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

(Rev. December 2022)
Amended Return or Administrative Adjustment Request (AAR)

Contents                                                                Page   rules. Consequently, former ELPs are now treated as other 
Reminders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   1  partnerships under the BBA regime.
Purpose of Form . . . . . . . . . . . . . . . . . . . . . . . . . . . .     2  Election into BBA for tax years beginning before 2018.           A 
Who Must File   . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   2  partnership may make an election into the centralized 
                                                                               partnership audit regime for tax years that begin after November 
What To Attach    . . . . . . . . . . . . . . . . . . . . . . . . . . . .   3  2, 2015, and before January 1, 2018, by filing an AAR. Refer to 
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3  Regulations section 301.9100-22 for detailed information. If the 
Specific Instructions   . . . . . . . . . . . . . . . . . . . . . . . . .   5  AAR is filed on paper, the partnership uses Form 1065-X and 
Part I. Classification of Filer . . . . . . . . . . . . . . . . . . . .     5  must make the election in accordance with section 1101(g)(4) of 
                                                                               BBA.
Part II—Amended or Administrative Adjustment 
Request (AAR) Items for Partnerships Filing                                      Note. An AAR filed with respect to a 2018 short tax period 
                                                                               return by a partnership that is subject to the centralized 
Form 1065 Only (ELPs and REMICs Use Part 
                                                                               partnership audit regime must meet the requirements under 
III) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  7  section 6227.
Forms 8985 and 8986 . . . . . . . . . . . . . . . . . . . . .               8
                                                                               Making the election for eligible tax years on an AAR filed 
Amended Schedules K-1                 . . . . . . . . . . . . . . . . . .   8  on paper. To make the election, the partnership must write 
Amended Sch. K-2, K-3, on/after 1-1-2021 . . . . . .                        8  across the top of Form 1065-X used to file the AAR, “Election 
Part III—Amended or Administrative Adjustment                                  under Section 1101(g)(4)” and attach a statement to the AAR. 
Request (AAR) Items for ELPs and REMICs                                        For the statement requirement, the partnership can use Form 
Only     . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  8  7036, Election Under Section 1101(g)(4) of the Bipartisan 
                                                                               Budget Act of 2015. If Form 7036 is not used, the partnership 
Amended Schedules K-1 or Schedules Q . . . . . . .                          9  may prepare its own statement with the following information.
Part IV—Imputed Underpayment (IU) Under the                                    • The partnership's name, taxpayer identification number (TIN), 
Centralized Partnership Audit Regime                    . . . . . . . . .   9  and the partnership tax year for which the election is being 
Figuring the IU       . . . . . . . . . . . . . . . . . . . . . . . . . .   9  made.
Partnership-Partner Amended Return Filed as                                    • The name, TIN, address, and daytime telephone number of 
                                                                               the individual who signs the statement.
Part of Modification . . . . . . . . . . . . . . . . . . . .                11 • Language indicating that the partnership is electing 
Partnership-Partners Who Are Allocated                                         application of section 1101(c) of BBA for the partnership return 
Adjustments That Do Not Result in an IU. . . . .                            12 for the eligible tax year.
Part V—Explanation of Changes to Items in Part II                              • The information required to properly designate the partnership 
and Part III . . . . . . . . . . . . . . . . . . . . . . . . . . . .        12 representative, as defined by section 6223, which must include 
                                                                               the name, TIN, address, and daytime telephone number of the 
Section references are to the Internal Revenue Code unless                     partnership representative (PR).
otherwise noted.                                                               The following representations must be made with regard to 
                                                                               the statement attached to the election. 
What’s New                                                                     • The partnership is not insolvent and does not reasonably 
For tax years beginning on or after January 1, 2021, use the                   anticipate becoming insolvent before resolution of any 
most recent version of the Form 1065-X. For tax years beginning                adjustment with respect to the partnership tax year for which the 
prior to January 1, 2021, use the September 2018 version of the                election is being made.
Form 1065-X available at IRS.gov/pub/irs-prior/                                • The partnership has not voluntarily filed, and does not 
f1065x--2018.pdf.                                                              reasonably anticipate filing, a petition for relief under title 11 of 
                                                                               the United States Code.
For tax years beginning on or after January 1, 2021, filers of                   The partnership is not subject to, and does not reasonably 
Form 1065-X may need to include amended Schedules K-2 and                      •
                                                                               anticipate becoming subject to, an involuntary petition for relief 
K-3 (Form 1065). See Amended Schedules K-2 and K-3 for Tax                     under title 11 of the United States Code.
Years Beginning on or After January 1, 2021, later.                              The partnership has sufficient assets, and reasonably 
                                                                               •
Future Developments                                                            anticipates having sufficient assets, to pay a potential imputed 
                                                                               underpayment (IU) with respect to the partnership tax year that 
For the latest information about developments related to Form                  may be determined under subchapter C of chapter 63 of the 
1065-X and its instructions, such as legislation enacted after                 Internal Revenue Code, as amended by BBA.
they were published, go to IRS.gov/Form1065X.                                  • A representation, signed under penalties of perjury, that the 
                                                                               individual signing the statement is duly authorized to make the 
Reminders                                                                      election described in Regulations section 301.9100-22 and that, 
The Bipartisan Budget Act of 2015 (BBA) created a new                          to the best of the individual's knowledge and belief, all of the 
centralized partnership audit regime generally effective for                   information contained in the statement is true, correct, and 
partnership tax years beginning after 2017.                                    complete.
The Tax Equity and Fiscal Responsibility Act of 1982                             The statement must be signed and dated by the tax matters 
(TEFRA) generally applied to tax years beginning before 2018.                  partner, as defined under section 6231(a)(7) (prior to 
BBA repealed TEFRA and the electing large partnership (ELP)                    amendment by BBA), and the applicable regulations, or an 

Oct 26, 2022                                                            Cat. No. 57876S

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individual who has the authority to sign the partnership return for Form 1065-X should only be used to make a paper filing. For
the tax year. The fact that an individual dates and signs the electronic filing, use Form 8082 in conjunction with Form 1065 or
statement making the election shall be prima facie evidence that 1065-B, as applicable.
the individual is authorized to make the election on behalf of the Generally, the criteria used to determine whether the original
partnership. Form 1065 or Form 1065-B is required to be filed electronically
Increased research credit reported by a BBA partnership. are also used to determine if the amended return or AAR must
If an increased research credit is reported by a BBA partnership, be filed electronically.
the BBA partnership does not file an amended return. Instead, For information regarding when Form 1065 is required to be
the BBA partnership must file an AAR and attach the following filed electronically, and how to electronically file an amended
five items of information to that AAR. return or AAR for a partnership, see the Instructions for Form
1. Identify all the business components to which the section 1065.
41 research credit relates for that tax year. For information regarding when Form 1065-B is required to
2. For each business component, identify all research be filed electronically, and how to file an AAR for an ELP, see the
activities performed. Instructions for Form 1065-B.

3. Name the individuals who performed each research Who Must File
activity.
4. The information each individual sought to discover. Amended return. Partnerships and real estate mortgage
investment conduits (REMICs) that become aware of incorrect
5. The total qualified employee wage expenses, total items of income, deductions, etc., use Form 1065-X to correct
qualified supply expenses, and total qualified contract research their previously filed partnership or REMIC return. See Specific
expenses for the claim year. This may be done using Form Instructions, later, for information on completing Form 1065-X as
6765, Credit for Increasing Research Activities. an amended return.
As part of the AAR process, the BBA partnership will also AAR-Partnerships (except ELPs). Partnerships that are
submit Forms 8985 and 8986 to the IRS and send Forms 8986 subject to either BBA or TEFRA proceedings use Form 1065-X
to its partners. The BBA partnership is not required to provide to file for an AAR. See Specific Instructions, later, for information
the five items of information again on the Forms 8985 and 8986. on completing Form 1065-X as an AAR.
The BBA partners do not need to attach the five items of
information to their original returns to which their Forms 8986 are Protective TEFRA AARs. Generally, a protective AAR is a
attached. For more information, see Research Credit Claims request for credit or refund based on current litigation or
(Section 41) on Amended Returns Frequently Asked Questions expected changes in tax law or other legislation. The tax matters
at IRS.gov/businesses/corporations/research-credit-claims- partner (TMP) or partner with authority (PWA) files a protective
section-41FAQ. AAR when the right to a refund is contingent on future events
and may not be determinable until after the period for filing an
Note. Unless otherwise noted, references to sections 6221 AAR has expired. Protective AARs are subject to AAR statutes
through 6241 are to Internal Revenue Code sections, as set forth in sections 6227, 6228, and 6229 (prior to amendment
amended by BBA. by BBA). If you are a TMP filing on behalf of the partnership, the
petition period described in section 6228 (prior to amendment by
Purpose of Form BBA) can be extended by using Form 9248, Agreement to
Use Form 1065-X, if you are not filing electronically, to: Extend the Time to File a Petition for Adjustment by the Tax
• Correct items on a previously filed Form 1065, Form 1065-B, Matters Partner With Respect to Partnership Items. A protective
or Form 1066; AAR must clearly state that it is a protective AAR, alert the IRS to
• Make an AAR for a previously filed Form 1065, Form 1065-B, the essential nature of the adjustment, and specify the line item
or Form 1066; or to be protected.
• File an amended return by a partnership-partner of a BBA AAR under BBA. File Form 1065-X if you are the PR or
partnership as part of the modification process of a BBA designated individual (DI) requesting an administrative
proceeding with respect to that BBA partnership. adjustment to correct a previously filed partnership return on
Form 1065-X cannot be used to file a notice of inconsistent behalf of the BBA partnership.
treatment under section 6222 (TEFRA or BBA) or a partner-level AAR-ELPs. ELPs that are not required to electronically file
AAR under section 6227(d) (under TEFRA proceedings). For a Form 1065-B and need to correct errors on a previously filed
definition of TEFRA proceedings, see Definitions, later. Continue Form 1065-B use Form 1065-X to file for an AAR. See Specific
to use Form 8082, Notice of Inconsistent Treatment or Instructions, later, for information on completing Form 1065-X as
Administrative Adjustment Request (AAR), to make those an AAR.
changes.
AAR-REMICs. REMICs that do not meet the small REMIC
Bipartisan Budget Act (BBA). All partnerships with tax years exception under sections 860F(e) and 6231 (prior to amendment
beginning after 2017 are subject to the centralized partnership by BBA), and related regulations, or make the election described
audit regime unless eligible partnerships elect out by making a in section 6231(a)(1)(B)(ii) (prior to amendment by BBA) not to
valid election under section 6221(b). For purposes of these be treated as a small REMIC, use Form 1065-X to file for an
instructions (unless otherwise noted), the centralized partnership AAR. See Specific Instructions, later, for information on
audit regime proceedings under sections 6221 through 6241 will completing Form 1065-X as an AAR.
be referred to as “BBA proceedings.”
When a partnership's or REMIC's federal return is
If you are a nonTEFRA partnership (see Definitions and items TIP changed for any reason, it may affect its state return. For
B and C in Part I, Section 1, later) or a nonBBA partnership more information, contact the state tax agency with
(defined under Definitions, later) filing an amended return which the state return is filed.
electronically, use Form 1065 and see the related instructions. If
you are not filing electronically, use Form 1065-X.

-2- Instructions for Form 1065-X (Rev. Dec. 2022)

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                                                                         could sign the return of the entity in the absence of the REMIC 
When To File                                                             election. Thus, the return of a REMIC that is a corporation or 
Generally, a pass-through entity may file an amended return or           trust would be signed by a corporate officer or a trustee, 
AAR to change items on its return:                                       respectively. For REMICs with only segregated pools of assets, 
• Within 3 years after the later of the date on which the                the return would be signed by any person who could sign the 
partnership return for that year is filed, or the last day for filing    return of the entity owning the assets of the REMIC under 
the partnership return for that year (excluding extensions); and         applicable state law.
• In the case of a TEFRA partnership or REMIC, before a notice 
of final partnership administrative adjustment for that year is          REMICs with a startup day before November 10, 1988. 
mailed to the TMP or Tax Matters Person, or, in the case of an           These REMICs may elect to apply the rules for REMICs with a 
ELP, before the mailing to the partnership of a notice of                startup day after November 9, 1988 (as described in Regulations 
partnership administrative adjustment with respect to that year;         section 1.860F-4(c)(2)(iii)). Otherwise, Form 1066 must be 
• In the case of a BBA partnership, before a notice of an                signed by a residual interest holder or, as provided in section 
administrative proceeding with respect to the tax year is mailed         6903, by a fiduciary, as defined in section 7701(a)(6), who is 
under section 6231; or                                                   acting for the REMIC and who has furnished adequate notice, as 
• In the case of a partnership that is a partner in a BBA                described in Regulations section 301.6903-1(b).
partnership which is filing an amended return for purposes of            In the prior paragraph, the term “startup day” means any day 
BBA partnership modification under section 6225(c)(2), in the            selected by a REMIC that is on or before the first day on which 
time period specified under section 6225(c).                             interests in such REMIC are issued. Otherwise, the startup day 
                                                                         is the day on which the REMIC issued all of its regular and 
What To Attach                                                           residual interests. However, a sponsor may contribute property 
If the corrected amount involves an item that must be supported          to a REMIC in exchange for regular and residual interests over 
with a schedule, statement, or form, attach the appropriate              any period of 10 consecutive days and the REMIC may 
schedule, statement, or form to Form 1065-X. Include the entity's        designate any one of those 10 days as the startup day. The day 
name and employer identification number (EIN) on any                     so designated is then the startup day, and all interests are 
attachments. See the instructions for Form 1065, 1065-B, or              treated as issued on that day.
1066 (as applicable) for a list of forms that may be required.
                                                                         Where To File
  If the attachments needed to support the corrected amount              Form 1065-X must be filed with the service center where the 
include copies of forms or schedules from previously filed tax           original return was filed.
returns, write at the top of each previously filed form or schedule, 
“Copy Only—Do Not Process.”                                              Definitions
  A BBA partnership must attach a schedule to Form 1065-X                TEFRA partnership.   The consolidated audit proceedings of 
that supports the position(s) reported. If the partnership does not      sections 6221 through 6234 (prior to amendment by BBA) are 
make the election under section 6227(b)(2) to have the                   “TEFRA proceedings” and partnerships that are subject to 
adjustments taken into account by the reviewed year partners             TEFRA proceedings are “TEFRA partnerships.” An AAR filed by 
and would like to modify per section 6227(b)(1), it must attach          the TMP of the TEFRA partnership is a TEFRA AAR. Any partner 
Form 8980, Partnership Request for Modification of Imputed               in a TEFRA partnership may file an AAR using Form 8082. 
Underpayments Under IRC Section 6225(c), to support any                  TEFRA proceedings will not apply to partnerships with tax years 
modifications made to the IU, as described in sections 6225(b)           beginning after 2017. A partnership with a tax year beginning 
and 6225(c), and as applied to a BBA AAR under section                   before 2018 that is not subject to TEFRA proceedings is a 
6227(b)(1). See Modifications to an Imputed Underpayment                 “nonTEFRA partnership.”
Included in an Administrative Adjustment Request in the 
Instructions for Form 8980, (Pub. 5346).                                 Pass-through entity.      A partnership (including an ELP), S 
                                                                         corporation, estate, trust, or REMIC.
  In addition, if the ELP or REMIC requests that the IRS 
electronically deposit a refund of $1 million or more, attach Form       Item.  Any item of a partnership, S corporation, estate, trust, or 
8302, Electronic Deposit of Tax Refund of $1 Million or More.            REMIC required to be taken into account for the pass-through 
                                                                         entity's tax year by the partners, shareholders, beneficiaries, 
Who Must Sign                                                            owners, or residual interest holders of that pass-through entity.
NonTEFRA and nonBBA partnerships.        Any partner or limited          Tax matters partner (TMP).    If the partnership is subject to the 
liability company (LLC) member must sign the return. Form                TEFRA procedures, it can designate a partner as the TMP for 
1065-X is not considered to be a return unless it is signed. When        the tax year for which the return is filed. The TMP is a general 
a return is made for a partnership by a receiver, trustee, or            partner (in most cases, the TMP must also be a U.S. person) 
assignee, the fiduciary must sign the return instead of the              designated by the partnership to represent the partners in the 
partner or LLC member. Returns and forms signed by a receiver            consolidated audit and litigation proceedings under sections 
or trustee in bankruptcy on behalf of a partnership must be              6221 through 6234 prior to amendment by BBA (“TEFRA 
accompanied by a copy of the order or instructions of the court          proceedings”). The designation is made by completing the 
authorizing the signing of the return or form.                           Designation of Tax Matters Partner section of Form 1065 used 
                                                                         for tax years beginning before 2018. Additionally, a REMIC may 
BBA partnerships.   The PR or DI, if applicable, must sign the           designate a tax matters person in the same manner in which a 
Form 1065-X. See Partnership representative (PR), later, for the         partnership may designate a TMP under Regulations section 
definition of a PR.                                                      301.6231(a) (7)-1. When applying that section, treat all holders 
TEFRA partnerships.    The TMP must sign the Form 1065-X.                of a residual interest in the REMIC as general partners. The 
See Tax matters partner (TMP), later, for the definition of a TMP.       designation may be made by completing the Designation of Tax 
                                                                         Matters Person section of Form 1066 for tax years beginning 
ELPs. The PWA must sign the Form 1065-X. See Partner with                before 2018.
authority (PWA), later, for the definition of a PWA.                     For an LLC, a member of the LLC is treated as a partner and 
REMICs with a startup day after November 9, 1988.         For            a member-manager is treated as a general partner. A 
these REMICs, Form 1065-X may be signed by any person who                member-manager is any owner of an interest in the LLC who, 

Instructions for Form 1065-X (Rev. Dec. 2022)                         -3-

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alone or together with others, has continuing exclusive authority Schedule K-1. Schedule K-1 is the annual schedule reporting
to make the management decisions necessary to conduct the the partner's, shareholder's, or beneficiary's share of income,
business for which the LLC was formed. If there are no elected deductions, credits, etc., from a partnership, S corporation,
or designated member-managers, each owner is treated as a estate, or domestic trust.
member-manager. For details, see Regulations section
301.6231(a)(7)-2. Schedule K-2. An extension of Schedule K of Form 1065 used
to report items of international tax relevance from the operation
BBA partnership. A partnership that is subject to the of a partnership.
centralized partnership audit regime is a “BBA partnership.” All
partnerships with tax years beginning after 2017 are BBA Schedule K-3. An extension of Schedule K-1 of Form 1065
partnerships unless they make a valid election out of the generally used to report to partners their share of the items
centralized partnership audit regime. A partner in a BBA reported on Schedule K-2.
partnership is a “BBA partner.” An AAR filed by a BBA Schedule Q. Schedule Q is the quarterly schedule reporting
partnership is a “BBA AAR” and must be filed by the PR. the residual interest holder's share of taxable income or net loss
Partnership representative (PR). If the partnership is subject from the REMIC.
to the centralized partnership audit regime, section 6223
provides that the partnership must designate a partner or other Paid Preparer's Information
person with a substantial presence in the United States as the If a partner or an employee of the partnership or REMIC
PR who shall have the sole authority to act on behalf of the completes Form 1065-X, the “Paid Preparer Use Only” section
partnership. If the PR is an entity, the partnership must also should remain blank. In addition, anyone who prepares Form
appoint a DI to act on behalf of the entity PR. The partnership 1065-X but does not charge the partnership or REMIC should
and all partners are bound by the actions of the PR in dealings not complete this section.
with the IRS under BBA.
Generally, anyone who is paid to prepare Form 1065-X must
Partner with authority (PWA). Each ELP must designate a do the following.
partner (or other person) as the PWA who shall have the sole • Sign the return in the space provided for the preparer's
authority to act on behalf of the partnership. See section 6255(b) signature.
(1) (prior to amendment by BBA). If the partnership fails to • Fill in the other blanks in the “Paid Preparer Use Only” area of
designate a PWA, the IRS can select any partner to serve as the the return. A paid preparer cannot use a social security number
partner with such authority. The PWA has the authority to file an in the “Paid Preparer Use Only” box. The paid preparer must use
AAR on behalf of the partnership. The PWA does this by filing a preparer tax identification number (PTIN).
Form 1065-X. • Give the partnership or REMIC a copy of the return in addition
NonBBA partnership. Under BBA, certain partnerships with to the copy to be filed with the IRS.
100 or fewer eligible partners for the tax year can elect out of the Note. A paid preparer may sign original or amended returns by
centralized partnership audit regime. Additional details regarding rubber stamp, mechanical device, or computer software
the election out of the centralized partnership audit regime can program.
be found in the Instructions for Form 1065. A partnership that
elects out of the centralized partnership audit regime is a Interest and Penalties
“nonBBA partnership.”
Interest. Generally, interest is charged on taxes not paid by the
Partnership-related item (PRI). For BBA partnerships, under due date, even if an extension of time to file is granted. Interest is
section 6241(2)(B), a PRI is any item or amount with respect to
also charged on penalties imposed for negligence, fraud,
the partnership that is relevant in determining the income tax
substantial valuation misstatements, substantial
liability of any person, without regard to whether the item or
understatements of tax, and reportable transaction
amount appears on the partnership's return. This includes an IU
understatements. The interest is charged from the due date
and an item or amount relating to any transaction with, basis in,
(including extensions) to the date of payment. The interest
or liability of the partnership.
charge is figured at a rate determined under section 6621.
Adjustment year. For BBA partnerships, the adjustment year is Late payment penalty. The penalty for not paying the tax when
the partnership tax year in which: due is usually / of 1% of the unpaid tax for each month or part 1 2
• In the case of an adjustment pursuant to the decision of a
of a month that the tax remains unpaid. The penalty cannot
court in a proceeding brought under section 6234, such decision exceed 25% of the unpaid tax.
becomes final;
• In the case of an AAR under section 6227, such AAR is filed; Other penalties. Penalties can also be imposed for negligence,
or substantial understatements of tax, reportable transaction
• In any other case, a notice of final partnership adjustment is understatements, and fraud. See sections 6662, 6662A, and
mailed under section 6231 or, if the partnership waives the 6663.
restrictions under section 6232(b) (regarding limitations on Interest and penalties applicable to IU. Except when the
assessments), the waiver is executed by the IRS. partnership elects to have its partners take into account the
Reviewed year. For BBA partnerships, the reviewed year is the adjustments, BBA partnership interest and penalties are the
partnership’s tax year to which a partnership adjustment relates. following.
Reviewed year pass-through partner. For purposes of these • The interest figured with respect to any IU is the interest which
would be determined under chapter 67 for the period beginning
instructions, under BBA, a reviewed year pass-through partner is
on the day after the return due date for the reviewed year and
a pass-through entity that held an interest in a BBA partnership ending on the return due date for the adjustment year, as
at any time during the reviewed year, which is the partnership tax
defined under section 6225(d)(2) or, if earlier, the date the IU is
year to which the partnership adjustment relates. For example, if paid.
the BBA AAR is filed to make an adjustment to income for the
2022 tax year, 2022 is the reviewed year. • 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

-4- Instructions for Form 1065-X (Rev. Dec. 2022)

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chapter 1 for the reviewed year and the IU were an actual TEFRA AAR. The consolidated audit proceedings of sections
underpayment (or understatement) for such year for purposes of 6221 through 6234 (prior to amendment by BBA) are “TEFRA
part II of subchapter A or chapter 68. proceedings” and partnerships that are subject to TEFRA
proceedings are “TEFRA partnerships.” An AAR filed by the
Election to apply the alternative to payment of the IU. If the
TMP of the TEFRA partnership is a TEFRA AAR. Form 8082 is
partners must take into account the adjustments because the
also used by any partner in a TEFRA partnership filing an AAR.
BBA partnership filed an AAR and there are adjustments that do
TEFRA proceedings will not apply to partnerships with tax years
not result in an IU, or if a BBA partnership elects the alternative
beginning after 2017. A partnership with a tax year beginning
to payment of the IU under sections 6227(b)(2) and 6226(c),
before 2018 that is not subject to TEFRA proceedings is a
interest shall be determined:
“nonTEFRA partnership.”
• At the partner level;
• From the due date of the return for the tax year to which the ELP AAR. The ELP procedures were repealed for tax years
increase is attributable (determined by taking into account any beginning after 2017. However, ELPs filing a non-e-filed AAR for
increases attributable to a change in tax attributes for a tax year a tax year that began before 2018 will use Form 1065-X.
under section 6226(b)(2)), until the date of payment; and For partnership tax years beginning after 2017 and part-
• At the section 6621(a)(2) underpayment rate. nerships electing into BBA for tax years beginning after
Judicial review of an AAR (for returns subject to the TE- November 2, 2015, and before January 1, 2018.
FRA procedures or ELPs). If the IRS fails to act on an AAR, BBA AAR. All partnerships with tax years beginning after
the TMP or PWA may file a petition for judicial review with the 2017 are subject to the centralized partnership audit regime
U.S. Tax Court, U.S. Court of Federal Claims, or U.S. District unless an eligible partnership makes a valid election under
Court. The TMP or PWA must file the petition before the date section 6221(b) to elect out of the centralized partnership audit
that is 2 years after the date the TMP or PWA filed the AAR, but regime. Partnerships electing into BBA for tax years beginning
not until after the date that is 6 months from the date of such after November 2, 2015, and before January 1, 2018, are also
filing. The 2-year period may be extended if the IRS and the subject to the centralized partnership audit regime. Partnerships
TMP or PWA agree in writing. For more details, see sections that are subject to the centralized partnership audit procedures
6228 (prior to amendment by BBA) and 6252. of sections 6221 through 6241 are “BBA partnerships.” A
partnership with a tax year beginning after 2017 that is not
Specific Instructions subject to BBA proceedings because it has made a valid
If, after reading the instructions, you are unable to complete an election under section 6221(b) is a nonBBA partnership. An AAR
item in Part I or Part II, enter “See Part V” in the entry space for filed by a BBA partnership is a BBA AAR.
that item and provide the information there. Partnership-partner amended return related to
modification of another partnership’s IU. If a partner that is
Name and Identifying Number itself a partnership (partnership-partner) is filing an amended
return as part of modification of the IU under section 6225(c)(2),
Print or type the legal name of the entity and identifying number check this box.
on the appropriate lines. Include the suite, room, or other unit
number after the street address. If the Post Office does not Section 1—TEFRA/NonTEFRA Determination
deliver mail to the street address and the entity has a P.O. box,
show the box number instead. Item A
If the entity receives its mail in care of a third party (such as If the answer to item A is “Yes,” the partnership return is not
an accountant or attorney), enter on the street address line “C/O” subject to the TEFRA proceedings. You should proceed to item
followed by the third party's name and street address or P.O. E and check the “Not subject to TEFRA” box.
box.
If the entity's address is outside the United States, or its Items B Through E
possessions or territories, enter the information on the line for These items are used to determine if the partnership is subject to
“City or town, state, and ZIP code” in the following order: city, the rules for consolidated audit procedures (TEFRA
province or state, and foreign country. Follow the foreign procedures).
country's practice in placing the postal code in the address. Do Consolidated REMIC proceedings. Generally, the tax
not abbreviate the country name. treatment of REMIC items is determined at the REMIC level in a
consolidated REMIC proceeding, rather than in separate
Part I. Check the Appropriate Box proceedings with individual residual interest holders. A REMIC
An AAR can be filed by a partnership subject to TEFRA subject to consolidated REMIC procedures will have checked
proceedings (TEFRA AAR), a partnership subject to BBA the box on item G on page 3 of its original Form 1066 (for tax
proceedings (BBA AAR), an ELP, and a REMIC. years beginning before January 1, 2018).
If you are a BBA partnership that has received a notice of
administrative proceeding, you may not file an AAR. Also, a Items B and C
partner may not file an AAR on behalf of the BBA partnership in All partnerships with tax years beginning before 2018 (except
which it is a partner unless doing so in its capacity as the PR for ELPs) and REMICs ARE subject to TEFRA partnership audit
that partnership. procedures unless the partnership or REMIC is subject to the
small partnership exception. See section 6231(a)(1)(B) (prior to
An AAR can also be filed by the following partners. amendment by BBA).
• Partners of a TEFRA partnership.
• Residual interest holders. A small partnership is a partnership with 10 or fewer partners
• Partnerships (but only for purposes of providing notice of at all times during the year. All partners must be U.S. individuals
inconsistent treatment with the AAR). See Regulations section and their estates, resident alien individuals, or C corporations.
301.6227-1(a), referring to Regulations section 301.6222-1.
See Part II, later. Note. For making the small partnership determination, a
husband and wife each having their own partnership interest are
For partnership tax years beginning before January 1,
2018 (unless electing into BBA).
Instructions for Form 1065-X (Rev. Dec. 2022) -5-

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considered one partner. An individual who has passed away Item G
during the year and their estate are considered one partner. A substituted return requests that the treatment of an item shown
on the AAR be substituted for the treatment of the item on the
Item D pass-through entity's return. If the IRS allows substituted return
A partnership defined as a small partnership can elect to be treatment, the changes shown on the amended return will be
treated as a TEFRA partnership for tax years beginning before treated as corrections of mathematical or clerical errors, and the
2018. The partnership elects TEFRA treatment by attaching a IRS may assess any resulting tax to the partners or residual
statement to the tax return for the first year they wish the election interest holders without a deficiency or entity level proceeding. In
to be effective. This statement must be signed by all partners. this case, partners or residual interest holders may file amended
See Regulations section 301.6231(a)(1)-1(b). Form 8893, returns requesting refunds. See section 6227(c)(1) (prior to
Election of Partnership Level Tax Treatment, is the statement amendment by BBA).
that can be used to make this election. If you answer “Yes” to
item D, also enter the tax year of the filing of this election in the If the request is not treated as a substituted return, the
space provided. partners or residual interest holders may file amended returns
requesting refunds. The IRS may conduct an examination of the
Item E pass-through entity's return, or take no action on the request.
If, at any time during the tax year, there are more than 10 When a request is not treated as a substituted return, the IRS
partners or any of the following are partners in the partnership, cannot assess tax without a deficiency or entity level
then the partnership is not a small partnership. proceeding. See section 6227(c)(2) (prior to amendment by
• Another partnership. BBA).
• An LLC which files as a partnership or is treated as a ELPs. An ELP cannot request substituted treatment. See
disregarded entity. section 6251(b) (prior to amendment by BBA).
• Any type of trust, including a grantor trust.
• A nominee. Section 2—BBA AAR
• A nonresident alien.
• An S corporation. Item A
If the "Yes" box is checked, complete Form 8979 and attach it to
Table for Determining Which Box To Check in Item E the AAR. See the Instructions for Form 8979, Partnership
IF in item... The box THEN in item E, check... Representative Revocation, Designation, and Resignation, for
checked is... more information.
B No Subject to TEFRA. Note. If you are a BBA partnership, you may not file an AAR
C No Subject to TEFRA. solely for the purpose of changing the PR.
D Yes Subject to TEFRA.
Item B
B and C Yes Not subject to TEFRA. BBA partnerships filing an AAR will need to determine if the
D No Not subject to TEFRA. 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 all available
guidance issued by the IRS in making a determination of
Item F whether or not the AAR results in an IU. Also, see Part IV
Check the box to indicate whether you are filing an amended Imputed Underpayment Under the Centralized Partnership Audit
return or an AAR. Regime, later, for discussion of the IU.
Amended Return. Check this box if you checked the “Not Note. An IU calculation must always be made and presented on
subject to TEFRA” box in item E, and you are not an ELP. This the AAR even if that IU results in zero or less than zero, or the
means that you are filing a request to correct a previously filed adjustments do not result in an IU. For additional information,
nonTEFRA partnership return or REMIC return. see Figuring the Imputed Underpayment (IU), later.
If your partnership or REMIC return meets the exception
under section 860F(e) or section 6231 (prior to amendment by Item C
BBA), and does not file an election to be treated as a TEFRA If the adjustments contained in the BBA AAR result in a positive
partnership under section 6231(a)(1)(B)(ii) (prior to amendment IU, the partnership generally takes the adjustments into account
by BBA), and related regulations, and you received a corrected and pays the IU at the time that the AAR is filed. However, under
Form 1099 or are making changes to income, deductions, or section 6227(b)(2), the partnership can elect to have its
credits, but there are no flow-through changes from a TEFRA reviewed year partners take the adjustments into account. This
partnership, then you are filing an amended return. Check the is an election to push out the adjustments to the partners as an
“Amended Return” box. alternative to payment of the IU. See section 6226(a)(2) for
Administrative Adjustment Request (AAR). Check this box if details. If this valid election is made, the partnership is no longer
you are filing a request to correct a previously filed partnership or liable for the IU, and no payment from the partnership is to be
REMIC return and you are one of the following. made for the IU. If the adjustments contained in the BBA AAR do
• The TMP of the TEFRA partnership or REMIC. The REMIC not result in a positive IU or the BBA partnership makes a valid
must be subject to consolidated REMIC proceedings. For more election under section 6227(b)(2), the partnership must furnish
information on consolidated REMIC proceedings, see the to each partner of the partnership for the reviewed year a Form
Instructions for Form 1066. 8986, Partner’s Share of Adjustment(s) to Partnership-Related
• An ELP correcting a previously filed return. Item(s), reflecting the partner’s share of the adjustments. The
partnership is also required to file with the AAR all Forms 8986
furnished to partners and Form 8985, Pass-Through
Statement—Transmittal/Partnership Adjustment Tracking

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Report. See the instructions for these forms for further Note. In Part II of Form 1065-X, "see instructions" refers to the
information. instructions for Form 1065 and Schedule K-1, not the
Instructions for Form 1065-X.
Item D TEFRA partnerships filing AARs. A TEFRA partnership filing
Each reviewed year partner is required to take into account its an AAR to change items that were reported on its original return
share of adjustments requested in a BBA AAR if the partnership must do the following.
adjustments result in an IU and the partnership makes the
alternative to payment election discussed under Item C, earlier. 1. Determine the required changes to be made.
Additionally, each reviewed year partner is required to take into 2. Complete Form 1065-X to identify the changes being
account its share of any adjustments requested in a BBA AAR made.
that do not result in an IU. The determination of whether or not a. On Form 1065-X, check the “TEFRA AAR” box under Part
an adjustment results in an IU amount is discussed under Item I.
B, earlier. b. See later for how to complete columns (a) through (c) of
The partnership is required to furnish each reviewed year Part II.
partner with a Form 8986 with its share of the BBA AAR 3. Complete Form 1065-X.
adjustments. The PR must attest to the partnership’s compliance a. See Who Must Sign, earlier, for who must sign the Form
with this requirement. The PR will sign the Form 1065-X under 1065-X.
item D to declare, under penalties of perjury, that all statements b. Attach amended Schedules K-1 showing the corrected
have been provided to the reviewed year partners, as required amounts for each partner.
by these instructions.
4. File Form 1065-X and attach any other supporting
Item E documents required.
Under section 6227(b)(1), the partnership may modify the IU 5. Give a copy of the amended Schedules K-1 to the
resulting from adjustments reported in a BBA AAR in applicable partners.
accordance with the provisions under section 6225(c),
disregarding the provisions under paragraphs (2), (7), and (9). TEFRA partner filing an AAR. A partner in a TEFRA
Any modification made to the IU under section 6227(b)(1) must partnership that is filing an AAR to change items associated with
be disclosed and fully explained on Form 8980 included with the its investment in the TEFRA partnership that were reported on its
AAR. original return must do the following.
1. Determine the required changes to be made.
Note. If the partnership makes an election to push out the 2. Complete Form 1065-X to identify the changes being
adjustments to the partners as an alternative to payment of the made.
IU, the modifications to the IU are disregarded and are not
included on the statements provided to the partners. a. On Form 1065-X, check the “TEFRA AAR” box under Part
I.
Section 3—Partnership-Partner Amended b. See below for how to complete columns (a) through (c) of
Part II.
Return Filed as Part of Modification of the
3. Complete Form 1065-X.
Imputed Underpayment (IU) During a BBA Audit
a. See Who Must Sign, earlier, for who must sign the Form
Section 6225(c)(2) allows a BBA partnership under examination 1065-X.
to request specific types of modifications of an IU proposed by b. Attach amended Schedules K-1 showing the corrected
the IRS. One type of modification applies when a partner or amounts for each partner.
indirect partner, including partnership-partners, file an amended
return for the tax year of the partner which includes the end of 4. File Form 1065-X and attach any other supporting
the reviewed year of the BBA partnership under examination. documents required.
See Part I of Form 8980 and the related instructions. 5. Give a copy of the amended Schedules K-1 to any
A BBA partnership under examination will be assigned a applicable partners.
unique audit control number. A partnership-partner using a Form If you are a TEFRA partnership, the IRS will process Form
1065-X to file an amended return as part of a modification under 1065-X following the guidelines set forth in sections 6227(c)(1)
section 6225(c)(2) must include in Section 3 of Form 1065-X the and 6227(c)(2) (prior to amendment by BBA).
name, EIN, reviewed year, and audit control number of the BBA
partnership under examination to which the amended return BBA partnerships filing AARs. A BBA partnership filing an
relates. In addition, if the partnership-partner should not furnish AAR to change items that were reported on its original return
amended Schedules K-1/K-3 to its partners, but instead must must do the following.
pay an amount computed like an IU on the adjustments allocable 1. Determine the required changes to be made.
to it, plus any penalties and interest, see Part IV Imputed 2. Complete Form 1065-X to identify the changes being
Underpayment Under the Centralized Partnership Audit Regime, made.
later, for payment instructions.
a. On Form 1065-X, check the “BBA AAR” box under Part I.
Part II—Amended or Administrative b. See later for how to complete columns (a) through (c) of
Part II.
Adjustment Request (AAR) Items for 3. Figure an IU and determine if there are any adjustments
that do not result in an IU.
Partnerships Filing Form 1065 Only
4. Determine if you will pay the IU or push out the
(ELPs and REMICs Use Part III) adjustments to the partners.
For information on income, deductions, credits, etc., see the a. If paying an IU, report the IU appropriately in Part IV.
instructions for Form 1065, Schedules K and K-1, for the tax Complete Forms 8985 and 8986 (pushout package)
year being amended or otherwise adjusted. See the Instructions
for Form 1065 for a list of forms that may be required.
Instructions for Form 1065-X (Rev. Dec. 2022) -7-

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pertaining to the adjustments that do not result in an IU (if Amended Schedules K-2 and K-3 for Tax Years
applicable).
Beginning on or After January 1, 2021
b. If pushing out all the adjustments to the reviewed year
partners, complete Forms 8985 and 8986 (pushout NonBBA partnership filing an amended return. Attach the
package). amended Schedule K-2 and on the header of the schedule enter
5. File Form 1065-X and attach any other supporting “As Amended.” Attach the amended Schedules K-3 with the
documents required, including copies of Forms 8985 and 8986 amended box checked at the top of each. The partnership must
(if applicable). furnish the amended Schedules K-3 to its partners.
6. If applicable, distribute the Forms 8986 to reviewed year BBA partnerships filing AARs. Attach the amended
partners according to the Form 8986 instructions. Schedule K-2 and on the header of the schedule enter “As
Amended.” If a BBA partnership files an AAR and it needs to
Column (a). Enter the amounts from Schedule K of Form 1065 make its partners aware of their allocable share of adjustments,
as originally filed or as was previously adjusted. If the return was it will not issue amended Schedules K-3 but rather will file Forms
changed or audited by the IRS, enter the amounts as adjusted. 8985 and 8986 with the AAR and furnish Forms 8986 to
Column (b). Enter the net increase or decrease for each line partners. Refer to the instructions for Forms 8985 and 8986.
being changed. Enter as a positive the amount by which column
(c) exceeds column (a) or enter as a negative the amount by Part III—Amended or Administrative
which column (a) exceeds column (c). Use parentheses around Adjustment Request (AAR) Items for
all amounts that are negative. Positive amounts are increases
and negative amounts are decreases. Explain the increase or ELPs and REMICs Only
decrease in Part V. ELPs only. An ELP may file an AAR to adjust its partnership
Column (c). Enter the correct amount. This will be the sum of items. Generally, the ELP has two choices for handling the
column (a) and column (b). adjustment.
1. It may combine the adjustment with the same partnership
Forms 8985 and 8986 item for the year in which the IRS allows the adjustment and
If a BBA partnership files an AAR and it is making an election pass it through to the current partners for that year. However, if
under section 6227(b)(2) to have the adjustments taken into the adjustment involves the reduction in a credit which exceeds
account by the reviewed year partners, and has adjustments that the amount of that credit for the partnership tax year in which the
do not result in an IU, then it will furnish to each partner of the adjustment is allowed, the partnership must pay tax in an
partnership for the reviewed year a Form 8986 reflecting the amount equal to the excess amount.
partner’s share of the adjustments to PRI as a result of a BBA 2. It may elect to not pass the adjustment through to current
audit or BBA AAR for situations where the partners are taking partners by paying tax on any IU that results from the
into account the adjustments. The partnership is also required to adjustment. If the partnership elects to pay the tax, enter it on
file with the AAR all Forms 8986 furnished to partners and Form Part III, line 16. Attach a computation of the tax to Form 1065-X.
8985. Form 8985 is used to summarize and transmit Forms
8986, in situations where the partners are taking into account the In either case, the partnership is liable for any interest and
adjustments. Adjustments shown on the Form 1065-X, Part II, penalties on IUs that result from the adjustment. See section
column (b), should tie to the adjustments reported on the Form 6242(b) (prior to amendment by BBA) for details. Interest is
8985, Part IV, column (f). Form 8985 is also used to report figured on the IU for the period beginning on the day after the
payment(s) made and related calculations by a pass-through due date (excluding extensions) of the partnership return for the
partner, if applicable. See the instructions for these forms for tax year the adjustment takes effect or, if earlier, the date the
further information. partnership paid the tax due under (2) above. The adjusted year
is the partnership tax year in which the item being adjusted
Amended Schedules K-1 arose.
If a BBA partnership files an AAR and it needs to make its ELPs and REMICs. Identify in Part III of Form 1065-X the
partners aware of their allocable share of adjustments, it will amount and treatment of any item the partnership or REMIC is
furnish to each partner of the partnership for the reviewed year a changing from the way it was reported on the original return.
Form 8986 reflecting the partner’s share of the adjustments (and
should not provide amended Schedules K-1). The partnership is Column (a). Enter a description of the item that the partnership
also required to file with the AAR all Forms 8986 furnished to or REMIC is adjusting or amending.
partners and Form 8985. See the instructions for these forms for Column (b). Enter the amounts from the ELP's or REMIC's
further information. ELPs filing a Form 1065-X as an AAR should return as originally filed or as it was later adjusted. If the return
see Part III, later. All other partnerships should file amended was changed or audited by the IRS, enter the amounts as
Schedules K-1 with Form 1065-X and furnish copies of the adjusted.
amended Schedules K-1 to the partners.
Column (c). Enter the net increase or net decrease for each
If a TEFRA partnership is filing Form 1065-X for an AAR, it line being changed. Use parentheses around all amounts that
should inform the partners receiving the amended Schedules are decreases. Explain the increase or decrease in Part V.
K-1 that the partnership is filing the AAR. If the partnership is not
Column (d). Enter the correct amount. This will be the sum of
subject to either the rules for consolidated audit proceedings column (b) and column (c).
(TEFRA proceedings) under sections 6221 through 6234 (prior
to amendment by BBA) or to the centralized partnership audit Line 6. Show any increase or decrease to the ELP's tax or other
regime under BBA, it must furnish the amended Schedules K-1 payments.
to its partners. The partners must then file their own amended Line 10. Enter the total tax as follows.
returns.
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.

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Line 11. Enter the amount of tax deposited with Form 7004, chapter 4 with respect to the adjustments taken into account by
Application for Automatic Extension of Time To File Certain the reviewed year foreign partners. See the instructions for Form
Business Income Tax, Information, and Other Returns. 8985 and Form 8986.
Line 14. Enter the amount from the “Overpayment” line of the If the partnership elects under section 6227(b)(2) to have its
original return, even if the ELP or REMIC chose to credit all or reviewed year partners take all the adjustments into account, all
part of this amount to the next year's estimated tax. This amount modifications by the partnership (that would have been allowed
must be considered in preparing Form 1065-X because any had the partnership paid an IU) are not allowed and disregarded.
refund due from the original return will be refunded separately The partnership must always include an IU calculation,
from any additional refund claimed on Form 1065-X. If the irrespective of whether the IU is zero (or less than zero, or the
original return was changed by the IRS and the result was an adjustments don’t result in an IU) or the partnership elects under
additional overpayment of tax, also include that amount on section 6227(b)(2) to have its reviewed year partners take all the
line 14. adjustments into account.
Line 16. If the ELP or REMIC does not use electronic fund Under section 6227(b)(1), the partnership may modify the IU
transfers, including the Electronic Federal Tax Payment System resulting from adjustments reported in a BBA AAR in
(EFTPS), enclose a check with this form. Make the check accordance with the provisions under section 6225(c),
payable to “United States Treasury.” disregarding the provisions under section 6225(c)(2), (7), and
Line 17. If the ELP or REMIC is entitled to a refund larger than (9). Any modification made to the IU under section 6227(b)(1)
the amount claimed on the original return, line 17 will show only must be disclosed and fully explained in documentation included
the additional amount of overpayment. This additional amount with the AAR.
will be refunded separately from the amount claimed on the If modifications are applied to the IU, complete and attach
original return. The IRS will figure any interest due and include it Form 8980 and report the modified IU amount on Part IV, line 1.
in the refund. See Part I, Section 2, Item E, earlier, for more information on
modification.
Amended Schedules K-1 or Schedules Q
The applicability of interest and penalties is discussed under
If the ELP or REMIC is filing Form 1065-X for an AAR, do not Interest and penalties applicable to IU, earlier. The BBA AAR
furnish the amended Schedules K-1 or Schedules Q to the may include a prepayment for interest and penalties. If making
partners or residual interest holders. If the REMIC is not filing for such prepayments, the AAR should include documentation that
an AAR and is not subject to the rules for consolidated audit supports the calculations. A payment made with Form 1065-X
proceedings under sections 6221 through 6231 (prior to should detail the portion of the payment that is for the IU, the
amendment by BBA), the REMIC must furnish the amended portion that is for prepaid estimated interest, and the portion that
Schedules Q to its residual interest holders. is for prepaid estimated penalties. The total of all three should be
reflected on line 2 of Part IV.
Part IV—Imputed Underpayment (IU)
Under section 6232(a)(2), partnerships filing a BBA AAR that
Under the Centralized Partnership have adjustments that result in an IU, and do not elect the
Audit Regime alternative to payment of the IU (by not electing to push out the
adjustments to the reviewed year partners), must pay the IU,
BBA AARs must always include a computation of the IU (even which should be shown on line 2 in Part IV of Form 1065-X at the
when the IU is zero or less than zero, or the adjustments do not time of filing the AAR. Information to include on the payment
result in an IU) as determined under section 6225(b). Where the made by check is the name of the partnership, “Form 1065,” the
adjustments do not result in an IU, the IU should be shown as TIN of the partnership, the tax year, and “BBA AAR Imputed
zero. Documentation should be included with the AAR that Underpayment.” Checks must be made payable to “United
supports the computation of the IU amount. If the resulting IU States Treasury” and included with the BBA AAR. If making an
amount is zero or less than zero, or the adjustments do not result electronic payment, choose the payment description “BBA AAR
in an IU, or if the partnership is making an election under section Imputed Underpayment” from the list of payment types. The
6227(b)(2) to have the adjustments taken into account by the payment amount, including any prepaid estimated interest and
reviewed year partners, line 1 of Part IV should be shown as penalties, should be reported on Part IV, line 3.
zero. Otherwise, the IU amount should be reported on line 1 of
Part IV. Figuring the Imputed Underpayment (IU)
If the adjustments requested in the AAR result in an IU,
generally the partnership takes the adjustments into account and Definitions
must pay the IU. Adjustments requested in the AAR that result in
a zero IU (or less than zero, or the adjustments do not result in Reallocation grouping. In general, any adjustment that
an IU) must be taken into account by each reviewed year partner allocates or reallocates a PRI to and from a partner or partners is
as if the partnership had made an election under section 6227(b) a reallocation adjustment, except for an adjustment to a credit or
(2), but only with regard to those adjustments that do not result in to a creditable expenditure. Each reallocation adjustment
an IU. In this instance, see Forms 8985 and 8986 and their generally results in at least two separate adjustments, each of
related instructions for reporting amounts not included in the IU. which becomes a separate subgrouping.
Credit grouping. Any adjustment to a PRI that is reported or
The partnership may elect under section 6227(b)(2) to have could be reported by a partnership as a credit on the
the reviewed year partners take into account adjustments partnership’s return, including a reallocation adjustment to such
resulting in an IU. If the partnership makes the election, the PRI, is placed in the credit grouping.
partnership is not liable for, nor required to pay, the IU related to Creditable expenditure grouping. Any adjustment to a PRI
the adjustments. Additionally, if the IU calculation results in an where any person could take the item that is adjusted (or item as
amount that is zero or less than zero, or the adjustments do not adjusted if the item was not originally reported by the
result in an IU, then all adjustments are taken into account by the partnership) as a credit, including a reallocation adjustment to a
reviewed year partners. However, the partnership may have creditable expenditure, is placed in the creditable expenditure
withholding and reporting obligations under chapter 3 or grouping.
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Residual grouping. Any adjustment to a PRI that doesn’t Reallocation grouping. A reallocation adjustment generally
belong in the reallocation, credit, or creditable expenditure consists of at least two adjustments, one positive and one
grouping is placed in the residual grouping. This grouping also negative, with each in a separate subgrouping.
includes any adjustment to a PRI that derives from an item that • One part of the reallocation adjustment reverses the effect of
would not have been required to be allocated by the partnership the improper allocation of a PRI.
to a partner under section 704(b), such as an adjustment to a • The other part of the adjustment makes the proper allocation
liability amount on the balance sheet. of the PRI.
Subgrouping. Each adjustment is subgrouped according to • Under the AAR rules, if one of the reallocation adjustments is
how the adjustment would be required to be taken into account negative, such negative adjustment must be pushed out to the
separately under section 702(a). In general, a subgrouping proper partner(s).
follows the Schedule K/K-1/K-2/K-3 line items, including any Do not net reallocation adjustments. As each part of a
alpha codes related to a Schedule K-1 line item. ! reallocation adjustment is placed in a separate
Negative adjustment. A negative adjustment is any CAUTION subgrouping within the reallocation grouping, those
adjustment that is a decrease in an item of gain or income, an adjustments cannot be netted in accordance with the netting
increase in an item of loss or deduction, or an increase in an rules.
item of credit or creditable expenditure.
Positive adjustment. A positive adjustment is any Example. $100 of ordinary income is being reallocated from
adjustment that is not a negative adjustment. Partner A to Partner B. For purposes of figuring the IU, there will
Net positive adjustment. An amount that is greater than be two adjustments, each in a separate subgrouping: a negative
zero which results from netting adjustments within a grouping or adjustment of $100 (reversing improper allocation to Partner A)
subgrouping. A net positive adjustment includes a positive and a positive adjustment of $100 (making proper allocation to
adjustment that was not netted with any other adjustment. A net Partner B). These two adjustments cannot be netted. As a result,
positive adjustment includes a net decrease in an item of credit the total net positive adjustment in the reallocation grouping is
(or creditable expenditure). $100 and will be included in the TNPA.
Net negative adjustment. Any amount which results from Credit grouping.
netting adjustments within a grouping or subgrouping that is not • Generally, a decrease in credits is treated as a positive
a net positive adjustment. A net negative adjustment includes a adjustment, and an increase in credits is treated as a negative
negative adjustment that was not netted with any other adjustment.
adjustment. • A reallocation adjustment relating to the credit grouping is
Total netted partnership adjustments (TNPA). The sum of placed into two separate subgroupings and will not be netted
all net positive adjustments in the reallocation grouping and the together nor will they be netted with other credit adjustments.
residual grouping. Creditable expenditure grouping.
Adjustments not resulting in an IU. If, after grouping, • Generally, a decrease in creditable expenditures is treated as
subgrouping, and netting, the amount in any grouping or a positive adjustment to credits, and an increase in creditable
subgrouping is a net negative or the calculation of the IU is zero expenditures is treated as a negative adjustment.
or less than zero, then the adjustments in those net negative • A reallocation adjustment relating to a creditable expenditure
groups or in the calculation of the IU are adjustments that do not grouping is placed into two separate subgroupings and will not
result in an IU. Any adjustments that do not result in an IU are be netted together.
taken into account by the reviewed year partners in accordance • A creditable expenditure is treated in this manner even if the
with Regulations section 301.6227-3. partners claimed a deduction in lieu of a credit.
• Each adjustment to a creditable expenditure is subgrouped
based upon the separate category of income to which the
Formula for Figuring the IU creditable expenditure relates and to account for any different
allocation of the creditable expenditure between partners. Two
Figuring the IU or more adjustments to creditable expenditures are included
within the same subgrouping only if each adjustment relates to
TNPA x rate* = creditable expenditures in the same separate category, and
+ Sum of net positive adjustments to each adjusted PRI would be allocated to the partners in the
creditable expenditure and credit same ratio had those items been properly reflected on the
groupings: originally filed partnership return.
= Total Imputed Underpayment (IU) Residual grouping. The residual grouping contains all
* Highest rate in effect for the reviewed year under section 1 or 11. adjustments that do not fit into one of the other groups.
Recharacterization adjustments. A recharacterization
adjustment will generally result in at least two separate
The process of taking the adjustments shown on the AAR adjustments within the residual grouping.
and inputting them into the formula above requires an • One adjustment reverses the improper characterization of the
understanding of the concepts of grouping, subgrouping, and PRI.
netting. There are seven steps necessary in figuring an IU. The • The other adjustment makes the proper characterization of
first three steps focus on grouping, subgrouping, and netting. the PRI.
• The adjustments that result from a recharacterization are
Steps in Figuring the IU placed into separate subgroupings.

Step 1—Grouping Step 2—Subgrouping

Place each adjustment into one of four groupings: reallocation, Determine if any adjustment, within one of the four groupings,
credit, creditable expenditure, and residual 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

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under the Internal Revenue Code (or not allowed, in whole or in      • All adjustments within a subgrouping are netted to determine 
part, against ordinary income) if taken into account by any          whether there is a net positive adjustment or net negative 
person, the adjustment is placed in a separate subgrouping from      adjustment for that subgrouping.
all other adjustments within the grouping.
                                                                     Step 4—Figure the Total Netted Partnership 
  Generally, each separate line item of Schedule K/K-1/K-2/K-3       Adjustments (TNPA)
or return schedule (that is, Schedule L, etc.) represents a 
separate and distinct subgrouping.
                                                                     • Each net positive adjustment in a grouping or subgrouping in 
                                                                     the residual or reallocation grouping that results after netting the 
  Example.   Adjustments to ordinary income must be placed in        adjustments is included in the calculation of the TNPA.
a different subgrouping than capital gain income or interest           Each net negative adjustment in a grouping or subgrouping 
income because each of those items is required to be separately      •
                                                                     that results after netting the adjustments is excluded from the 
stated under section 702(a).                                         calculation of the TNPA because those adjustments do not result 
• Subgroupings generally reflect a line item from Schedule K/        in an IU.
K-1, including any 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             Step 5—Determine the Highest Tax Rate in Effect 
Schedule K/K-1 or other schedules consists of multiple items         Under Section 1 or 11 in the Reviewed Year
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     Step 6—Determine the Sum of Net Positive 
further subgrouped.                                                  Adjustments to Creditable Expenditures and 
  Example.   2019 Schedule K-1, box 13, code A (cash                 Credit Groupings That Will Increase the Product of 
contributions 60%), and box 13, code B (cash contributions           the TNPA Multiplied by the Highest Rate in Effect
30%), are two separate subgroupings.
• The ordinary income/(loss) amount reflected on line 1 of             A net decrease to creditable expenditures is treated as a net 
Schedule K and in box 1 of Schedule K-1 is sourced from Form         •
                                                                     positive adjustment to credits and increases the product of the 
1065, page 1, and is a net amount consisting of various page 1       TNPA multiplied by the highest tax rate in effect. A net increase 
line items of income and expenses. Although those separate           to creditable expenditures is treated as a net negative 
page 1 line items are distinct items of income and expense, if       adjustment that is excluded from the calculation of the TNPA 
they are appropriately netted and included on line 1 of              and is an adjustment that does not result in an IU.
Schedule K and in box 1 of Schedule K-1, the net amount will be        For the credit grouping, a net positive adjustment will increase 
considered a single subgrouping, unless such amount is               •
                                                                     the product of the TNPA multiplied by the highest tax rate in 
required to be separately allocated, such as when the                effect. A net negative adjustment, including net negative 
partnership has more than one trade or business. If the              adjustments resulting from a credit reallocation adjustment, will 
partnership has more than one trade or business reported on          be treated as an adjustment that does not result in an IU.
page 1 of Form 1065, 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      Step 7—Figure the IU Based on the Results of 
must be determined which activity an adjustment to the page 1        Steps 4 Through 6 and Insert Those Results Into 
item of income and expense relates to for subgrouping                the IU Formula
purposes.
• If you have a negative adjustment along with a positive 
adjustment in the same line item of Schedule K/K-1, you must                       Figuring the IU
consider whether they may be properly netted at the partnership                    TNPA x rate* =
level and whether they are required to be taken into account 
separately by any partner because it may be subject to a               + Sum of net positive adjustments to 
limitation or preference under the Internal Revenue Code before        creditable expenditure and credit 
you can place them in the same subgrouping (for example,                           groupings: 
passive/active for separate activities).                               = Total Imputed Underpayment (IU)
• A negative adjustment that is not otherwise required to be           * Highest rate in effect for the reviewed year under section 1 or 11.
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-Partner Amended Return Filed as 
partnership level and such netted amount would have been             Part of Modification
required to be allocated to the partners of the partnership as a     Partnership-partners who are filing amended returns as part of 
single item for purposes of section 702(a) or other provision of     the modification of the IU during examination under section 
the Internal Revenue Code and regulations.                           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 
Step 3—Netting                                                       IU on the adjustments allocated to it and make the payment with 
                                                                     the filing of the Form 1065-X. A payment made with Form 
Net all adjustments within each of the groupings and                 1065-X should detail the portion of the payment that is for the 
subgroupings.                                                        payment of the IU and the portion that is for interest and 
• Positive and negative adjustments may only be netted against       penalties. The partnership should consider all available 
each other if they are in the same subgrouping.                      guidance issued by the IRS when figuring the amount due. In 
• An adjustment in one grouping or subgrouping may not be            general, the partnership should compute its amount due in 
netted against an adjustment in any other grouping or                accordance with the IU computation in these instructions. See 
subgrouping.                                                         Steps in Figuring the IU, earlier. The total of all three should be 
                                                                     reflected on Part IV, line 2. If the payment is made by check, 
Instructions for Form 1065-X (Rev. Dec. 2022)                    -11-

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information to include on the payment is the name of the
partnership-partner, “Form 1065,” the TIN of the Paperwork Reduction Act Notice. We ask for the information
partnership-partner, tax year, and “Partner Payment for BBA on this form to carry out the Internal Revenue laws of the United
Modification.” Checks must be made payable to “United States States. You are required to give us the information. We need it to
Treasury” and included with the amended return. If making an ensure that you are complying with these laws and to allow us to
electronic payment, choose the payment description “Partner figure and collect the right amount of tax.
Pymnt for BBA Modification” from the list of payment types. The You are not required to provide the information requested on
payment amount, including interest and penalties, should be a form that is subject to the Paperwork Reduction Act unless the
reported on Part IV, line 3. form displays a valid OMB control number. Books or records
relating to a form or its instructions must be retained as long as
Partnership-Partners Who Are Allocated their contents may become material in the administration of any
Adjustments That Do Not Result in an IU Internal Revenue law. Generally, tax returns and return
information are confidential, as required by section 6103.
If a partnership-partner is paying an amount due as part of an
amended return submitted for purposes of modification, any The time needed to complete and file this form will vary
adjustments that do not result in an IU must be taken into depending on individual circumstances. The estimated burden
account in the tax year that the amount is paid by the for business taxpayers filing this form is approved under OMB
partnership-partner. However, if there are only adjustments that control number 1545-0123 and is included in the estimates
do not result in an IU, those adjustments are subject to shown in the instructions for their business income tax return.
modification by the ultimate taxpayers who reported the original If you have suggestions for making this form simpler, we
amounts and not by the partnership-partner itself. Refer to would be happy to hear from you. You can send us comments
Regulations section 301.6225-3 for further guidance. from IRS.gov/FormComments. Or you can write to: Internal
Revenue Service, Tax Forms and Publications Division, 1111
Part V—Explanation of Changes to Constitution Ave. NW, IR-6526, Washington, DC 20224. Do not
send Form 1065-X to this address. Instead, see Where To File,
Items in Part II and Part III 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.

-12- Instructions for Form 1065-X (Rev. Dec. 2022)

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