Partnership audit procedures update: IRS issues final push-out forms

Dec 10, 2019
Dec 10, 2019
0 min. read

On Dec. 6, 2019, the IRS finalized two forms that facilitate “push-out” elections by partnerships subject to the new partnership procedural rules (so-called BBA partnerships), either filing Administrative Adjustment Requests (AARs) or pushing out adjustments determined in an IRS examination. 

A partnership subject to the centralized partnership audit regime (i.e., a BBA partnership) may elect to push out any examination or AAR adjustments to its reviewed-year partners (the partners during the year being adjusted) rather than pay a potential imputed underpayment (entity-level tax) at the partnership level. To make a valid election, the partnership must provide notice of the election, and the relevant adjustment to the reviewed-year partners and to the IRS. Two forms are required:

Form 8985 Pass-Through Statement – Transmittal/Partnership Adjustment Tracking Report

Form 8985, Adjustment Tracking Report, is used to report the total adjustments made to any partnership-related items. It reports the sum of the push-out statements, Forms 8986, that are furnished to the reviewed-year partners. Accordingly, related Forms 8986 should always accompany this form unless it is submitted by a pass-through entity receiving a Form 8986 from an investee partnership, in which case it may elect to pay an entity-level tax in lieu of further issuing Forms 8986.

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

Form 8986, the “push-out” statement, reports each partner’s share of the adjustments to partnership-related items reported on Form 8985. It is furnished by a BBA partnership to the IRS and each reviewed-year partner. Direct and indirect pass-through partners of the BBA partnership may also file this form if they wish to make a push out election at their level. For example: 

A BBA partnership has two partners, an individual and partnership. The BBA partnership files an AAR for tax year 2018 (the reviewed year) in 2019 (the adjustment year) that results in an imputed underpayment and wants its reviewed-year partners to pay the tax liability associated with the adjustment. The BBA partnership must complete Form 8985, Adjustment Tracking Report, to summarize the total adjustment reported on the AAR. The BBA partnership must also complete and furnish two Forms 8986 reporting each member’s share of the adjustment. The individual member will use the push-out statement to re-compute their 2018 individual tax return taking into account their share of the adjustment, and then pay any resulting tax liability with their 2019 individual tax return.

The partnership member must complete its own separate Form 8985, Adjustment Tracking Report, summarizing the total adjustments that result from the adjustment at the BBA partnership. When filing Form 8985, the partnership member can pay any imputed underpayment or elect to push out the adjustment by furnishing Forms 8986 to its reviewed-year partners.

BBA partnerships filing AARs:

A BBA partnership that files an AAR, and pushes out any resulting adjustments to its partners, must include Form 8985 and the related Forms 8986 with its AAR. All direct and indirect pass-through partners receiving a push-out statement have until the extended due date of the AAR partnership return, for the year in which the AAR was filed to complete the push-out process (September 15 for a calendar year partnership).

Audited partnerships:

An audited BBA partnership has 45 days after receiving a notice of final partnership adjustment (FPA) to elect to push-out, and 60 days after the date on which the partnership adjustments are “finally determined” to file Form 8985 and furnish the related Forms 8986 to the reviewed-year partners. Adjustments become finally determined upon the later of: 1) the expiration date of the 90-day period, starting with when the FPA is mailed, for partnership to petition for judicial review or 2) the date when a court’s decision becomes final. All direct and indirect pass-through partners receiving a push-out statement have until the extended due date of the audited partnership return, for the year in which the FPA was mailed or the court’s decision became final, to complete the push-out process.


Instructions to Forms 8985 and 8986 are still in draft form and are expected to be finalized soon.

RSM contributors

  • Ben Wasmuth
    Senior Manager

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