1065-X Instructions for Form 1065-X

Instructions for Form 1065-X

Department of the Treasury
Internal Revenue Service

(Rev. December 2022)

Amended Return or Administrative Adjustment Request (AAR)
Contents

Reminders . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purpose of Form . . . . . . . . . . . . . . . . . . . . . . . .
Who Must File . . . . . . . . . . . . . . . . . . . . . . . . .
What To Attach . . . . . . . . . . . . . . . . . . . . . . . .
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Specific Instructions . . . . . . . . . . . . . . . . . . . . .
Part I. Classification of Filer . . . . . . . . . . . . . . . .
Part II—Amended or Administrative Adjustment
Request (AAR) Items for Partnerships Filing
Form 1065 Only (ELPs and REMICs Use Part
III) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forms 8985 and 8986 . . . . . . . . . . . . . . . . .
Amended Schedules K-1 . . . . . . . . . . . . . .
Amended Sch. K-2, K-3, on/after 1-1-2021 . .
Part III—Amended or Administrative Adjustment
Request (AAR) Items for ELPs and REMICs
Only . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amended Schedules K-1 or Schedules Q . . .
Part IV—Imputed Underpayment (IU) Under the
Centralized Partnership Audit Regime . . . . .
Figuring the IU . . . . . . . . . . . . . . . . . . . . . .
Partnership-Partner Amended Return Filed as
Part of Modification . . . . . . . . . . . . . . . . .
Partnership-Partners Who Are Allocated
Adjustments That Do Not Result in an IU. .
Part V—Explanation of Changes to Items in Part II
and Part III . . . . . . . . . . . . . . . . . . . . . . . . .

.
.
.
.
.
.
.

.
.
.
.
.
.
.

Page
.. 1
.. 2
.. 2
.. 3
.. 3
.. 5
.. 5

.
.
.
.

.
.
.
.

.
.
.
.

.
.
.
.

7
8
8
8

.... 8
.... 9
.... 9
.... 9
. . . 11
. . . 12
. . . 12

Section references are to the Internal Revenue Code unless
otherwise noted.

What’s New

For tax years beginning on or after January 1, 2021, use the
most recent version of the Form 1065-X. For tax years beginning
prior to January 1, 2021, use the September 2018 version of the
Form 1065-X available at IRS.gov/pub/irs-prior/
f1065x--2018.pdf.
For tax years beginning on or after January 1, 2021, filers of
Form 1065-X may need to include amended Schedules K-2 and
K-3 (Form 1065). See Amended Schedules K-2 and K-3 for Tax
Years Beginning on or After January 1, 2021, later.

Future Developments

For the latest information about developments related to Form
1065-X and its instructions, such as legislation enacted after
they were published, go to IRS.gov/Form1065X.

Reminders

The Bipartisan Budget Act of 2015 (BBA) created a new
centralized partnership audit regime generally effective for
partnership tax years beginning after 2017.
The Tax Equity and Fiscal Responsibility Act of 1982
(TEFRA) generally applied to tax years beginning before 2018.
BBA repealed TEFRA and the electing large partnership (ELP)

Oct 26, 2022

rules. Consequently, former ELPs are now treated as other
partnerships under the BBA regime.
Election into BBA for tax years beginning before 2018. A
partnership may make an election into the centralized
partnership audit regime for tax years that begin after November
2, 2015, and before January 1, 2018, by filing an AAR. Refer to
Regulations section 301.9100-22 for detailed information. If the
AAR is filed on paper, the partnership uses Form 1065-X and
must make the election in accordance with section 1101(g)(4) of
BBA.
Note. An AAR filed with respect to a 2018 short tax period
return by a partnership that is subject to the centralized
partnership audit regime must meet the requirements under
section 6227.
Making the election for eligible tax years on an AAR filed
on paper. To make the election, the partnership must write
across the top of Form 1065-X used to file the AAR, “Election
under Section 1101(g)(4)” and attach a statement to the AAR.
For the statement requirement, the partnership can use Form
7036, Election Under Section 1101(g)(4) of the Bipartisan
Budget Act of 2015. If Form 7036 is not used, the partnership
may prepare its own statement with the following information.
• The partnership's name, taxpayer identification number (TIN),
and the partnership tax year for which the election is being
made.
• The name, TIN, address, and daytime telephone number of
the individual who signs the statement.
• Language indicating that the partnership is electing
application of section 1101(c) of BBA for the partnership return
for the eligible tax year.
• The information required to properly designate the partnership
representative, as defined by section 6223, which must include
the name, TIN, address, and daytime telephone number of the
partnership representative (PR).
The following representations must be made with regard to
the statement attached to the election.
• The partnership is not insolvent and does not reasonably
anticipate becoming insolvent before resolution of any
adjustment with respect to the partnership tax year for which the
election is being made.
• The partnership has not voluntarily filed, and does not
reasonably anticipate filing, a petition for relief under title 11 of
the United States Code.
• The partnership is not subject to, and does not reasonably
anticipate becoming subject to, an involuntary petition for relief
under title 11 of the United States Code.
• The partnership has sufficient assets, and reasonably
anticipates having sufficient assets, to pay a potential imputed
underpayment (IU) with respect to the partnership tax year that
may be determined under subchapter C of chapter 63 of the
Internal Revenue Code, as amended by BBA.
• A representation, signed under penalties of perjury, that the
individual signing the statement is duly authorized to make the
election described in Regulations section 301.9100-22 and that,
to the best of the individual's knowledge and belief, all of the
information contained in the statement is true, correct, and
complete.
The statement must be signed and dated by the tax matters
partner, as defined under section 6231(a)(7) (prior to
amendment by BBA), and the applicable regulations, or an

Cat. No. 57876S

Form 1065-X should only be used to make a paper filing. For
electronic filing, use Form 8082 in conjunction with Form 1065 or
1065-B, as applicable.
Generally, the criteria used to determine whether the original
Form 1065 or Form 1065-B is required to be filed electronically
are also used to determine if the amended return or AAR must
be filed electronically.
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.
For information regarding when Form 1065-B is required to
be filed electronically, and how to file an AAR for an ELP, see the
Instructions for Form 1065-B.

individual who has the authority to sign the partnership return for
the tax year. The fact that an individual dates and signs the
statement making the election shall be prima facie evidence that
the individual is authorized to make the election on behalf of the
partnership.
Increased research credit reported by a BBA partnership.
If an increased research credit is reported by a BBA partnership,
the BBA partnership does not file an amended return. Instead,
the BBA partnership must file an AAR and attach the following
five items of information to that AAR.
1. Identify all the business components to which the section
41 research credit relates for that tax year.
2. For each business component, identify all research
activities performed.
3. Name the individuals who performed each research
activity.
4. The information each individual sought to discover.
5. The total qualified employee wage expenses, total
qualified supply expenses, and total qualified contract research
expenses for the claim year. This may be done using Form
6765, Credit for Increasing Research Activities.

Who Must File
Amended return. Partnerships and real estate mortgage
investment conduits (REMICs) that become aware of incorrect
items of income, deductions, etc., use Form 1065-X to correct
their previously filed partnership or REMIC return. See Specific
Instructions, later, for information on completing Form 1065-X as
an amended return.

As part of the AAR process, the BBA partnership will also
submit Forms 8985 and 8986 to the IRS and send Forms 8986
to its partners. The BBA partnership is not required to provide
the five items of information again on the Forms 8985 and 8986.
The BBA partners do not need to attach the five items of
information to their original returns to which their Forms 8986 are
attached. For more information, see Research Credit Claims
(Section 41) on Amended Returns Frequently Asked Questions
at IRS.gov/businesses/corporations/research-credit-claimssection-41FAQ.

AAR-Partnerships (except ELPs). Partnerships that are
subject to either BBA or TEFRA proceedings use Form 1065-X
to file for an AAR. See Specific Instructions, later, for information
on completing Form 1065-X as an AAR.
Protective TEFRA AARs. Generally, a protective AAR is a
request for credit or refund based on current litigation or
expected changes in tax law or other legislation. The tax matters
partner (TMP) or partner with authority (PWA) files a protective
AAR when the right to a refund is contingent on future events
and may not be determinable until after the period for filing an
AAR has expired. Protective AARs are subject to AAR statutes
set forth in sections 6227, 6228, and 6229 (prior to amendment
by BBA). If you are a TMP filing on behalf of the partnership, the
petition period described in section 6228 (prior to amendment by
BBA) can be extended by using Form 9248, Agreement to
Extend the Time to File a Petition for Adjustment by the Tax
Matters Partner With Respect to Partnership Items. A protective
AAR must clearly state that it is a protective AAR, alert the IRS to
the essential nature of the adjustment, and specify the line item
to be protected.

Note. Unless otherwise noted, references to sections 6221
through 6241 are to Internal Revenue Code sections, as
amended by BBA.

Purpose of Form

Use Form 1065-X, if you are not filing electronically, to:
• Correct items on a previously filed Form 1065, Form 1065-B,
or Form 1066;
• Make an AAR for a previously filed Form 1065, Form 1065-B,
or Form 1066; or
• File an amended return by a partnership-partner of a BBA
partnership as part of the modification process of a BBA
proceeding with respect to that BBA partnership.

AAR under BBA. File Form 1065-X if you are the PR or
designated individual (DI) requesting an administrative
adjustment to correct a previously filed partnership return on
behalf of the BBA partnership.

Form 1065-X cannot be used to file a notice of inconsistent
treatment under section 6222 (TEFRA or BBA) or a partner-level
AAR under section 6227(d) (under TEFRA proceedings). For a
definition of TEFRA proceedings, see Definitions, later. Continue
to use Form 8082, Notice of Inconsistent Treatment or
Administrative Adjustment Request (AAR), to make those
changes.

AAR-ELPs. ELPs that are not required to electronically file
Form 1065-B and need to correct errors on a previously filed
Form 1065-B use Form 1065-X to file for an AAR. See Specific
Instructions, later, for information on completing Form 1065-X as
an AAR.
AAR-REMICs. REMICs that do not meet the small REMIC
exception under sections 860F(e) and 6231 (prior to amendment
by BBA), and related regulations, or make the election described
in section 6231(a)(1)(B)(ii) (prior to amendment by BBA) not to
be treated as a small REMIC, use Form 1065-X to file for an
AAR. See Specific Instructions, later, for information on
completing Form 1065-X as an AAR.

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 are a nonTEFRA partnership (see Definitions and items
B and C in Part I, Section 1, later) or a nonBBA partnership
(defined under Definitions, later) filing an amended return
electronically, use Form 1065 and see the related instructions. If
you are not filing electronically, use Form 1065-X.

When a partnership's or REMIC's federal return is

TIP 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.

-2-

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

When To File

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.

Generally, a pass-through entity may file an amended return or
AAR to change items on its return:
• Within 3 years after the later of the date on which the
partnership return for that year is filed, or the last day for filing
the partnership return for that year (excluding extensions); and
• In the case of a TEFRA partnership or REMIC, before a notice
of final partnership administrative adjustment for that year is
mailed to the TMP or Tax Matters Person, or, in the case of an
ELP, before the mailing to the partnership of a notice of
partnership administrative adjustment with respect to that year;
• In the case of a BBA partnership, before a notice of an
administrative proceeding with respect to the tax year is mailed
under section 6231; or
• In the case of a partnership that is a partner in a BBA
partnership which is filing an amended return for purposes of
BBA partnership modification under section 6225(c)(2), in the
time period specified under section 6225(c).

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 one 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.

What To Attach

If the corrected amount involves an item that must be supported
with a schedule, statement, or form, attach the appropriate
schedule, statement, or form to Form 1065-X. Include the entity's
name and employer identification number (EIN) on any
attachments. See the instructions for Form 1065, 1065-B, or
1066 (as applicable) for a list of forms that may be required.

Where To File

If the attachments needed to support the corrected amount
include copies of forms or schedules from previously filed tax
returns, write at the top of each previously filed form or schedule,
“Copy Only—Do Not Process.”

Form 1065-X must be filed with the service center where the
original return was filed.

A BBA partnership must attach a schedule to Form 1065-X
that supports the position(s) reported. If the partnership does not
make the election under section 6227(b)(2) to have the
adjustments taken into account by the reviewed year partners
and would like to modify per section 6227(b)(1), it must attach
Form 8980, Partnership Request for Modification of Imputed
Underpayments Under IRC Section 6225(c), to support any
modifications made to the IU, as described in sections 6225(b)
and 6225(c), and as applied to a BBA AAR under section
6227(b)(1). See Modifications to an Imputed Underpayment
Included in an Administrative Adjustment Request in the
Instructions for Form 8980, (Pub. 5346).

TEFRA partnership. The consolidated audit proceedings of
sections 6221 through 6234 (prior to amendment by BBA) are
“TEFRA proceedings” and partnerships that are subject to
TEFRA proceedings are “TEFRA partnerships.” An AAR filed by
the TMP of the TEFRA partnership is a TEFRA AAR. Any partner
in a TEFRA partnership may file an AAR using Form 8082.
TEFRA proceedings will not apply to partnerships with tax years
beginning after 2017. A partnership with a tax year beginning
before 2018 that is not subject to TEFRA proceedings is a
“nonTEFRA partnership.”

Definitions

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
8302, Electronic Deposit of Tax Refund of $1 Million or More.

Item. Any item of a partnership, S corporation, estate, trust, or
REMIC required to be taken into account for the pass-through
entity's tax year by the partners, shareholders, beneficiaries,
owners, or residual interest holders of that pass-through entity.

Who Must Sign

Tax matters partner (TMP). If the partnership is subject to the
TEFRA procedures, it can designate a partner as the TMP for
the tax year for which the return is filed. The TMP is a general
partner (in most cases, the TMP must also be a U.S. person)
designated by the partnership to represent the partners in the
consolidated audit and litigation proceedings under sections
6221 through 6234 prior to amendment by BBA (“TEFRA
proceedings”). The designation is made by completing the
Designation of Tax Matters Partner section of Form 1065 used
for tax years beginning before 2018. Additionally, a REMIC may
designate a tax matters person in the same manner in which a
partnership may designate a TMP under Regulations section
301.6231(a) (7)-1. When applying that section, treat all holders
of a residual interest in the REMIC as general partners. The
designation may be made by completing the Designation of Tax
Matters Person section of Form 1066 for tax years beginning
before 2018.
For an LLC, a member of the LLC is treated as a partner and
a member-manager is treated as a general partner. A
member-manager is any owner of an interest in the LLC who,

NonTEFRA and nonBBA partnerships. Any partner or limited
liability company (LLC) member must sign the return. Form
1065-X is not 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. The PR or DI, if applicable, must sign the
Form 1065-X. See Partnership representative (PR), later, for the
definition of a PR.
TEFRA partnerships. The TMP must sign the Form 1065-X.
See Tax matters partner (TMP), later, for the definition of a TMP.
ELPs. The PWA must sign the Form 1065-X. See Partner with
authority (PWA), later, for the definition of a PWA.
REMICs with a startup day after November 9, 1988. For
these REMICs, Form 1065-X may be signed by any person who
Instructions for Form 1065-X (Rev. Dec. 2022)

-3-

alone or together with others, has continuing exclusive authority
to make the management decisions necessary to conduct the
business for which the LLC was formed. If there are no elected
or designated member-managers, each owner is treated as a
member-manager. For details, see Regulations section
301.6231(a)(7)-2.

Schedule K-1. Schedule K-1 is the annual schedule reporting
the partner's, shareholder's, or beneficiary's share of income,
deductions, credits, etc., from a partnership, S corporation,
estate, or domestic trust.
Schedule K-2. An extension of Schedule K of Form 1065 used
to report items of international tax relevance from the operation
of a partnership.

BBA partnership. A partnership that is subject to the
centralized partnership audit regime is a “BBA partnership.” All
partnerships with tax years beginning after 2017 are BBA
partnerships unless they make a valid election out of the
centralized partnership audit regime. A partner in a BBA
partnership is a “BBA partner.” An AAR filed by a BBA
partnership is a “BBA AAR” and must be filed by the PR.

Schedule K-3. An extension of Schedule K-1 of Form 1065
generally used to report to partners their share of the items
reported on Schedule K-2.
Schedule Q. Schedule Q is the quarterly schedule reporting
the residual interest holder's share of taxable income or net loss
from the REMIC.

Partnership representative (PR). If the partnership is subject
to the centralized partnership audit regime, section 6223
provides that the partnership must designate a partner or other
person with a substantial presence in the United States as the
PR who shall have the sole authority to act on behalf of the
partnership. If the PR is an entity, the partnership must also
appoint a DI to act on behalf of the entity PR. The partnership
and all partners are bound by the actions of the PR in dealings
with the IRS under BBA.

Paid Preparer's Information

If a partner or an employee of the partnership or REMIC
completes Form 1065-X, the “Paid Preparer Use Only” section
should remain blank. In addition, anyone who prepares Form
1065-X but does not charge the partnership or REMIC should
not complete this section.
Generally, anyone who is paid to prepare Form 1065-X must
do the following.
• Sign the return in the space provided for the preparer's
signature.
• Fill in the other blanks in the “Paid Preparer Use Only” area of
the return. A paid preparer cannot use a social security number
in the “Paid Preparer Use Only” box. The paid preparer must use
a preparer tax identification number (PTIN).
• Give the partnership or REMIC a copy of the return in addition
to the copy to be filed with the IRS.

Partner with authority (PWA). Each ELP must designate a
partner (or other person) as the PWA who shall have the sole
authority to act on behalf of the partnership. See section 6255(b)
(1) (prior to amendment by BBA). If the partnership fails to
designate a PWA, the IRS can select any partner to serve as the
partner with such authority. The PWA has the authority to file an
AAR on behalf of the partnership. The PWA does this by filing
Form 1065-X.
NonBBA partnership. Under BBA, certain partnerships with
100 or fewer eligible partners for the tax year can elect out of the
centralized partnership audit regime. Additional details regarding
the election out of the centralized partnership audit regime can
be found in the Instructions for Form 1065. A partnership that
elects out of the centralized partnership audit regime is a
“nonBBA partnership.”

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

Interest and Penalties
Interest. Generally, interest is charged on taxes not paid by the
due date, even if an extension of time to file is granted. Interest is
also charged on penalties imposed for negligence, fraud,
substantial valuation misstatements, substantial
understatements of tax, and reportable transaction
understatements. The interest is charged from the due date
(including extensions) to the date of payment. The interest
charge is figured at a rate determined under section 6621.

Partnership-related item (PRI). For BBA partnerships, under
section 6241(2)(B), a PRI is any item or amount with respect to
the partnership that is relevant in determining the income tax
liability of any person, without regard to whether the item or
amount appears on the partnership's return. This includes an IU
and an item or amount relating to any transaction with, basis in,
or liability of the partnership.
Adjustment year. For BBA partnerships, the adjustment year is
the partnership tax year in which:
• In the case of an adjustment pursuant to the decision of a
court in a proceeding brought under section 6234, such decision
becomes final;
• In the case of an AAR under section 6227, such AAR is filed;
or
• In any other case, a notice of final partnership adjustment is
mailed under section 6231 or, if the partnership waives the
restrictions under section 6232(b) (regarding limitations on
assessments), the waiver is executed by the IRS.

Late payment penalty. The penalty for not paying the tax when
due is usually 1/2 of 1% of the unpaid tax for each month or part
of a month that the tax remains unpaid. The penalty cannot
exceed 25% of the unpaid tax.
Other penalties. Penalties can also be imposed for negligence,
substantial understatements of tax, reportable transaction
understatements, and fraud. See sections 6662, 6662A, and
6663.
Interest and penalties applicable to IU. Except when the
partnership elects to have its partners take into account the
adjustments, BBA partnership interest and penalties are the
following.
• The interest figured with respect to any IU is the interest which
would be determined under chapter 67 for the period beginning
on the day after the return due date for the reviewed year and
ending on the return due date for the adjustment year, as
defined under section 6225(d)(2) or, if earlier, the date the IU is
paid.
• Any penalty, addition to tax, or additional amount shall be
determined at the partnership level and is applied as if such BBA
partnership had been an individual subject to tax under

Reviewed year. For BBA partnerships, the reviewed year is the
partnership’s tax year to which a partnership adjustment relates.
Reviewed year pass-through partner. For purposes of these
instructions, under BBA, a reviewed year pass-through partner is
a pass-through entity that held an interest in a BBA partnership
at any time during the reviewed year, which is the partnership tax
year to which the partnership adjustment relates. For example, if
the BBA AAR is filed to make an adjustment to income for the
2022 tax year, 2022 is the reviewed year.

-4-

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

TEFRA AAR. The consolidated audit proceedings of sections
6221 through 6234 (prior to amendment by BBA) are “TEFRA
proceedings” and partnerships that are subject to TEFRA
proceedings are “TEFRA partnerships.” An AAR filed by the
TMP of the TEFRA partnership is a TEFRA AAR. Form 8082 is
also used by any partner in a TEFRA partnership filing an AAR.
TEFRA proceedings will not apply to partnerships with tax years
beginning after 2017. A partnership with a tax year beginning
before 2018 that is not subject to TEFRA proceedings is a
“nonTEFRA partnership.”
ELP AAR. The ELP procedures were repealed for tax years
beginning after 2017. However, ELPs filing a non-e-filed AAR for
a tax year that began before 2018 will use Form 1065-X.

chapter 1 for the reviewed year and the IU were an actual
underpayment (or understatement) for such year for purposes of
part II of subchapter A or chapter 68.
Election to apply the alternative to payment of the IU. If the
partners must take into account the adjustments because the
BBA partnership filed an AAR and there are adjustments that do
not 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:
• At the partner level;
• From the due date of the return for the tax year to which the
increase is attributable (determined by taking into account any
increases attributable to a change in tax attributes for a tax year
under section 6226(b)(2)), until the date of payment; and
• At the section 6621(a)(2) underpayment rate.

For partnership tax years beginning after 2017 and partnerships electing into BBA for tax years beginning after
November 2, 2015, and before January 1, 2018.
BBA AAR. All partnerships with tax years beginning after
2017 are subject to the centralized partnership audit regime
unless an eligible partnership makes a valid election under
section 6221(b) to elect out of the centralized partnership audit
regime. Partnerships electing into BBA for tax years beginning
after November 2, 2015, and before January 1, 2018, are also
subject to the centralized partnership audit regime. Partnerships
that are subject to the centralized partnership audit procedures
of sections 6221 through 6241 are “BBA partnerships.” A
partnership with a tax year beginning after 2017 that is not
subject to BBA proceedings because it has made a valid
election under section 6221(b) is a nonBBA partnership. An AAR
filed by a BBA partnership is a BBA AAR.
Partnership-partner amended return related to
modification of another partnership’s IU. If a partner that is
itself a partnership (partnership-partner) is filing an amended
return as part of modification of the IU under section 6225(c)(2),
check this box.

Judicial review of an AAR (for returns subject to the TEFRA procedures or ELPs). If the IRS fails to act on an AAR,
the TMP or PWA may file a petition for judicial review with the
U.S. Tax Court, U.S. Court of Federal Claims, or U.S. District
Court. The TMP or PWA must file the petition before the date
that is 2 years after the date the TMP or PWA filed the AAR, but
not until after the date that is 6 months from the date of such
filing. The 2-year period may be extended if the IRS and the
TMP or PWA agree in writing. For more details, see sections
6228 (prior to amendment by BBA) and 6252.

Specific Instructions

If, after reading the instructions, you are unable to complete an
item in Part I or Part II, enter “See Part V” in the entry space for
that item and provide the information there.

Name and Identifying Number

Print or type the legal name of the entity and identifying number
on the appropriate lines. Include the suite, room, or other unit
number after the street address. If the Post Office does not
deliver mail to the street address and the entity has a P.O. box,
show the box number instead.

Section 1—TEFRA/NonTEFRA Determination
Item A

If the entity receives its mail in care of a third party (such as
an accountant or attorney), enter on the street address line “C/O”
followed by the third party's name and street address or P.O.
box.

If the answer to item A is “Yes,” the partnership return is not
subject to the TEFRA proceedings. You should proceed to item
E and check the “Not subject to TEFRA” box.

Items B Through E

If the entity's address is outside the United States, or its
possessions or territories, enter the information on the line for
“City or town, state, and ZIP code” in the following order: city,
province or state, and foreign country. Follow the foreign
country's practice in placing the postal code in the address. Do
not abbreviate the country name.

These items are used to determine if the partnership is subject to
the rules for consolidated audit procedures (TEFRA
procedures).
Consolidated REMIC proceedings. Generally, the tax
treatment of REMIC items is determined at the REMIC level in a
consolidated REMIC proceeding, rather than in separate
proceedings with individual residual interest holders. A REMIC
subject to consolidated REMIC procedures will have checked
the box on item G on page 3 of its original Form 1066 (for tax
years beginning before January 1, 2018).

Part I. Check the Appropriate Box

An AAR can be filed by a partnership subject to TEFRA
proceedings (TEFRA AAR), a partnership subject to BBA
proceedings (BBA AAR), an ELP, and a REMIC.
If you are a BBA partnership that has received a notice of
administrative proceeding, you may not file an AAR. Also, a
partner may not file an AAR on behalf of the BBA partnership in
which it is a partner unless doing so in its capacity as the PR for
that partnership.

Items B and C

All partnerships with tax years beginning before 2018 (except
ELPs) and REMICs ARE subject to TEFRA partnership audit
procedures unless the partnership or REMIC is subject to the
small partnership exception. See section 6231(a)(1)(B) (prior to
amendment by BBA).

An AAR can also be filed by the following partners.

• Partners of a TEFRA partnership.
• Residual interest holders.
• Partnerships (but only for purposes of providing notice of

A small partnership is a partnership with 10 or fewer partners
at all times during the year. All partners must be U.S. individuals
and their estates, resident alien individuals, or C corporations.

inconsistent treatment with the AAR). See Regulations section
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-

Item G

considered one partner. An individual who has passed away
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
pass-through entity's return. If the IRS allows substituted return
treatment, the changes shown on the amended return will be
treated as corrections of mathematical or clerical errors, and the
IRS may assess any resulting tax to the partners or residual
interest holders without a deficiency or entity level proceeding. In
this case, partners or residual interest holders may file amended
returns requesting refunds. See section 6227(c)(1) (prior to
amendment by BBA).

Item D

A partnership defined as a small partnership can elect to be
treated as a TEFRA partnership for tax years beginning before
2018. The partnership elects TEFRA treatment by attaching a
statement to the tax return for the first year they wish the election
to be effective. This statement must be signed by all partners.
See Regulations section 301.6231(a)(1)-1(b). Form 8893,
Election of Partnership Level Tax Treatment, is the statement
that can be used to make this election. If you answer “Yes” to
item D, also enter the tax year of the filing of this election in the
space provided.

If the request is not treated as a substituted return, the
partners or residual interest holders may file amended returns
requesting refunds. The IRS may conduct an examination of the
pass-through entity's return, or take no action on the request.
When a request is not treated as a substituted return, the IRS
cannot assess tax without a deficiency or entity level
proceeding. See section 6227(c)(2) (prior to amendment by
BBA).

Item E

If, at any time during the tax year, there are more than 10
partners or any of the following are partners in the partnership,
then the partnership is not a small partnership.
• Another partnership.
• An LLC which files as a partnership or is treated as a
disregarded entity.
• Any type of trust, including a grantor trust.
• A nominee.
• A nonresident alien.
• An S corporation.

ELPs. An ELP cannot request substituted treatment. See
section 6251(b) (prior to amendment by BBA).

Section 2—BBA AAR
Item A

If the "Yes" box is checked, complete Form 8979 and attach it to
the AAR. See the Instructions for Form 8979, Partnership
Representative Revocation, Designation, and Resignation, for
more information.

Table for Determining Which Box To Check in Item E
IF in item...

The box
checked is...

THEN in item E, check...

B

No

Subject to TEFRA.

C

No

Subject to TEFRA.

D

Yes

Subject to TEFRA.

B and C

Yes

Not subject to TEFRA.

D

No

Not subject to TEFRA.

Note. If you are a BBA partnership, you may not file an AAR
solely for the purpose of changing the PR.

Item B

BBA partnerships filing an AAR will need to determine if the
partnership adjustments result in an IU. See Figuring the
Imputed Underpayment (IU), later, for information as to how to
figure the IU. The BBA partnership should consider all available
guidance issued by the IRS in making a determination of
whether or not the AAR results in an IU. Also, see Part IV
Imputed Underpayment Under the Centralized Partnership Audit
Regime, later, for discussion of the IU.

Item F

Check the box to indicate whether you are filing an amended
return or an AAR.

Amended Return. Check this box if you checked the “Not
subject to TEFRA” box in item E, and you are not an ELP. This
means that you are filing a request to correct a previously filed
nonTEFRA partnership return or REMIC return.
If your partnership or REMIC return meets the exception
under section 860F(e) or section 6231 (prior to amendment by
BBA), and does not file an election to be treated as a TEFRA
partnership under section 6231(a)(1)(B)(ii) (prior to amendment
by BBA), and related regulations, and you received a corrected
Form 1099 or are making changes to income, deductions, or
credits, but there are no flow-through changes from a TEFRA
partnership, then you are filing an amended return. Check the
“Amended Return” box.

Note. An IU calculation must always be made and presented on
the AAR even if that IU results in zero or less than zero, or the
adjustments do not result in an IU. For additional information,
see Figuring the Imputed Underpayment (IU), later.

Item C

If the adjustments contained in the BBA AAR result in a positive
IU, the partnership generally takes the adjustments into account
and pays the IU at the time that the AAR is filed. However, under
section 6227(b)(2), the partnership can elect to have its
reviewed year partners take the adjustments into account. This
is an election to push out the adjustments to the partners as an
alternative to payment of the IU. See section 6226(a)(2) for
details. If this valid election is made, the partnership is no longer
liable for the IU, and no payment from the partnership is to be
made for the IU. If the adjustments contained in the BBA AAR do
not result in a positive IU or the BBA partnership makes a valid
election under section 6227(b)(2), the partnership must furnish
to each partner of the partnership for the reviewed year a Form
8986, Partner’s Share of Adjustment(s) to Partnership-Related
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

Administrative Adjustment Request (AAR). Check this box if
you are filing a request to correct a previously filed partnership or
REMIC return and you are one of the following.
• The TMP of the TEFRA partnership or REMIC. The REMIC
must be subject to consolidated REMIC proceedings. For more
information on consolidated REMIC proceedings, see the
Instructions for Form 1066.
• An ELP correcting a previously filed return.

-6-

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

Note. In Part II of Form 1065-X, "see instructions" refers to the
instructions for Form 1065 and Schedule K-1, not the
Instructions for Form 1065-X.

Report. See the instructions for these forms for further
information.

Item D

TEFRA partnerships filing AARs. A TEFRA partnership filing
an AAR to change items that were reported on its original return
must do the following.
1. Determine the required changes to be made.
2. Complete Form 1065-X to identify the changes being
made.
a. On Form 1065-X, check the “TEFRA AAR” box under Part
I.
b. See later for how to complete columns (a) through (c) of
Part II.
3. Complete Form 1065-X.
a. See Who Must Sign, earlier, for who must sign the Form
1065-X.
b. Attach amended Schedules K-1 showing the corrected
amounts for each partner.
4. File Form 1065-X and attach any other supporting
documents required.
5. Give a copy of the amended Schedules K-1 to the
applicable partners.

Each reviewed year partner is required to take into account its
share of adjustments requested in a BBA AAR if the partnership
adjustments result in an IU and the partnership makes the
alternative to payment election discussed under Item C, earlier.
Additionally, each reviewed year partner is required to take into
account its share of any adjustments requested in a BBA AAR
that do not result in an IU. The determination of whether or not
an adjustment results in an IU amount is discussed under Item
B, earlier.
The partnership is required to furnish each reviewed year
partner with a Form 8986 with its share of the BBA AAR
adjustments. The PR must attest to the partnership’s compliance
with this requirement. The PR will sign the Form 1065-X under
item D to declare, under penalties of perjury, that all statements
have been provided to the reviewed year partners, as required
by these instructions.

Item E

Under section 6227(b)(1), the partnership may modify the IU
resulting from adjustments reported in a BBA AAR in
accordance with the provisions under section 6225(c),
disregarding the provisions under paragraphs (2), (7), and (9).
Any modification made to the IU under section 6227(b)(1) must
be disclosed and fully explained on Form 8980 included with the
AAR.

TEFRA partner filing an AAR. A partner in a TEFRA
partnership that is filing an AAR to change items associated with
its investment in the TEFRA partnership that were reported on its
original return must do the following.
1. Determine the required changes to be made.
2. Complete Form 1065-X to identify the changes being
made.
a. On Form 1065-X, check the “TEFRA AAR” box under Part
I.
b. See below for how to complete columns (a) through (c) of
Part II.
3. Complete Form 1065-X.
a. See Who Must Sign, earlier, for who must sign the Form
1065-X.
b. Attach amended Schedules K-1 showing the corrected
amounts for each partner.
4. File Form 1065-X and attach any other supporting
documents required.
5. Give a copy of the amended Schedules K-1 to any
applicable partners.

Note. If the partnership makes an election to push out the
adjustments to the partners as an alternative to payment of the
IU, the modifications to the IU are disregarded and are not
included on the statements provided to the partners.

Section 3—Partnership-Partner Amended
Return Filed as Part of Modification of the
Imputed Underpayment (IU) During a BBA Audit

Section 6225(c)(2) allows a BBA partnership under examination
to request specific types of modifications of an IU proposed by
the IRS. One type of modification applies when a partner or
indirect partner, including partnership-partners, file an amended
return for the tax year of the partner which includes the end of
the reviewed year of the BBA partnership under examination.
See Part I of Form 8980 and the related instructions.

A BBA partnership under examination will be assigned a
unique audit control number. A partnership-partner using a Form
1065-X to file an amended return as part of a modification under
section 6225(c)(2) must include in Section 3 of Form 1065-X the
name, EIN, reviewed year, and audit control number of the BBA
partnership under examination to which the amended return
relates. In addition, if the partnership-partner should not furnish
amended Schedules K-1/K-3 to its partners, but instead must
pay an amount computed like an IU on the adjustments allocable
to it, plus any penalties and interest, see Part IV Imputed
Underpayment Under the Centralized Partnership Audit Regime,
later, for payment instructions.

If you are a TEFRA partnership, the IRS will process Form
1065-X following the guidelines set forth in sections 6227(c)(1)
and 6227(c)(2) (prior to amendment by BBA).
BBA partnerships filing AARs. A BBA partnership filing an
AAR to change items that were reported on its original return
must do the following.
1. Determine the required changes to be made.
2. Complete Form 1065-X to identify the changes being
made.
a. On Form 1065-X, check the “BBA AAR” box under Part I.
b. See later for how to complete columns (a) through (c) of
Part II.
3. Figure an IU and determine if there are any adjustments
that do not result in an IU.
4. Determine if you will pay the IU or push out the
adjustments to the partners.
a. If paying an IU, report the IU appropriately in Part IV.
Complete Forms 8985 and 8986 (pushout package)

Part II—Amended or Administrative
Adjustment Request (AAR) Items for
Partnerships Filing Form 1065 Only
(ELPs and REMICs Use Part III)

For information on income, deductions, credits, etc., see the
instructions for Form 1065, Schedules K and K-1, for the tax
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-

Amended Schedules K-2 and K-3 for Tax Years
Beginning on or After January 1, 2021

pertaining to the adjustments that do not result in an IU (if
applicable).
b. If pushing out all the adjustments to the reviewed year
partners, complete Forms 8985 and 8986 (pushout
package).
5. File Form 1065-X and attach any other supporting
documents required, including copies of Forms 8985 and 8986
(if applicable).
6. If applicable, distribute the Forms 8986 to reviewed year
partners according to the Form 8986 instructions.

NonBBA partnership filing an amended return. Attach the
amended Schedule K-2 and on the header of the schedule enter
“As Amended.” Attach the amended Schedules K-3 with the
amended box checked at the top of each. The partnership must
furnish the amended Schedules K-3 to its partners.
BBA partnerships filing AARs. Attach the amended
Schedule K-2 and on the header of the schedule enter “As
Amended.” If a BBA partnership files an AAR and it needs to
make its partners aware of their allocable share of adjustments,
it will not issue amended Schedules K-3 but rather will file Forms
8985 and 8986 with the AAR and furnish Forms 8986 to
partners. Refer to the instructions for Forms 8985 and 8986.

Column (a). Enter the amounts from Schedule K of Form 1065
as originally filed or as was previously adjusted. If the return was
changed or audited by the IRS, enter the amounts as adjusted.
Column (b). Enter the net increase or decrease for each line
being changed. Enter as a positive the amount by which column
(c) exceeds column (a) or enter as a negative the amount by
which column (a) exceeds column (c). Use parentheses around
all amounts that are negative. Positive amounts are increases
and negative amounts are decreases. Explain the increase or
decrease in Part V.

Part III—Amended or Administrative
Adjustment Request (AAR) Items for
ELPs and REMICs Only
ELPs only. An ELP may file an AAR to adjust its partnership
items. Generally, the ELP has two choices for handling the
adjustment.
1. It may combine the adjustment with the same partnership
item for the year in which the IRS allows the adjustment and
pass it through to the current partners for that year. However, if
the adjustment involves the reduction in a credit which exceeds
the amount of that credit for the partnership tax year in which the
adjustment is allowed, the partnership must pay tax in an
amount equal to the excess amount.
2. It may elect to not pass the adjustment through to current
partners by paying tax on any IU that results from the
adjustment. If the partnership elects to pay the tax, enter it on
Part III, line 16. Attach a computation of the tax to Form 1065-X.

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

Forms 8985 and 8986

If a BBA partnership files an AAR and it is making an election
under section 6227(b)(2) to have the adjustments taken into
account by the reviewed year partners, and has adjustments that
do not result in an IU, then it will furnish to each partner of the
partnership for the reviewed year a Form 8986 reflecting the
partner’s share of the adjustments to PRI as a result of a BBA
audit or BBA AAR for situations where the partners are taking
into account the adjustments. The partnership is also required to
file with the AAR all Forms 8986 furnished to partners and Form
8985. Form 8985 is used to summarize and transmit Forms
8986, in situations where the partners are taking into account the
adjustments. Adjustments shown on the Form 1065-X, Part II,
column (b), should tie to the adjustments reported on the Form
8985, Part IV, column (f). Form 8985 is also used to report
payment(s) made and related calculations by a pass-through
partner, if applicable. See the instructions for these forms for
further information.

In either case, the partnership is liable for any interest and
penalties on IUs that result from the adjustment. See section
6242(b) (prior to amendment by BBA) for details. Interest is
figured on the IU for the period beginning on the day after the
due date (excluding extensions) of the partnership return for the
tax year the adjustment takes effect or, if earlier, the date the
partnership paid the tax due under (2) above. The adjusted year
is the partnership tax year in which the item being adjusted
arose.

Amended Schedules K-1

If a BBA partnership files an AAR and it needs to make its
partners aware of their allocable share of adjustments, it will
furnish to each partner of the partnership for the reviewed year a
Form 8986 reflecting the partner’s share of the adjustments (and
should not provide amended Schedules K-1). The partnership is
also required to file with the AAR all Forms 8986 furnished to
partners and Form 8985. See the instructions for these forms for
further information. ELPs filing a Form 1065-X as an AAR should
see Part III, later. All other partnerships should file amended
Schedules K-1 with Form 1065-X and furnish copies of the
amended Schedules K-1 to the partners.

ELPs and REMICs. Identify in Part III of Form 1065-X the
amount and treatment of any item the partnership or REMIC is
changing from the way it was reported on the original return.
Column (a). Enter a description of the item that the partnership
or REMIC is adjusting or amending.
Column (b). Enter the amounts from the ELP's or REMIC's
return as originally filed or as it was later adjusted. If the return
was changed or audited by the IRS, enter the amounts as
adjusted.
Column (c). Enter the net increase or net decrease for each
line being changed. Use parentheses around all amounts that
are decreases. Explain the increase or decrease in Part V.

If a TEFRA partnership is filing Form 1065-X for an AAR, it
should inform the partners receiving the amended Schedules
K-1 that the partnership is filing the AAR. If the partnership is not
subject to either the rules for consolidated audit proceedings
(TEFRA proceedings) under sections 6221 through 6234 (prior
to amendment by BBA) or to the centralized partnership audit
regime under BBA, it must furnish the amended Schedules K-1
to its partners. The partners must then file their own amended
returns.

Column (d). Enter the correct amount. This will be the sum of
column (b) and column (c).
Line 6. Show any increase or decrease to the ELP's tax or other
payments.
Line 10. Enter the total tax as follows.
ELPs. Enter the line 6 amounts on line 10.
REMICs. Add the amounts on lines 7 through 9 and enter the
total for each column on line 10.
-8-

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

Line 11. Enter the amount of tax deposited with Form 7004,
Application for Automatic Extension of Time To File Certain
Business Income Tax, Information, and Other Returns.

chapter 4 with respect to the adjustments taken into account by
the reviewed year foreign partners. See the instructions for Form
8985 and Form 8986.

Line 14. Enter the amount from the “Overpayment” line of the
original return, even if the ELP or REMIC chose to credit all or
part of this amount to the next year's estimated tax. This amount
must be considered in preparing Form 1065-X because any
refund due from the original return will be refunded separately
from any additional refund claimed on Form 1065-X. If the
original return was changed by the IRS and the result was an
additional overpayment of tax, also include that amount on
line 14.

If the partnership elects under section 6227(b)(2) to have its
reviewed year partners take all the adjustments into account, all
modifications by the partnership (that would have been allowed
had the partnership paid an IU) are not allowed and disregarded.
The partnership must always include an IU calculation,
irrespective of whether the IU is zero (or less than zero, or the
adjustments don’t result in an IU) or the partnership elects under
section 6227(b)(2) to have its reviewed year partners take all the
adjustments into account.

Line 16. If the ELP or REMIC does not use electronic fund
transfers, including the Electronic Federal Tax Payment System
(EFTPS), enclose a check with this form. Make the check
payable to “United States Treasury.”

Under section 6227(b)(1), the partnership may modify the IU
resulting from adjustments reported in a BBA AAR in
accordance with the provisions under section 6225(c),
disregarding the provisions under section 6225(c)(2), (7), and
(9). Any modification made to the IU under section 6227(b)(1)
must be disclosed and fully explained in documentation included
with the AAR.

Line 17. If the ELP or REMIC is entitled to a refund larger than
the amount claimed on the original return, line 17 will show only
the additional amount of overpayment. This additional amount
will be refunded separately from the amount claimed on the
original return. The IRS will figure any interest due and include it
in the refund.

If modifications are applied to the IU, complete and attach
Form 8980 and report the modified IU amount on Part IV, line 1.
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
Interest and penalties applicable to IU, earlier. The BBA AAR
may include a prepayment for interest and penalties. If making
such prepayments, the AAR should include documentation that
supports the calculations. A payment made with Form 1065-X
should detail the portion of the payment that is for the IU, the
portion that is for prepaid estimated interest, and the portion that
is for prepaid estimated penalties. The total of all three should be
reflected on line 2 of Part IV.

If the ELP or REMIC is filing Form 1065-X for an AAR, do not
furnish the amended Schedules K-1 or Schedules Q to the
partners or residual interest holders. If the REMIC is not filing for
an AAR and is not subject to the rules for consolidated audit
proceedings under sections 6221 through 6231 (prior to
amendment by BBA), the REMIC must furnish the amended
Schedules Q to its residual interest holders.

Part IV—Imputed Underpayment (IU)
Under the Centralized Partnership
Audit Regime

Under section 6232(a)(2), partnerships filing a BBA AAR that
have adjustments that result in an IU, and do not elect the
alternative to payment of the IU (by not electing to push out the
adjustments to the reviewed year partners), must pay the IU,
which should be shown on line 2 in Part IV of Form 1065-X at the
time of filing the AAR. Information to include on the payment
made by check is the name of the partnership, “Form 1065,” the
TIN of the partnership, the tax year, and “BBA AAR Imputed
Underpayment.” Checks must be made payable to “United
States Treasury” and included with the BBA AAR. If making an
electronic payment, choose the payment description “BBA AAR
Imputed Underpayment” from the list of payment types. The
payment amount, including any prepaid estimated interest and
penalties, should be reported on Part IV, line 3.

BBA AARs must always include a computation of the IU (even
when the IU is zero or less than zero, or the adjustments do not
result in an IU) as determined under section 6225(b). Where the
adjustments do not result in an IU, the IU should be shown as
zero. Documentation should be included with the AAR that
supports the computation of the IU amount. If the resulting IU
amount is zero or less than zero, or the adjustments do not result
in an IU, or if the partnership is making an election under section
6227(b)(2) to have the adjustments taken into account by the
reviewed year partners, line 1 of Part IV should be shown as
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
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
an IU) must be taken into account by each reviewed year partner
as if the partnership had made an election under section 6227(b)
(2), but only with regard to those adjustments that do not result in
an IU. In this instance, see Forms 8985 and 8986 and their
related instructions for reporting amounts not included in the IU.

Definitions
Reallocation grouping. In general, any adjustment that
allocates or reallocates a PRI to and from a partner or partners is
a reallocation adjustment, except for an adjustment to a credit or
to a creditable expenditure. Each reallocation adjustment
generally results in at least two separate adjustments, each of
which becomes a separate subgrouping.
Credit grouping. Any adjustment to a PRI that is reported or
could be reported by a partnership as a credit on the
partnership’s return, including a reallocation adjustment to such
PRI, is placed in the credit grouping.
Creditable expenditure grouping. Any adjustment to a PRI
where any person could take the item that is adjusted (or item as
adjusted if the item was not originally reported by the
partnership) as a credit, including a reallocation adjustment to a
creditable expenditure, is placed in the creditable expenditure
grouping.

The partnership may elect under section 6227(b)(2) to have
the reviewed year partners take into account adjustments
resulting in an IU. If the partnership makes the election, the
partnership is not liable for, nor required to pay, the IU related to
the adjustments. Additionally, if the IU calculation results in an
amount that is zero or less than zero, or the adjustments do not
result in an IU, then all adjustments are taken into account by the
reviewed year partners. However, the partnership may have
withholding and reporting obligations under chapter 3 or
Instructions for Form 1065-X (Rev. Dec. 2022)

-9-

Reallocation grouping. A reallocation adjustment generally
consists of at least two adjustments, one positive and one
negative, with each in a separate subgrouping.
• One part of the reallocation adjustment reverses the effect of
the improper allocation of a PRI.
• The other part of the adjustment makes the proper allocation
of the PRI.
• Under the AAR rules, if one of the reallocation adjustments is
negative, such negative adjustment must be pushed out to the
proper partner(s).

Residual grouping. Any adjustment to a PRI that doesn’t
belong in the reallocation, credit, or creditable expenditure
grouping is placed in the residual grouping. This grouping also
includes any adjustment to a PRI that derives from an item that
would not have been required to be allocated by the partnership
to a partner under section 704(b), such as an adjustment to a
liability amount on the balance sheet.
Subgrouping. Each adjustment is subgrouped according to
how the adjustment would be required to be taken into account
separately under section 702(a). In general, a subgrouping
follows the Schedule K/K-1/K-2/K-3 line items, including any
alpha codes related to a Schedule K-1 line item.
Negative adjustment. A negative adjustment is any
adjustment that is a decrease in an item of gain or income, an
increase in an item of loss or deduction, or an increase in an
item of credit or creditable expenditure.
Positive adjustment. A positive adjustment is any
adjustment that is not a negative adjustment.
Net positive adjustment. An amount that is greater than
zero which results from netting adjustments within a grouping or
subgrouping. A net positive adjustment includes a positive
adjustment that was not netted with any other adjustment. A net
positive adjustment includes a net decrease in an item of credit
(or creditable expenditure).
Net negative adjustment. Any amount which results from
netting adjustments within a grouping or subgrouping that is not
a net positive adjustment. A net negative adjustment includes a
negative adjustment that was not netted with any other
adjustment.
Total netted partnership adjustments (TNPA). The sum of
all net positive adjustments in the reallocation grouping and the
residual grouping.
Adjustments not resulting in an IU. If, after grouping,
subgrouping, and netting, the amount in any grouping or
subgrouping is a net negative or the calculation of the IU is zero
or less than zero, then the adjustments in those net negative
groups or in the calculation of the IU are adjustments that do not
result in an IU. Any adjustments that do not result in an IU are
taken into account by the reviewed year partners in accordance
with Regulations section 301.6227-3.

Do not net reallocation adjustments. As each part of a
reallocation adjustment is placed in a separate
CAUTION subgrouping within the reallocation grouping, those
adjustments cannot be netted in accordance with the netting
rules.

!

Steps in Figuring the IU

Example. $100 of ordinary income is being reallocated from
Partner A to Partner B. For purposes of figuring the IU, there will
be two adjustments, each in a separate subgrouping: a negative
adjustment of $100 (reversing improper allocation to Partner A)
and a positive adjustment of $100 (making proper allocation to
Partner B). These two adjustments cannot be netted. As a result,
the total net positive adjustment in the reallocation grouping is
$100 and will be included in the TNPA.
Credit grouping.
• Generally, a decrease in credits is treated as a positive
adjustment, and an increase in credits is treated as a negative
adjustment.
• A reallocation adjustment relating to the credit grouping is
placed into two separate subgroupings and will not be netted
together nor will they be netted with other credit adjustments.
Creditable expenditure grouping.
• Generally, a decrease in creditable expenditures is treated as
a positive adjustment to credits, and an increase in creditable
expenditures is treated as a negative adjustment.
• A reallocation adjustment relating to a creditable expenditure
grouping is placed into two separate subgroupings and will not
be netted together.
• A creditable expenditure is treated in this manner even if the
partners claimed a deduction in lieu of a credit.
• Each adjustment to a creditable expenditure is subgrouped
based upon the separate category of income to which the
creditable expenditure relates and to account for any different
allocation of the creditable expenditure between partners. Two
or more adjustments to creditable expenditures are included
within the same subgrouping only if each adjustment relates to
creditable expenditures in the same separate category, and
each adjusted PRI would be allocated to the partners in the
same ratio had those items been properly reflected on the
originally filed partnership return.
Residual grouping. The residual grouping contains all
adjustments that do not fit into one of the other groups.
Recharacterization adjustments. A recharacterization
adjustment will generally result in at least two separate
adjustments within the residual grouping.
• One adjustment reverses the improper characterization of the
PRI.
• The other adjustment makes the proper characterization of
the PRI.
• The adjustments that result from a recharacterization are
placed into separate subgroupings.

Step 1—Grouping

Step 2—Subgrouping

Place each adjustment into one of four groupings: reallocation,
credit, creditable expenditure, and residual groupings.

Determine if any adjustment, within one of the four groupings,
needs to be subgrouped. Each adjustment is subgrouped
according to how the adjustment would be required to be taken
into account separately under section 702(a). If any adjustment
could be subject to any preference, limitation, or restriction

Formula for Figuring the IU
Figuring the IU
TNPA x rate* =
+ Sum of net positive adjustments to
creditable expenditure and credit
groupings:
= Total Imputed Underpayment (IU)
* Highest rate in effect for the reviewed year under section 1 or 11.

The process of taking the adjustments shown on the AAR
and inputting them into the formula above requires an
understanding of the concepts of grouping, subgrouping, and
netting. There are seven steps necessary in figuring an IU. The
first three steps focus on grouping, subgrouping, and netting.

-10-

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

• All adjustments within a subgrouping are netted to determine
whether there is a net positive adjustment or net negative
adjustment for that subgrouping.

under the Internal Revenue Code (or not allowed, in whole or in
part, against ordinary income) if taken into account by any
person, the adjustment is placed in a separate subgrouping from
all other adjustments within the grouping.

Step 4—Figure the Total Netted Partnership
Adjustments (TNPA)

Generally, each separate line item of Schedule K/K-1/K-2/K-3
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
adjustments is included in the calculation of the TNPA.
• Each net negative adjustment in a grouping or subgrouping
that results after netting the adjustments is excluded from the
calculation of the TNPA because those adjustments do not result
in an IU.

Example. Adjustments to ordinary income must be placed in
a different subgrouping than capital gain income or interest
income because each of those items is required to be separately
stated under section 702(a).
• Subgroupings generally reflect a line item from Schedule K/
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
Schedule K/K-1 or other schedules consists of multiple items
and the components are required to be taken into account
separately under the Internal Revenue Code, regulations, forms,
instructions, or other IRS guidance, then such line item must be
further subgrouped.

Step 5—Determine the Highest Tax Rate in Effect
Under Section 1 or 11 in the Reviewed Year
Step 6—Determine the Sum of Net Positive
Adjustments to Creditable Expenditures and
Credit Groupings That Will Increase the Product of
the TNPA Multiplied by the Highest Rate in Effect

Example. 2019 Schedule K-1, box 13, code A (cash
contributions 60%), and box 13, code B (cash contributions
30%), are two separate subgroupings.
• The ordinary income/(loss) amount reflected on line 1 of
Schedule K and in box 1 of Schedule K-1 is sourced from Form
1065, page 1, and is a net amount consisting of various page 1
line items of income and expenses. Although those separate
page 1 line items are distinct items of income and expense, if
they are appropriately netted and included on line 1 of
Schedule K and in box 1 of Schedule K-1, the net amount will be
considered a single subgrouping, unless such amount is
required to be separately allocated, such as when the
partnership has more than one trade or business. If the
partnership has more than one trade or business reported on
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
must be determined which activity an adjustment to the page 1
item of income and expense relates to for subgrouping
purposes.
• If you have a negative adjustment along with a positive
adjustment in the same line item of Schedule K/K-1, you must
consider whether they may be properly netted at the partnership
level and whether they are required to be taken into account
separately by any partner because it may be subject to a
limitation or preference under the Internal Revenue Code before
you can place them in the same subgrouping (for example,
passive/active for separate activities).
• A negative adjustment that is not otherwise required to be
placed in its own subgrouping must be placed in the same
subgrouping as another adjustment if the negative adjustment
and the other adjustment would have been properly netted at the
partnership level and such netted amount would have been
required to be allocated to the partners of the partnership as a
single item for purposes of section 702(a) or other provision of
the Internal Revenue Code and regulations.

• A net decrease to creditable expenditures is treated as a net
positive adjustment to credits and increases the product of the
TNPA multiplied by the highest tax rate in effect. A net increase
to creditable expenditures is treated as a net negative
adjustment that is excluded from the calculation of the TNPA
and is an adjustment that does not result in an IU.
• For the credit grouping, a net positive adjustment will increase
the product of the TNPA multiplied by the highest tax rate in
effect. A net negative adjustment, including net negative
adjustments resulting from a credit reallocation adjustment, will
be treated as an adjustment that does not result in an IU.
Step 7—Figure the IU Based on the Results of
Steps 4 Through 6 and Insert Those Results Into
the IU Formula
Figuring the IU
TNPA x rate* =
+ Sum of net positive adjustments to
creditable expenditure and credit
groupings:
= Total Imputed Underpayment (IU)
* Highest rate in effect for the reviewed year under section 1 or 11.

Partnership-Partner Amended Return Filed as
Part of Modification

Partnership-partners who are filing amended returns as part of
the modification of the IU during examination under section
6225(c)(2) will report the applicable payment of tax on Part IV,
line 1. The pass-through partner will compute the amount like an
IU on the adjustments allocated to it and make the payment with
the filing of the Form 1065-X. A payment made with Form
1065-X should detail the portion of the payment that is for the
payment of the IU and the portion that is for interest and
penalties. The partnership should consider all available
guidance issued by the IRS when figuring the amount due. In
general, the partnership should compute its amount due in
accordance with the IU computation in these instructions. See
Steps in Figuring the IU, earlier. The total of all three should be
reflected on Part IV, line 2. If the payment is made by check,

Step 3—Netting
Net all adjustments within each of the groupings and
subgroupings.
• Positive and negative adjustments may only be netted against
each other if they are in the same subgrouping.
• An adjustment in one grouping or subgrouping may not be
netted against an adjustment in any other grouping or
subgrouping.
Instructions for Form 1065-X (Rev. Dec. 2022)

-11-

information to include on the payment is the name of the
partnership-partner, “Form 1065,” the TIN of the
partnership-partner, tax year, and “Partner Payment for BBA
Modification.” Checks must be made payable to “United States
Treasury” and included with the amended return. If making an
electronic payment, choose the payment description “Partner
Pymnt for BBA Modification” from the list of payment types. The
payment amount, including interest and penalties, should be
reported on Part IV, line 3.

Paperwork Reduction Act Notice. We ask for the information
on this form to carry out the Internal Revenue laws of the United
States. You are required to give us the information. We need it to
ensure that you are complying with these laws and to allow us to
figure and collect the right amount of tax.
You are not required to provide the information requested on
a form that is subject to the Paperwork Reduction Act unless the
form displays a valid OMB control number. Books or records
relating to a form or its instructions must be retained as long as
their contents may become material in the administration of any
Internal Revenue law. Generally, tax returns and return
information are confidential, as required by section 6103.
The time needed to complete and file this form will vary
depending on individual circumstances. The estimated burden
for business taxpayers filing this form is approved under OMB
control number 1545-0123 and is included in the estimates
shown in the instructions for their business income tax return.
If you have suggestions for making this form simpler, we
would be happy to hear from you. You can send us comments
from IRS.gov/FormComments. Or you can write to: Internal
Revenue Service, Tax Forms and Publications Division, 1111
Constitution Ave. NW, IR-6526, Washington, DC 20224. Do not
send Form 1065-X to this address. Instead, see Where To File,
earlier.

Partnership-Partners Who Are Allocated
Adjustments That Do Not Result in an IU

If a partnership-partner is paying an amount due as part of an
amended return submitted for purposes of modification, any
adjustments that do not result in an IU must be taken into
account in the tax year that the amount is paid by the
partnership-partner. However, if there are only adjustments that
do not result in an IU, those adjustments are subject to
modification by the ultimate taxpayers who reported the original
amounts and not by the partnership-partner itself. Refer to
Regulations section 301.6225-3 for further guidance.

Part V—Explanation of Changes to
Items in Part II and Part III

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)