to elect out of BBA. An election out can only be made on a timely filed original return. See the Instructions for Form 1065 for electing out of BBA.

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 paper partnership or REMIC return. See Specific Instructions, later, for information on completing Form 1065-X as an amended return.

AAR under BBA.

File Form 1065-X if you’re the partnership representative (PR) or the designated individual (DI) (if the PR is an entity) requesting an administrative adjustment to correct a previously filed partnership return on behalf of the BBA partnership. See Partnership representative (PR) , later, for the definition of a PR. Go to IRS.gov/BBAAAR for additional information.

AAR-REMICs.

For tax years beginning after 2017, REMICs that had more than one residual interest holder at any time during the tax year and didn’t elect out of the centralized partnership audit regime use Form 1065-X to file an AAR. See Specific Instructions, later, for information on completing Form 1065-X as an AAR.

Tip:

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 agency with which the state return is filed.

Non-BBA 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 the order or instructions of the court authorizing the signing of the return or form.

BBA partnerships.

When filing an AAR, Form 1065-X must be signed by the PR (or the DI if the PR is an entity) for the reviewed year.

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.

AAR partnership.

An AAR partnership is a BBA partnership that has filed, or is filing, an AAR under section 6227.

Adjustment year.

For BBA partnerships, the adjustment year is the partnership tax year in which:

Audited partnership.

For purposes of these instructions, an audited partnership is a BBA partnership that made an election under 6226 and issued Forms 8986 to its partners. The partners of an audited BBA partnership are bound by the adjustments and cannot file a Form 8082 to treat the adjustments inconsistent with the results of the audit.

BBA partnership.

A partnership subject to the centralized partnership audit regime is referred to as a “BBA partnership.” All partnerships with tax years beginning after 2017 are BBA partnerships unless, under section 6221, they make a valid election out of the centralized partnership audit regime. A partner in a BBA partnership is referred to as a “BBA partner.” REMICs subject to the centralized partnership audit regime are also considered BBA partnerships for purposes of these instructions. An AAR filed by a BBA partnership is referred to as a “BBA AAR” and, if one is filed, it must be filed by the PR or the DI if the PR is an entity. Go to IRS.gov/BBAAAR for additional information.

Designated individual (DI).

Where the PR is an entity, the DI is the sole individual appointed by the partnership at the time of the designation of the PR through whom the entity PR acts.

Form 8985, Pass-Through Statement—Transmittal/Partnership Adjustment Tracking Report.

Form 8985 is used by a BBA partnership to summarize and transmit Forms 8986 (by an audited partnership, a partnership filing an AAR, or a pass-through partner) in situations where the partners are taking into account the adjustments. Form 8985 is also used to report payments made and related calculations by a pass-through partner of a BBA partnership, if applicable. See the instructions for these forms for further information.

Form 8986, Partner’s Share of Adjustment(s) to Partnership-Related Item(s).

Form 8986 was created for BBA partnerships and pass-through partners of BBA partnerships to show each partner’s share of adjustments to a PRI as a result of a BBA audit or BBA AAR for situations where the partners are taking into account the adjustments.

Imputed underpayment (IU).

An IU is the amount a partnership is potentially liable for as a result of an adjustment to a partnership-related item (PRI). Whether an adjustment results in an IU is determined in accordance with the rules under Regulations section 301.6225-1, with that amount subject to possible modification under Regulations section 301.6227-2.

Non-BBA 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 referred to as a “non-BBA partnership.”

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. An item or amount is with respect to the partnership if it is shown or reflected, or required to be shown or reflected, on the partnership return or the forms and instructions prescribed by the IRS for the partnership’s tax year or is required under the Internal Revenue laws and related regulations to be maintained in the partnership’s books or records. This includes an IU and an item or amount relating to any transaction with, basis in, or liability of the partnership.

Partnership representative (PR).

Under section 6223, BBA partnerships 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 designated PR is an entity, the partnership must also appoint a DI to act on behalf of the entity PR. The appointed DI must be an individual and may not be an entity. The partnership and all partners are bound by the actions of the PR in dealings with the IRS under BBA. Go to IRS.gov/BBAAAR for additional information. A REMIC that’s a BBA partnership (hasn’t elected out of BBA) would need to designate a PR.

Pass-through entity.

A partnership, S corporation, estate, trust, or REMIC.

Reporting year.

Reporting year is applicable to partners of BBA partnerships. It’s the partner’s tax year(s) that includes the date the AAR partnership furnished Forms 8986 to its partners.

Reviewed year.

For BBA partnerships, the reviewed year is the partnership’s tax year to which a 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.

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.

Schedule K-1.

Schedule K-1 is an 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.

Schedule K-2 is an extension of Form 1065, Schedule K, used to report items of international tax relevance from the operation of a partnership.

Schedule K-3.

Schedule K-3 is an extension of Schedule K-1 (Form 1065) generally used to report to partners their shares of the items reported on Schedule K-2.

Schedule Q.

Schedule Q is a quarterly schedule reporting the residual interest holder’s share of taxable income or net loss from the REMIC.

Tip:

A paid preparer may sign original or amended returns by rubber stamp, mechanical device, or computer software program.

Interest.

Generally, interest is charged on taxes not paid by the due date of the reviewed year return, even if an extension of time to file is granted. Interest is also charged on penalties, such as the 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.

Late payment penalty.

The penalty for not paying the tax when due is usually ½ 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, disregard of rules or regulations, substantial understatements of tax, reportable transaction understatements, and fraud. See sections 6662, 6662A, and 6663.

Interest and penalties applicable to the IU.

Except when the partnership elects to have its partners take into account the adjustments, BBA partnership interest and penalties are the following.

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:

BBA partnerships filing AARs.

A BBA partnership filing an AAR to change items that were reported on its original return must do the following.

Column (a).

Enter the amounts from Form 1065, Schedule K, as originally filed or as previously adjusted. If the return was changed or audited by the IRS (non-BBA partnership only), 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).

Column (a).

Enter a description of the item that the REMIC is adjusting or amending.

Column (b).

Enter the amounts from the 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.

Column (d).

Enter the correct amount. This will be the sum of column (b) and column (c).

Line 9. Total tax.

Add the amounts on lines 6 through 8 and enter the total for each column on line 9.

Line 10. Tax paid with Form 7004.

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 13. Overpayment, if any, as shown on original return or as later adjusted.

Enter the amount from the “Overpayment” line of the original return, even if the 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 13.

Line 15. Tax due.

See Making a Payment , earlier, for ways to pay your tax obligation.

Line 16. Overpayment.

If the REMIC is entitled to a refund larger than the amount claimed on the original return, line 16 will show only the additional amount of overpayment. This additional amount will be refunded separately from the amount claimed on the original return. The IRS will figure any interest due and include it in the refund.

Caution:

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) or when the partnership elects under section 6227(b)(2) to have its reviewed year partners take all the adjustments into account. See Figuring the Imputed Underpayment (IU) , later, for information on how to figure the IU. Also, go to IRS.gov/Businesses/Partnerships/How-To-Figure-an-Imputed-Underpayment.

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.