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IRS releases draft instructions for BBA partnership forms

Draft instructions for BBA partnership forms

The IRS in early November 2019 posted on its website the following draft instructions with regard to certain partnership forms for the 2019 tax year.


Related content

  • Draft instructions [PDF 227 KB] for Form 8978, Partner’s Audit Liability Under Section 6226
  • Draft instructions [PDF 233 KB] for Form 8986, Partner’s Share of Adjustment(s) to Partnership-Related Item(s)
  • Draft instructions [PDF 244 KB] for Form 8985, Pass-Through Statement — Transmittal/Partnership Adjustment Tracking Report

The draft instructions all reflect “watermark” dates of the first week of November 2019 and include a statement that they are not to be relied upon for filing purposes, and are subject to change and to OMB approval before being officially released.  


The Bipartisan Budget Act of 2015 (BBA) created a new centralized partnership audit regime that applies to partnership tax years beginning on or after January 1, 2018. 

In general, under the BBA regime, tax attributable to partnership adjustments is assessed and collected at the partnership level, unless the partnership makes a “push out” election under section 6226 to have its partners report their share of partnership adjustments.  Partnerships may also request an adjustment to a partnership-related item by filing an administrative adjustment request (AAR) under section 6227.

Draft instructions

According to the draft instructions, Form 8986 was created for partnerships to show each partner’s share of adjustments to partnership-related items as a result of a BBA audit or BBA AAR. Form 8985 will be used by a BBA partnership to summarize and transmit Forms 8986. 

The draft instructions provide that the following persons or entities are to prepare Form 8985 and Form 8986 (in certain contexts):

  • Audited partnerships that have made an election under section 6226
  • Direct or indirect pass-through partners that receive a Form 8986 related to an audited partnership
  • Partnerships that file an AAR under section 6227 and either elect to push out the resulting adjustments to their partners or have adjustments that do not result in an imputed underpayment (IU)
  • Direct or indirect pass-through partners that receive a Form 8986 related to an AAR partnership.

Pursuant to the draft instructions, direct and indirect pass-through partners that receive a Form 8986 must prepare Form 8985 regardless of whether they furnish statements (Forms 8986) to their partners or choose to pay in lieu of furnishing statements to their partners.  Form 8985-V is used by a pass-through partner to submit a tax payment related to a BBA exam or BBA AAR. 

According to its draft instructions, Form 8978 will be used by partners (other than pass-through partners such as partnerships and S corporations) to report adjustments shown on Forms 8986 received from partnerships that have been audited or filed an AAR and that have pushed out adjustments to their partners.  Schedule A to Form 8978 is used: (1) to list all the adjustments a partner receives on Form 8986; and (2) to report any related amounts and adjustments not reported on Form 8986 that may result from changes to partner-level tax attributes as a result of the adjustments from Form 8986.

The draft instructions require Form 8978 to be filed by partners with their timely filed federal income tax return for the partner’s reporting year.  Pursuant to the draft instructions, Forms 8985 and 8986 generally must be submitted to the IRS by fax.  However, the draft instructions note that electronic submission of Forms 8985 and 8986 will be required in the near future. The draft instructions require AAR partnerships that are electing to push out adjustments to their partners or have adjustments that do not result in an IU to include Form 8985 with their AAR along with Forms 8986. 

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