1065-X Instructions for Form 1065-X

Userid: CPM

AH XSL/XML

Schema:
Leadpct: 100% Pt. size: 10
instrx
Fileid: … m-1065-x/202412/a/xml/cycle04/source

Page 1 of 14

Draft

Ok to Print

(Init. & Date) _______

11:46 - 12-Nov-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Instructions for Form 1065-X
(Rev. December 2024)

Amended Return or Administrative Adjustment Request (AAR)
Section references are to the Internal Revenue Code
unless otherwise noted.

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.
For information pertaining to BBA partnerships filing Form
1065-X, go to IRS.gov/bbaaar.

What’s New
Which revision of Form 1065-X to use. For tax years
beginning on or after January 1, 2023, use the August
2023 revision of Form 1065-X. For tax years beginning
after December 31, 2020, and before January 1, 2023,
use the December 2021 revision of Form 1065-X available
at IRS.gov/pub/irs-prior/f1065x--2021.pdf. For tax years
beginning prior to January 1, 2021, use the September
2018 version of Form 1065-X available at IRS.gov/pub/irsprior/f1065x--2018.pdf.

Reminders
Part I, Section 2—BBA AAR. Item C2 was added to
indicate when adjustments don’t result in an imputed
underpayment.
Part II, line 13, changed. Part II, line 13a, was changed
from “Contributions” to “Cash contributions.” Line 13b is
“Noncash contributions.” Prior year lines 13b, 13c, and
13d were changed to 13c, 13d, and 13e, respectively.
Note. Unless otherwise noted, references to sections
6221 through 6241 are to Internal Revenue Code (the
Code) sections, as amended by BBA.

General Instructions
Purpose of Form

Use Form 1065-X, if you aren’t filing electronically, to
complete one of the following.
• Correct items on a previously filed Form 1065, U.S.
Partnership Return of Income; Form 1065-B, U.S. Return
of Income for Electing Large Partnerships; or Form 1066,
U.S. Real Estate Mortgage Investment Conduit (REMIC)
Income Tax Return.
• Make an AAR for a previously filed Form 1065, Form
1065-B, or Form 1066.
• File an amended return by a partnership-partner of a
BBA partnership as part of the modification process of a
BBA proceeding with respect to that BBA partnership.
Form 1065-X can’t be used to file a notice of
inconsistent treatment under section 6222 (TEFRA or
Nov 12, 2024

BBA) or a partner-level AAR under section 6227(d) (under
TEFRA proceedings). For a definition of TEFRA
proceedings, see Definitions, later. Continue to use Form
8082, Notice of Inconsistent Treatment or Administrative
Adjustment Request (AAR), to make those changes.
Bipartisan Budget Act (BBA). All partnerships with tax
years beginning after 2017 are subject to the centralized
partnership audit regime unless eligible partnerships elect
out by making a valid election under section 6221(b). For
purposes of these instructions (unless otherwise noted),
the centralized partnership audit regime proceedings
under sections 6221 through 6241 will be referred to as
“BBA proceedings.”
If you're a non-TEFRA partnership (see Definitions and
Section I, Part I, items B and C, later) or a non-BBA
partnership (defined under Definitions, later) filing an
amended return electronically, use Form 1065 and see the
related instructions. If you aren’t filing electronically, use
Form 1065-X.
Form 1065-X should only be used to make a paper
filing. For electronic filing, use Form 8082 in conjunction
with Form 1065.
Generally, the criteria used to determine whether the
original Form 1065 is required to be filed electronically are
also used to determine if the amended return or AAR must
be filed electronically.
For information regarding when Form 1065 is required
to be filed electronically, and how to electronically file an
amended return or AAR for a partnership, see the
Instructions for Form 1065.

!

CAUTION

Form 1065-X isn't used to elect out of BBA. See
the Instructions for Form 1065 for electing out of
BBA.

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.
Note. To make adjustments to partnership-related items,
partnerships under BBA must file an AAR instead of an
amended return unless there is specific guidance allowing
for the filing of an amended return. For information on BBA
partnerships filing Form 1065-X, go to IRS.gov/bbaaar.
AAR-Partnerships (except electing large partnerships (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.

Instructions for Form 1065-X (Rev. 12-2024) Catalog Number 57876S
Department of the Treasury Internal Revenue Service www.irs.gov

Page 2 of 14

11:46 - 12-Nov-2024

Fileid: … m-1065-x/202412/a/xml/cycle04/source

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Protective TEFRA AARs. Generally, a protective AAR is
a request for credit or refund based on current litigation or
expected changes in tax law or other legislation. The TMP
or partner with authority (PWA) files a protective AAR
when the right to a refund is contingent on future events
and may not be determinable until after the period for filing
an AAR has expired. Protective AARs are subject to AAR
statutes set forth in sections 6227, 6228, and 6229 (prior
to amendment by BBA). If you're a TMP filing on behalf of
the partnership, the petition period described in section
6228 (prior to amendment by BBA) can be extended by
using Form 9248, Agreement to Extend the Time to File a
Petition for Adjustment by the Tax Matters Partner With
Respect to Partnership Items. A protective AAR must
clearly state that it is a protective AAR, alert the IRS to the
essential nature of the adjustment, and specify the line
item to be protected.
AAR under BBA. File Form 1065-X if you're the
partnership representative (PR) or designated individual
(DI) requesting an administrative adjustment to correct a
previously filed partnership return on behalf of the BBA
partnership. See Partnership representative (PR), later, for
the definition of a PR. Go to IRS.gov/bbaaar for additional
information.
AAR-Electing Large Partnerships (ELPs). ELPs that
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. For tax years beginning prior to January 1,
2018 (unless electing into BBA), REMICs that don’t meet
the small REMIC exception under sections 860F(e) and
6231 (prior to amendment by BBA), and related
regulations, or make the election described in section
6231(a)(1)(B)(ii) (prior to amendment by BBA) not to be
treated as a small REMIC, use Form 1065-X to file for an
AAR. For tax years beginning after December 31, 2017,
REMICs that had more than one residual interest holder at
any time during the tax year and didn’t elect out of the
centralized partnership audit regime, use Form 1065-X to
file an AAR. See Specific Instructions, later, for information
on completing Form 1065-X as an AAR.
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.

When To File

Generally, a pass-through entity may file an amended
return or AAR to change items on its return:
• Within 3 years after the later of the date on which the
partnership return for that year is filed, or the last day for
filing the partnership return for that year (excluding
extensions); and
• 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;
2

• 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).

What To Attach

If the corrected amount involves an item that must be
supported with a schedule, statement, or form, attach the
appropriate schedule, statement, or form to Form 1065-X.
Include the entity's name and employer identification
number (EIN) on any attachments. See the instructions for
Form 1065, 1065-B, or 1066 (as applicable) for a list of
forms that may be required.
If the attachments needed to support the corrected
amount include copies of forms or schedules from
previously filed tax returns, write at the top of each
previously filed form or schedule, “Copy Only—Do Not
Process.”
A BBA partnership must attach a schedule to Form
1065-X that supports the position(s) reported. If the
partnership doesn't make the election under section
6227(b)(2) to have the adjustments taken into account by
the reviewed year partners and would like to modify per
section 6227(b)(1), it must attach Form 8980, Partnership
Request for Modification of Imputed Underpayments
Under IRC Section 6225(c), to support any modifications
made to the imputed underpayment (IU), as described in
sections 6225(b) and (c), and as applied to a BBA AAR
under section 6227(b)(1). See Modifications to an
Imputed Underpayment Included in an Administrative
Adjustment Request in Pub. 5346, Instructions for Form
8980.
In addition, if a REMIC requests that the IRS
electronically deposit a refund of $1 million or more, attach
Form 8302, Electronic Deposit of Tax Refund of $1 Million
or More.

Who Must Sign
Non-TEFRA and non-BBA partnerships. Any partner
or limited liability company (LLC) member must sign the
return. Form 1065-X isn’t considered to be a return unless
it is signed. When a return is made for a partnership by a
receiver, trustee, or assignee, the fiduciary must sign the
return instead of the partner or LLC member. Returns and
forms signed by a receiver or trustee in bankruptcy on
behalf of a partnership must be accompanied by a copy of
the order or instructions of the court authorizing the
signing of the return or form.
BBA partnerships. The PR or DI, as applicable, must
sign Form 1065-X.
TEFRA partnerships. The TMP must sign Form 1065-X.
See Tax matters partner (TMP), later, for the definition of a
TMP.
ELPs. The PWA must sign 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
Instructions for Form 1065-X (Rev. 12-2024)

Page 3 of 14

Fileid: … m-1065-x/202412/a/xml/cycle04/source

11:46 - 12-Nov-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

person who could sign the return of the entity in the
absence of the REMIC election. Thus, the return of a
REMIC that is a corporation or trust would be signed by a
corporate officer or a trustee, respectively. For REMICs
with only segregated pools of assets, the return would be
signed by any person who could sign the return of the
entity owning the assets of the REMIC under applicable
state law.
Note. If the REMIC is subject to BBA for the tax year and
is using Form 1065-X to file an AAR, the PR or DI, as
applicable, must sign Form 1065-X.
REMICs with a startup day before November 10,
1988. These REMICs may elect to apply the rules for
REMICs with a startup day after November 9, 1988 (as
described in Regulations section 1.860F-4(c)(2)(iii)).
Otherwise, Form 1066 must be signed by a residual
interest holder or, as provided in section 6903, by a
fiduciary, as defined in section 7701(a)(6), who is acting
for the REMIC and who has furnished adequate notice, as
described in Regulations section 301.6903-1(b).
In the prior paragraph, the term “startup day” means
any day selected by a REMIC that is on or before the first
day on which interests in such REMIC are issued.
Otherwise, the startup day is the day on which the REMIC
issued all of its regular and residual interests. However, a
sponsor may contribute property to a REMIC in exchange
for regular and residual interests over any period of 10
consecutive days and the REMIC may designate any 1 of
those 10 days as the startup day. The day so designated
is then the startup day, and all interests are treated as
issued on that day.
Note. If the REMIC is subject to BBA for the tax year and
is using Form 1065-X to file an AAR, the PR or DI, as
applicable, must sign Form 1065-X.

Where To File

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

Definitions
Adjustment year. For BBA partnerships, the adjustment
year is the partnership tax year in which:
• An adjustment pursuant to the decision of a court in a
proceeding brought under section 6234 becomes final;
• An AAR is filed under section 6227; or
• A notice of final partnership adjustment is mailed under
section 6231 or, if the partnership waives the limitations
on assessments under section 6232(b), the waiver is
executed by the IRS.
BBA partnership. A partnership that is subject to the
centralized partnership audit regime is referred to as a
“BBA partnership.” All partnerships with tax years
beginning after 2017 are BBA partnerships unless, under
section 6221, they make a valid election out of the
centralized partnership audit regime. A partner in a BBA
partnership is referred to as a “BBA partner.” An AAR filed
by a BBA partnership is referred to as a “BBA AAR” and
must be filed by the PR. Go to IRS.gov/bbaaar for
additional information.

Instructions for Form 1065-X (Rev. 12-2024)

Designated individual (DI). A DI is an individual chosen
by a partnership to have the sole authority to act on behalf
of the partnership when the partnership has a PR that is
an entity. The DI must be designated at the same time as
the PR, on Form 1065.
Imputed underpayment (IU). An IU is the amount a
partnership is potentially liable for as a result of an
adjustment to a partnership-related item (PRI). Whether
an adjustment results in an IU is determined in
accordance with the rules under Regulations section
301.6225-1, with that amount subject to possible
modification under Regulations section 301.6227-2.
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.
Non-BBA partnership. Under BBA, certain partnerships
with 100 or fewer eligible partners for the tax year can
elect out of the centralized partnership audit regime. For
additional information, see the Instructions for Form 1065.
A partnership that elects out of the centralized partnership
audit regime is referred to as a “non-BBA partnership.”
Non-TEFRA partnership. A partnership with a tax year
beginning before 2018 that isn’t subject to TEFRA
proceedings and didn't elect into BBA for that tax year
beginning after November 2, 2015, and before January 1,
2018, is referred to as a “non-TEFRA partnership.”
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.
Partnership-related item (PRI). A PRI is any item or
amount with respect to the partnership that is relevant in
determining the tax liability of any person under chapter 1,
and any partner’s distributive share of that item or amount.
This includes an IU for which the partnership may be
liable, as well as any tax, penalty, addition to tax, or
additional amount imposed on the partnership under
chapter 1.
Partnership representative (PR). Under section 6223,
BBA partnerships must designate a partner or other
person with a substantial presence in the United States as
the PR who shall have the sole authority to act on behalf
of the partnership. If the PR is an entity, the partnership
must also appoint a DI to act on behalf of the entity PR.
The appointed DI must be an individual and may not be an
entity. The partnership and all partners are bound by the
actions of the PR in dealings with the IRS under BBA. Go
to IRS.gov/bbaaar for additional information. A REMIC
that's a BBA partnership (hasn't elected out of BBA) would
need to designate a PR.
Pass-through entity. A partnership (including an ELP), S
corporation, estate, trust, or REMIC.
3

Page 4 of 14

Fileid: … m-1065-x/202412/a/xml/cycle04/source

11:46 - 12-Nov-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Reviewed year. For BBA partnerships, the reviewed year
is the partnership’s tax year to which a partnership
adjustment relates.
Reviewed year pass-through partner. For purposes of
these instructions, under BBA, a reviewed year
pass-through partner is a pass-through entity that held an
interest in a BBA partnership at any time during the
reviewed year, which is the partnership tax year to which
the partnership adjustment relates. For example, if the
BBA AAR is filed to make an adjustment to income for the
2023 tax year, 2023 is the reviewed year.
Schedule K-1. Schedule K-1 is the annual schedule
reporting the partner's, shareholder's, or beneficiary's
share of income, deductions, credits, etc., from a
partnership, S corporation, estate, or domestic trust.
Schedule K-2. An extension of Form 1065, Schedule K,
used to report items of international tax relevance from the
operation of a partnership.
Schedule K-3. An extension of Schedule K-1 (Form
1065) generally used to report to partners their share of
the items reported on Schedule K-2.
Schedule Q. Schedule Q is the quarterly schedule
reporting the residual interest holder's share of taxable
income or net loss from the REMIC.
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 tax years beginning after
December 2017, a REMIC that's a BBA partnership
(hasn't elected out of BBA) would need to designate a PR.
For an LLC, a member of the LLC is treated as a
partner and a member-manager is treated as a general
partner. A member-manager is any owner of an interest in
the LLC who, alone or together with others, has continuing
exclusive authority to make the management decisions
necessary to conduct the business for which the LLC was
formed. If there are no elected or designated
member-managers, each owner is treated as a
member-manager. For details, see Regulations section
301.6231(a)(7)-2.
TEFRA partnership. The consolidated audit
proceedings of sections 6221 through 6234 (prior to
amendment by BBA) are referred to as “TEFRA
proceedings” and partnerships that are subject to TEFRA
4

proceedings are referred to as “TEFRA partnerships.” An
AAR filed by the TMP of the TEFRA partnership is a
TEFRA AAR. Any partner in a TEFRA partnership may file
an AAR using Form 8082. TEFRA proceedings won’t
apply to partnerships with tax years beginning after 2017.

Paid Preparer's Information

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

TIP 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.
Late payment penalty. The penalty for not paying the
tax when due is usually 1/2 of 1% of the unpaid tax for
each month or part of a month that the tax remains
unpaid. The penalty can’t exceed 25% of the unpaid tax.
Other penalties. Penalties can also be imposed for
negligence, substantial understatements of tax, reportable
transaction understatements, and fraud. See sections
6662, 6662A, and 6663.
Interest and penalties applicable to the IU. Except
when the partnership elects to have its partners take into
account the adjustments, BBA partnership interest and
penalties are the following.
• The interest figured for an IU is the interest that 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
that BBA partnership had been an individual subject to tax
under chapter 1 for the reviewed year and the IU were an
actual underpayment (or understatement) for that year for
purposes of part II of subchapter A of chapter 68.
Instructions for Form 1065-X (Rev. 12-2024)

Page 5 of 14

Fileid: … m-1065-x/202412/a/xml/cycle04/source

11:46 - 12-Nov-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Election to apply the alternative to payment of the IU.
If the partners must take into account the adjustments
because the BBA partnership filed an AAR and there are
adjustments that don’t result in an IU, or if a BBA
partnership elects the alternative to payment of the IU
under sections 6227(b)(2) and 6226(c), interest shall be
determined:
• 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.
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're unable to complete
an item in Part I or Part II, enter “See Part V” in the entry
space for that item and provide the information there.

Name and Identifying Number

Enter the legal name of the entity and identifying number
on the appropriate lines. Include the suite, room, or other
unit number after the street address. If the post office
doesn't deliver mail to the street address and the entity
has a P.O. box, show the box number instead.
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 entity's address is outside the United States, or its
possessions or territories, enter the information on the line
for “City or town, state, and ZIP code” in the following
order: city, province or state, and foreign country. Follow
the foreign country's practice in placing the postal code in
the address. Don’t abbreviate the country name.

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're a BBA partnership that has received a notice of
administrative proceeding, you may not file an AAR. Also,
a partner may not file an AAR on behalf of the BBA
partnership in which it is a partner unless doing so in its
capacity as the PR for that partnership.

Instructions for Form 1065-X (Rev. 12-2024)

For Partnership Tax Years Beginning Before
January 1, 2018 (Unless Electing Into BBA)
TEFRA AAR. The consolidated audit proceedings of
sections 6221 through 6234 (prior to amendment by BBA)
are referred to as “TEFRA proceedings” and partnerships
that are subject to TEFRA proceedings are referred to as
“TEFRA partnerships.” An AAR filed by the TMP of the
TEFRA partnership is a TEFRA AAR. TEFRA proceedings
won’t apply to partnerships with tax years beginning after
2017.
Non-TEFRA AAR. A partnership with a tax year
beginning before 2018 that isn’t subject to TEFRA
proceedings is referred to as a “non-TEFRA partnership.”
ELPs/REMICs The ELP procedures were repealed for
tax years beginning after 2017. However, ELPs filing a
non-e-filed AAR for a tax year that began before 2018 will
use Form 1065-X.

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 referred to as “BBA
partnerships.” An AAR filed by a BBA partnership is a BBA
AAR.
Non-BBA. A partnership with a tax year beginning after
2017 that isn't subject to BBA proceedings because it has
made a valid election under section 6221(b) is referred to
as a “non-BBA partnership.”

Partnership-Partner Amended Return Related to
Modification of Another Partnership’s IU
A partner that is itself a partnership (partnership-partner)
that is filing an amended return as part of modification of
the IU under section 6225(c)(2) should check this box.

Section 1—TEFRA/Non-TEFRA Determination
Item A
If the answer to item A is “Yes,” the partnership return isn’t
subject to the TEFRA proceedings. You should proceed to
item E and check the “Not subject to TEFRA” box.

Items B Through E
These items are used to determine if the partnership is
subject to the rules for consolidated audit procedures
(TEFRA procedures).
5

Page 6 of 14

11:46 - 12-Nov-2024

Fileid: … m-1065-x/202412/a/xml/cycle04/source

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

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).

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).
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.
Note. For making the small partnership determination, a
married couple, each spouse having their own partnership
interest, is considered one partner. An individual who has
passed away during the year and their estate are
considered one partner.

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, enter the
tax year of the filing of this election in the space provided.

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

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

The box
checked is...

THEN in item E, check...

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.

Item F
Check the box to indicate whether you're filing an
amended return or an AAR.
Amended Return. Check this box if you checked the
“Not subject to TEFRA” box in item E, and you aren’t an
ELP. This means that you're filing a request to correct a
previously filed non-TEFRA 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 doesn't 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're filing an amended return. Check
the “Amended Return” box.
AAR. Check this box if you're filing a request to correct a
previously filed partnership or REMIC return and you're
one of the following.
• 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.

Item G
A substituted return requests that the treatment of an item
shown on the AAR be substituted for the treatment of the
item on the pass-through entity's return.
Check “Yes” if you're requesting substituted return
treatment for the partnership. If the IRS allows substituted
return treatment, the changes shown on the amended
return will be treated as corrections of mathematical or
clerical errors, and the IRS may assess any resulting tax
to the partners or residual interest holders without a
deficiency or entity-level proceeding. In this case, partners
or residual interest holders may file amended returns
requesting refunds. See section 6227(c)(1) (prior to
amendment by BBA).
If the IRS doesn’t allow substituted return treatment for
the partnership, the partners or residual interest holders
may file amended returns requesting refunds. The IRS
may conduct an examination of the pass-through entity's

6

Instructions for Form 1065-X (Rev. 12-2024)

Page 7 of 14

Fileid: … m-1065-x/202412/a/xml/cycle04/source

11:46 - 12-Nov-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

return, or take no action on the request. When a request
isn’t treated as a substituted return, the IRS can’t assess
tax without a deficiency or entity-level proceeding. See
section 6227(c)(2) (prior to amendment by BBA).
ELPs. An ELP can’t request substituted treatment. See
section 6227(c)(1) (prior to amendment by BBA).

Section 2—BBA AAR

For additional information on filing BBA AARs, go to
IRS.gov/bbaaar.

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 Form, for more information.
Note. If you're 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, later, for discussion of the IU.

Item C1
If the adjustments contained in the BBA AAR result in an
IU, the partnership must pay the IU at the same time the
AAR is filed. However, under section 6227(b)(2), the
partnership can elect to have its reviewed year partners
take the adjustments into account. This is an election to
push out the adjustments to the partners as an alternative
to payment of the IU. See section 6226(a)(2) for details. If
this valid election is made, the partnership is no longer
liable for the IU.
If the partnership's election under section 6227(b)
(2) to push out the adjustments to the partners is
CAUTION determined to be invalid, the partnership will still
remain liable for the IU.

!

Item C2
The partnership will need to furnish Forms 8986 to each
reviewed year partner reflecting the partner's share of
adjustments for when the adjustments don't result in an IU
(for example, the adjustments in the BBA AAR result in an
IU of zero or less than zero; or there is a net negative
adjustment). The partnership is also required to file with
the AAR all Forms 8986 furnished to partners and Form
8985. See the instructions for these forms for further
information.
Note. The BBA partnership doesn't furnish Schedules
K-1 to its partners when filing a BBA AAR. Instead, it'll
provide Forms 8986.
Instructions for Form 1065-X (Rev. 12-2024)

Item D
Each reviewed year partner is required to take into
account its share of adjustments requested in a BBA AAR
if the partnership adjustments result in a positive IU and
the partnership makes the alternative to payment election
discussed under Item C1, earlier. Additionally, each
reviewed year partner is required to take into account its
share of any adjustments requested in a BBA AAR
resulting in an IU of zero or less than zero, or that don't
result in an IU. The determination of whether or not an
adjustment results in an IU amount is discussed under
Item B, earlier.
The partnership is required to furnish each reviewed
year partner with a Form 8986 reporting its share of the
BBA AAR adjustments. The PR must attest to the
partnership’s compliance with this requirement. The PR
will sign Form 1065-X under item D to declare, under
penalties of perjury, that all statements have been
provided to the reviewed year partners, as required by
these instructions.

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 and included with the AAR.
Note. If the partnership makes a valid 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 aren’t included on the statements
provided to the partners.
However, if the partnership's election to push out
the adjustments rather than pay an IU is
CAUTION determined to be invalid, the partnership will still
be liable for the IU. In such a case, if the partnership filed
its IU calculation and Form 8980 to request permitted
modifications be applied to the IU, those modifications will
be considered in making any such determination and
potential subsequent assessment.

!

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

Section 6225(c)(2) allows a BBA partnership under
examination to request specific types of modifications of
an IU proposed by the IRS. One type of modification
applies when a partner or indirect partner, including a
partnership-partner, files an amended return for the tax
year of the partner which includes the end of the reviewed
year of the BBA partnership under examination. See Form
8980, Item E, Part I, and Pub. 5346.
A BBA partnership under examination will be assigned
a unique audit control number. A partnership-partner
using Form 1065-X to file an amended return as part of a
modification under section 6225(c)(2) must include in
7

Page 8 of 14

11:46 - 12-Nov-2024

Fileid: … m-1065-x/202412/a/xml/cycle04/source

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Section 3 (Form 1065-X) the name, EIN, reviewed year,
and audit control number of the BBA partnership under
examination to which the amended return relates. In
addition, the partnership-partner shouldn’t furnish
amended Schedules K-1 or K-3, or Forms 8986, 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, later, for payment instructions.

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, K-1, K-2,
and K-3 for the tax year being amended or otherwise
adjusted. See the Instructions for Form 1065 for a list of
forms that may be required.
Note. In Part II of Form 1065-X, “see instructions” refers
to the instructions for Form 1065 and Schedule K-1, not
the Instructions for Form 1065-X.
TEFRA partnerships filing AARs. A TEFRA partnership
filing an AAR to change items that were reported on its
original return must do the following.
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 Part II, columns (a)
through (c).
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.
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 Part II, columns (a)
through (c).
3. Figure an IU and determine if there are any
adjustments that don’t result in an IU.
4. Determine if it’ll pay the IU or push out the
adjustments to the partners.
a. If paying an IU, report the IU appropriately in Part IV.
With your filing, include any permitted modifications
8

that you'd like applied to the IU and a completed Form
8980 with your filing. Complete Forms 8985 and 8986
(pushout package) pertaining to the adjustments that
don’t result in an IU (if applicable). Don't include
Schedules K-1 because they aren't appropriate for a
BBA partnership AAR.
b. If pushing out all the adjustments to the reviewed
year partners, complete Forms 8985 and 8986
(pushout package).
If the partnership pushes out the adjustments, but
the election is invalid, the partnership remains
CAUTION liable for an IU and such IU potentially may be
assessed. If the partnership filed its IU calculation and
Form 8980 to request permitted modifications be applied
to the IU, those modifications will be considered in
determining the liability.

!

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

Forms 8985 and 8986

If a BBA partnership files an AAR and it is making an
election under section 6227(b)(2) to have the adjustments
taken into account by the reviewed year partners, or (1)
when the adjustments in the BBA AAR result in an IU of
zero or less than zero; or (2) the adjustments don't result
in an IU, then it will furnish to each partner for the reviewed
year a Form 8986 reflecting the partner’s share of the
adjustments to PRI as a result of a BBA audit or BBA AAR
for situations where the partners are taking into account
the adjustments. The partnership is also required to file
with the AAR all Forms 8986 furnished to partners and
Form 8985. Form 8985 is used to summarize and transmit
Forms 8986, in situations where the partners are taking
into account the adjustments. Adjustments shown on
Form 1065-X, Part II, column (b), should tie to the
adjustments reported on 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.

Instructions for Form 1065-X (Rev. 12-2024)

Page 9 of 14

Fileid: … m-1065-x/202412/a/xml/cycle04/source

11:46 - 12-Nov-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Amended Schedules K-1

If a BBA partnership files an AAR and needs to make its
partners aware of their allocable share of adjustments, it
will furnish to each partner for the reviewed year Form
8986 reflecting the partner’s share of the adjustments (and
shouldn’t provide amended Schedules K-1). The
partnership must also file all Forms 8986 furnished to
partners and Form 8985 with the AAR. See the
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.
If a TEFRA partnership files Form 1065-X for an AAR, it
should inform the partners receiving the amended
Schedules K-1 that the partnership is filing the AAR. If the
partnership isn’t subject to either the rules for
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.

Amended or Corrected Schedules K-2 and K-3
for Tax Years Beginning on or After January 1,
2021
Non-BBA 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. When a BBA
partnership files an AAR and needs to make its partners
aware of their allocable share of adjustments, it shouldn’t
file an amended Schedule K-2 or Schedules K-3 instead it
must file Forms 8985 and 8986 with the AAR to report the
changes to the Schedules K-2 and K-3. The BBA
partnership must also furnish Forms 8986 to its partners.
See the instructions for Forms 8985 and 8986. Also see
the Instructions for Form 8986 for examples of how
Schedule K-3 adjustments should be reported. The
related Schedule K-2 (summary of Schedules K-3)
adjustments should be reported in the same manner.

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.
Instructions for Form 1065-X (Rev. 12-2024)

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.
In either case, the partnership is liable for any interest
and penalties on IUs that result from the adjustment. See
section 6242(b) (prior to amendment by BBA) for details.
Interest is figured on the IU for the period beginning on the
day after the due date (excluding extensions) of the
partnership return for the tax year the adjustment takes
effect or, if earlier, the date the partnership paid the tax
due under (2) above. The adjusted year is the partnership
tax year in which the item being adjusted arose.
ELPs and REMICs. Identify in Part III the amount and
treatment of any item the partnership or REMIC is
changing from the way it was reported on the original
return.
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.
Column (d). Enter the correct amount. This will be the
sum of column (b) and column (c).
Line 6. Show any increase or decrease to the ELP's tax
or other payments.
Line 10. Enter the total tax as follows.
ELPs. Enter the line 6 amounts on line 10.
REMICs. Add the amounts on lines 7 through 9 and
enter the total for each column on line 10.
Line 11. Enter the amount of tax paid with Form 7004,
Application for Automatic Extension of Time To File
Certain Business Income Tax, Information, and Other
Returns.
Line 14. Enter the amount from the “Overpayment” line of
the original return, even if the ELP or REMIC chose to
credit all or part of this amount to the next year's estimated
tax. This amount must be considered in preparing Form
1065-X because any refund due from the original return
will be refunded separately from any additional refund
claimed on Form 1065-X. If the original return was
changed by the IRS and the result was an additional
overpayment of tax, also include that amount on line 14.
Line 16. If the ELP or REMIC doesn't use electronic fund
transfers, including the Electronic Federal Tax Payment
System (EFTPS), enclose a check with this form. Make
the check payable to “United States Treasury.”
Line 17. If the ELP or REMIC is entitled to a refund larger
than the amount claimed on the original return, line 17 will
show only the additional amount of overpayment. This
additional amount will be refunded separately from the
9

Page 10 of 14

Fileid: … m-1065-x/202412/a/xml/cycle04/source

11:46 - 12-Nov-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

amount claimed on the original return. The IRS will figure
any interest due and include it in the refund.

Amended Schedules K-1 or Schedules Q

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

Part IV—Imputed Underpayment (IU)
Under the Centralized Partnership
Audit Regime
BBA AARs must always include a computation of
the IU (even when the IU is zero or less than zero,
CAUTION or the adjustments don’t result in an IU), as
determined under section 6225(b).

!

If the adjustments don’t result in an IU, the IU should be
shown as zero. Documentation should be included with
the AAR that supports the computation of the IU amount.
If the resulting IU amount is zero or less than zero, or the
adjustments don’t result in an IU, or if the partnership is
making an election under section 6227(b)(2) to have the
adjustments taken into account by the reviewed year
partners, Part IV, line 1, should be shown as zero.
Otherwise, the IU amount should be reported on Part IV,
line 1.
If the adjustments requested in the AAR result in an IU,
generally the partnership takes the adjustments into
account and must pay the IU. Adjustments requested in
the AAR that result in zero, less than zero, or the
adjustments don’t result in an IU must be taken into
account by each reviewed year partner as if the
partnership had made an election under section 6227(b)
(2), but only with regard to those adjustments that don’t
result in an IU. In this instance, see Forms 8985 and 8986
and their related instructions for reporting amounts not
included in the IU.
The partnership may elect under section 6227(b)(2) to
have the reviewed year partners take into account
adjustments resulting in an IU. If the partnership makes
the election, the partnership isn’t liable for, nor required to
pay, the IU related to the adjustments. Additionally, if the
IU calculation results in an amount that is zero, less than
zero, or the adjustments don’t result in an IU, then all
adjustments are taken into account by the reviewed year
partners. However, the partnership may have withholding
and reporting obligations under chapter 3 or chapter 4
with respect to the adjustments taken into account by the
reviewed year foreign partners. See the instructions for
Form 8985 and Form 8986.
If the partnership validly elects under section 6227(b)
(2) to have its reviewed year partners take all the
adjustments into account, all modifications by the
partnership (that would have been allowed had the
partnership paid an IU) aren’t allowed and are
disregarded.
10

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. See
Figuring the Imputed Underpayment (IU), later, for
information on how to figure the IU. Also go to How to
figure an imputed underpayment.
Under section 6227(b)(1), the partnership may modify
the IU resulting from adjustments reported in a BBA AAR
in accordance with the provisions under section 6225(c),
disregarding the provisions under sections 6225(c)(2), (7),
and (9). Any modification made to the IU under section
6227(b)(1) must be disclosed and fully explained in
documentation included with the AAR.
If modifications are applied to the IU, complete and
attach Form 8980 and report the modified IU amount on
Part IV, line 1. See Part I, Section 2, Item E, earlier, for
more information on modification.
If the partnership makes an election to push out
the adjustments rather than pay an IU but the
CAUTION election is determined to be invalid, the
partnership remains liable for an IU and such IU
potentially may be assessed. If the partnership filed its IU
calculation and Form 8980 to request permitted
modifications be applied to the IU, those modifications will
be considered in determining the liability.

!

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
portions of the payment that are for the IU, prepaid
estimated interest, and prepaid estimated penalties. The
total of all three should be reported on Part IV, line 2.
Under section 6232(a)(2), partnerships filing a BBA
AAR that has adjustments that result in an IU, and don’t
elect the alternative to payment of the IU (by not electing
to push out the adjustments to the reviewed year
partners), must pay the IU. The IU should be shown on
Form 1065-X, Part IV, line 1, at the time of filing the AAR.
When paying by check, include the name of the
partnership, “Form 1065,” the TIN of the partnership, the
tax year, and “BBA AAR Imputed Underpayment.” Checks
must be made payable to “United States Treasury” and
included with the BBA AAR. If making an electronic
payment, choose the payment description “BBA AAR
Imputed Underpayment” from the list of payment types.
The payment amount, including any amount paid toward
the IU, prepaid estimated interest, and penalties, should
be reported on Part IV, line 3.

Figuring the Imputed Underpayment (IU)

For an example of how to figure an IU, go to How to figure
an imputed underpayment.

Definitions
Adjustments not resulting in an IU. If, after grouping,
subgrouping, and netting, the amount in any grouping or
Instructions for Form 1065-X (Rev. 12-2024)

Page 11 of 14

11:46 - 12-Nov-2024

Fileid: … m-1065-x/202412/a/xml/cycle04/source

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

subgrouping is a net negative or the calculation of the IU is
zero or less than zero, then the adjustments in those net
negative groups or in the calculation of the IU are
adjustments that don’t result in an IU. Any adjustments
that don’t result in an IU are taken into account by the
reviewed year partners in accordance with Regulations
section 301.6227-3.
Credit grouping. Any adjustment to a PRI that is
reported or could be reported by a partnership as a credit
on the partnership’s return, including a reallocation
adjustment to such PRI, is placed in the credit grouping.
Creditable expenditure grouping. Any adjustment to a
PRI where any person could take the item that is adjusted
(or item as adjusted if the item wasn’t originally reported
by the partnership) as a credit, including a reallocation
adjustment to a creditable expenditure, is placed in the
creditable expenditure grouping.
Negative adjustment. A negative adjustment is any
adjustment that is a decrease in an item of gain or income;
an increase in an item of loss or deduction; an increase in
an item of credit or creditable expenditure; a decrease in
an item of tax, penalty, addition to tax, or additional
amount for which the partnership is liable under chapter 1;
or a decrease to an IU calculated by the partnership for
the tax year.
Net negative adjustment. Any amount which results
from netting adjustments within a grouping or subgrouping
that isn’t a net positive adjustment. A net negative
adjustment includes a negative adjustment that wasn’t
netted with any other adjustment.
Net positive adjustment. An amount that is greater than
zero which results from netting adjustments within a
grouping or subgrouping. A net positive adjustment
includes a positive adjustment that wasn’t netted with any
other adjustment. A net positive adjustment includes a net
decrease in an item of credit (or creditable expenditure).
Positive adjustment. A positive adjustment is any
adjustment that isn’t a negative adjustment.
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.
Residual grouping. Any adjustment to a PRI that
doesn’t belong in the reallocation, credit, or creditable
expenditure grouping is placed in the residual grouping.
This grouping also includes any adjustment to a PRI that
derives from an item that wouldn’t have been required to
be allocated by the partnership to a partner under section
704(b), such as an adjustment to a liability amount on the
balance sheet.
Subgrouping. Each adjustment is subgrouped
according to how the adjustment would be required to be
taken into account separately under section 702(a). In
general, a subgrouping follows Schedules K, K-1, K-2,
and K-3 line items, including any alpha codes related to a
Schedule K-1 line item.
Instructions for Form 1065-X (Rev. 12-2024)

Total netted partnership adjustments (TNPA). The
sum of all net positive adjustments in the reallocation
grouping and the residual grouping.

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

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.

Steps in Figuring the IU
Step 1—Grouping
Place each adjustment into one of four groupings:
reallocation, credit, creditable expenditure, and residual
groupings.
Note. Under Regulations section 301.6225-1(b)(4), a
partnership that files an AAR may treat a positive
adjustment as zero (solely for purposes of calculating any
IU) if the positive adjustment is related to, or results from,
a positive adjustment to another item. The IRS may later
determine that the adjustment should not have been
treated as zero by the partnership in its calculation of the
IU. Go to How to figure an imputed underpayment.
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).
Don’t net reallocation adjustments. Because each
part of a reallocation adjustment is placed in a
CAUTION separate subgrouping within the reallocation
grouping, those adjustments can’t be netted in
accordance with the netting rules.

!

Example. $100 of ordinary income is being
reallocated from Partner A to Partner B. For purposes of
figuring the IU, there will be two adjustments, each in a
separate subgrouping: a negative adjustment of $100
(reversing improper allocation to Partner A) and a positive
adjustment of $100 (making proper allocation to Partner
11

Page 12 of 14

11:46 - 12-Nov-2024

Fileid: … m-1065-x/202412/a/xml/cycle04/source

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

B). These two adjustments can’t be netted. As a result, the
total net positive adjustment in the reallocation grouping is
$100 and will be included in the TNPA.
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 won’t be
netted together nor will they be netted with other credit
adjustments.
Creditable expenditure grouping.
• Generally, a decrease in creditable expenditures is
treated as a positive adjustment to credits, and an
increase in creditable expenditures is treated as a
negative adjustment.
• A reallocation adjustment relating to a creditable
expenditure grouping is placed into two separate
subgroupings and won’t 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 on 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 don’t 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 2—Subgrouping
Determine if any adjustment, within one of the four
groupings, needs to be subgrouped. Each adjustment is
subgrouped according to how the adjustment would be
required to be taken into account separately under section
702(a). If any adjustment could be subject to any
preference, limitation, or restriction under the 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.
Generally, each separate line item of Schedules K, K-1,
K-2, and K-3 or return schedule (for example, Schedule L)
represents a separate and distinct subgrouping.

12

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
Schedules K, K-1, K-2, and K-3, 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 Schedules K
and K-1 or other schedules consists of multiple items and
the components are required to be taken into account
separately under the Code, regulations, forms,
instructions, or other IRS guidance, then such line item
must be further subgrouped.
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 reported on
Schedule K, line 1, and in box 1 of Schedule K-1 is
sourced from Form 1065, page 1, and is a net amount
consisting of various page 1 line items of income and
expenses. Although those separate page 1 line items are
distinct items of income and expenses, if they are
appropriately netted and included on Schedule K, line 1,
and in box 1 of Schedule K-1, the net amount will be
considered a single subgrouping, except when such
amount is required to be separately allocated, such as
when the partnership has more than one trade or
business. If the partnership has more than one trade or
business reported on Form 1065, page 1, the net income
(loss) from each trade or business must be separately
reported on Schedule K-1. Each separate activity will
constitute a separate subgrouping and it must be
determined which activity an adjustment to the page 1
item of income and expense relates to for subgrouping
purposes.
• If you have a negative adjustment along with a positive
adjustment in the same line item of Schedules K and K-1,
you must consider whether they may be properly netted at
the partnership level and whether they are required to be
taken into account separately by any partner. The
adjustments may be subject to a limitation or preference
under the Code before you can place them in the same
subgrouping (for example, passive and nonpassive
activities).
• A negative adjustment that isn’t otherwise required to
be placed in its own subgrouping must be placed in the
same subgrouping as another adjustment if the negative
adjustment and the other adjustment would have been
properly netted at the partnership level or 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 Code and
regulations.

Step 3—Netting
Net all adjustments within each of the groupings and
subgroupings.
• Positive adjustments may be netted with other positive
adjustments only if they are in the same grouping.

Instructions for Form 1065-X (Rev. 12-2024)

Page 13 of 14

11:46 - 12-Nov-2024

Fileid: … m-1065-x/202412/a/xml/cycle04/source

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

• Negative adjustments may be netted with other
negative adjustments only if they are in the same
grouping.
• 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.
• All adjustments within a subgrouping are netted to
determine whether there is a net positive adjustment or
net negative adjustment for that subgrouping.
• Net positive adjustments from subgroupings or positive
adjustments within a grouping (if subgroupings are
unnecessary) are netted to determine the net positive
adjustment for that grouping. Net negative adjustments
from subgroupings within a grouping are netted to
determine the net negative adjustment for that grouping.
Step 4—Figure the Total Netted Partnership
Adjustments (TNPA)

• Each net positive adjustment in a grouping or
subgrouping in the residual or reallocation grouping that
results after netting the adjustments is included in the
calculation of the TNPA.
• Each net negative adjustment in a grouping or
subgrouping that results after netting the adjustments is
excluded from the calculation of the TNPA because those
adjustments don’t result in an IU.
Note. If a positive adjustment to an item is reflected in
positive adjustments to other items, the positive
adjustment of equal or lesser magnitude that is reflected
may be treated as zero solely for purposes of calculating
any IU.

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

• A net decrease to creditable expenditures is treated as

a net positive adjustment to credits and increases the
product of the TNPA multiplied by the highest tax rate in
effect. A net increase to creditable expenditures is treated
as a net negative adjustment, including net negative
adjustments resulting from a creditable expenditures
reallocation adjustment, is excluded from the calculation
of the TNPA and is an adjustment that doesn't 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 doesn't
result in an IU.

Instructions for Form 1065-X (Rev. 12-2024)

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 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
Form 1065-X. A payment made with Form 1065-X should
detail the portions that are for the payment of the IU, the
interest, and the penalties. The partnership should
consider all available guidance issued by the IRS when
figuring the amount due. In general, the partnership
should compute its amount due in accordance with the IU
computation in these instructions. See Steps in Figuring
the IU, earlier. The total of the IU, penalties, and interest
should be reported on Part IV, line 2. When paying by
check, include the name of the partnership-partner, “Form
1065,” the TIN of the partnership-partner, the tax year, and
“Partner Payment for BBA Modification.” Checks must be
made payable to “United States Treasury” and included
with the amended return. If making an electronic payment,
choose the payment description “Partner Pymnt for BBA
Modification” from the list of payment types. The payment
amount, including any amount paid toward the IU, interest,
and penalties, should be reported on Part IV, line 3.

Partnership-Partners Who Are Allocated
Adjustments That Don’t Result in an IU

If a partnership-partner is paying an amount due as part of
an amended return submitted for purposes of
modification, during examination under section 6225(c)
(2), any adjustments that don’t result in an IU must be
taken into account in the tax year that the amount is paid
by the partnership-partner. However, if there are only
adjustments that don’t result in an IU, those adjustments
are subject to modification by the ultimate taxpayers who
reported the original amounts and not by the
partnership-partner itself. Refer to Regulations section
301.6225-3 for further guidance.

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.

13

Page 14 of 14

Fileid: … m-1065-x/202412/a/xml/cycle04/source

11:46 - 12-Nov-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

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.
Paperwork Reduction Act Notice. We ask for the
information on this form to carry out the Internal Revenue
laws of the United States. You're required to give us the
information. We need it to ensure that you're complying
with these laws and to allow us to figure and collect the
right amount of tax.
You aren’t required to provide the information requested
on a form that is subject to the Paperwork Reduction Act
unless the form displays a valid OMB control number.
Books or records relating to a form or its instructions must
be retained as long as their contents may become
material in the administration of any Internal Revenue law.
Generally, tax returns and return information are
confidential, as required by section 6103.

14

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 through 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. Don’t send Form
1065-X to this address. Instead, see Where To File,
earlier.

Instructions for Form 1065-X (Rev. 12-2024)