Push-out elections and administrative adjustment requests

By Alice Harbutte, J.D., Denver, and Heather Maloy, J.D., Washington, D.C.

Editor: Susan Minasian Grais, CPA, J.D., LL.M.

The IRS recently released new draft forms for partnerships under the centralized partnership audit regime enacted by the Bipartisan Budget Act (BBA) of 2015, P.L. 114-74. The new forms will be required for "push-out" elections under Sec. 6226 and administrative adjustment requests (AARs) under Sec. 6227. Specifically, three new draft forms have been released:

  • Form 8985, Pass-Through Statement — Transmittal/Partnership Adjustment Tracking Report;
  • Form 8985-V, Tax Payment by a Pass-Through Partner; and
  • Form 8986, Partner's Share of Adjustment(s) to Partnership-Related Item(s).

The draft forms are subject to revision before finalization. Instructions to the forms are not yet available.


The BBA significantly altered the audit and income tax liability rules governing most partners and partnerships for tax years beginning after Dec. 31, 2017. The centralized partnership audit regime enacted by the BBA applies to all partnerships, unless the partnership makes a valid election under Sec. 6221(b) not to have those procedures apply. Under Sec. 6222(a), partners in a BBA partnership must treat partnership-related items, as defined in Sec. 6241, consistently on the partner's return with how the BBA partnership treated such items on its return.

Sec. 6031(a) sets forth requirements for partnerships to file Form 1065, U.S. Return of Partnership Income, and furnish certain information to their partners on Schedules K-1, Partner's Share of Income, Deductions, Credits, etc. Sec. 6031(b) generally prohibits BBA partnerships from amending the information required to be furnished to its partners after the due date of the return.

Push-out electionsUnder Sec. 6226 and regulations finalized in January 2019 (T.D. 9844), a partnership may elect to push out adjustments to its reviewed-year partners rather than paying the imputed underpayment at the partnership level. To be valid, this election must comply with all the regulatory requirements for such an election, and the partnership must provide notice to the partners and the IRS.

Administrative adjustment requestsA partnership may file an AAR under Sec. 6227 and the corresponding regulations for one or more items of income, gain, loss, deduction, or credit of the partnership and any partner's distributive share thereof for any partnership tax year. The partnership must determine whether the adjustments requested in the AAR result in an imputed underpayment. In that case, the partnership must generally pay the imputed underpayment (or push it out to the partners).Only a partnership representative may file an AAR, not a partner (unless acting as the partnership representative). A valid AAR must include the adjustments requested and any statements required by the regulations or other IRS forms or guidance.

New forms

The new forms are to be used in accordance with the AAR procedures under Sec. 6227 and the corresponding regulations that a BBA partnership must follow to correct errors on the partnership's Form 1065. The new forms will be required in addition to those filed to make the corrections — i.e., Form 1065X, Amended Return or Administrative Adjustment Request (AAR), if paper-filed, or Form 8082, Notice of Inconsistent Treatment or Administrative Adjustment Request (AAR),if e-filed. The new forms will replace the use of the amended Schedule K-1, which is no longer permitted under Sec. 6031(b).

In addition to using these forms for the AAR, the partnership will also use them in the exam context when it makes a push-out election under Sec. 6226.

Specifically, new Form 8985 will be used to track the partnership adjustments resulting from an AAR or an exam. Partners' shares of such adjustments will be reported on new Form 8986. New Form 8985-V will be used by passthrough partners making certain tax payments related to a BBA partnership AAR or exam push-out.


These new forms, once finalized, will be used in filing AARs under the BBA rules, as well as when making a push-out election under Sec. 6226 in the context of an IRS examination adjustment.

Partnerships subject to the BBA rules must follow new procedures when making corrections to a partnership tax return. Under Sec. 6031(b), a partnership subject to the BBA rules may no longer file an amended partnership tax return that includes amended Schedules K-1 once the return due date (including extensions) for the partnership's tax return has passed. Instead, the partnership will file an AAR and issue the Form 8986 to its partners. Partnerships will also be required to file the Form 8985 with the IRS. If a partner receiving a Form 8986 is also a partnership, these forms would be used by the partnership-partner if it chooses to further push the AAR or audit adjustments out to its partners. Partners receiving a Form 8986 statement must account for the adjustments under the BBA rules on their tax return filed for the year the Form 8986 is issued (for an AAR, this is the "reporting year"; for an IRS exam adjustment, it is the "adjustment year").

For the next filing season, to preserve the ability to make corrections to both the Form 1065 and Schedules K-1 up to the extended due date for filing a Form 1065, partnerships subject to the BBA rules should plan to file a Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns. Even if a partnership plans to timely file the return (without extension), it should still file a Form 7004 extension so that it can file a superseding return if needed.


Susan Minasian Grais, CPA, J.D., LL.M., is a managing director at Ernst & Young LLP in Washington, D.C.

For additional information about these items, contact Ms. Grais at 202-327-8788 or susan.grais@ey.com.

Contributors are members of or associated with Ernst & Young LLP. Versions of many of these items were previously published as Ernst & Young Tax Alerts.

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