A guide to changing previously filed partnership returns

Partnerships needing to modify a previously filed Form 1065, U.S. Return of Partnership Income, must be mindful of the changes brought about by the Bipartisan Budget Act (BBA) of 2015,¹ which created a new centralized partnership audit regime. In addition to providing new rules for partnership examinations, the BBA altered the procedures for partnerships to make adjustments to a previously filed partnership return.

The purpose of this article is to provide partnerships a guide to the various filing procedures and tax forms to use to modify a previously filed Form 1065. The information presented here is based on tax forms, instructions, and other guidance issued by the IRS (including informal comments) that are available as of this writing. The procedures may change as the IRS gains more experience in this area. The present discussion is not in-depth and does not cover, for instance, partnerships needing to take corrective action for certain late elections.² For more AICPA resources on the BBA, see the AICPA’s Partnership Audit and Adjustment Rules page, available at www.aicpa.org.

Special rules apply to 2018 and 2019 partnership returns because of the COVID-19 crisis. For the most part, the discussion here focuses on the standard procedures for making adjustments rather than the special rules adopted in Rev. Proc. 2020-23 (see the sidebar, “Relief for Eligible BBA Partnerships for 2018 and 2019,” at the end of this article).

Background

The BBA, which generally is effective for partnership tax years beginning after Dec. 31, 2017,³ replaced the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), P.L. 97-248, partnership procedures. Unlike TEFRA, the BBA generally provides for the determination of adjustments and the assessment and collection of related tax at the partnership level.⁴ A partnership can make an election, however, to “push out” the adjustments to its reviewed-year partners, in which case the tax attributable to the adjustments is assessed and collected from such partners.⁵ A reviewed-year partner is a partner who held an interest in a partnership in the reviewed year,⁶ which is the partnership tax year to which a partnership adjustment relates.⁷

The BBA applies to all partnerships unless the partnership makes a valid election out of the BBA for a partnership tax year.⁸ Partnerships subject to the BBA are referred to as BBA partnerships, while partnerships that validly elect out of the BBA are referred to as non-BBA (or BBA elect out) partnerships. Partnerships subject to the BBA must designate a partnership representative (PR), as well as a designated individual (DI) if the designated PR is an entity, for the partnership tax year.⁹

The most relevant consideration here is that the process for modifying a previous partnership return depends on whether the partnership is BBA or non-BBA. If a BBA partnership wishes to change the amount of one or more partnership-related items¹⁰ on a partnership return that has already been filed with the IRS,¹¹ it ordinarily must file an administrative adjustment request (AAR).¹² The partnership generally can no longer file an amended Form 1065 that includes amended Schedules K-1, Partner’s Share of Income, Deductions, Credits, etc.,¹³ as a non-BBA partnership can.

The specific procedures that must be followed depend on various factors, including whether the partnership is filing electronically¹⁴ and whether the partnership holds an interest in another partnership (partnership-partner¹⁵). Depending on the circumstances, changes to partnership returns can be made via superseding returns, amended returns, and AARs.

Superseding returns

A superseding return is different from an amended return. It is a second return filed before the originally filed return’s due date, including extensions. A superseding return is considered the return of record, as it replaces any other return previously filed within the filing period.¹⁶To avoid causing confusion, a partnership filing a superseding Form 1065 should indicate the return is such by selecting the “Superseding Return” box in its tax preparation software when filing electronically. If paper-filing the return, the partnership should write “Superseding Return” at the top of Form 1065 and Schedules K-1.

When the BBA first became mandatory — for tax years beginning in 2018 — the IRS provided one-time transition relief¹⁷ to eligible BBA partnerships. If a partnership had timely filed its Form 1065 and Schedules K-1 for the 2018 tax year and had not requested an extension, it was treated as having requested a six-month extension and thus was eligible to file a superseding Form 1065 and Schedules K-1 up to the extended deadline.

Practice tip

Every partnership should consider filing an extension request as a best practice, even when timely filing its return, so that it has the option of filing a superseding Form 1065 and Schedules K-1 up to the extended due date of the return, if needed, rather than having to rely on an amended return or AAR to make changes. A superseding Form 1065 will also provide the partnership a subsequent opportunity to file missed elections and attachments that might otherwise be treated as late.

Amended returns

An amended return is a return filed after the due date of the original return filed (including extensions). Unlike BBA partnerships, non-BBA partnerships can revise a previous partnership return by filing an amended Form 1065 and Schedules K-1, rather than an AAR.¹⁸ The specific form they use to amend a partnership return depends on whether the amended return is filed electronically or on paper.

Generally, a non-BBA partnership may file an amended partnership return within three years after the later of (1) the date on which the partnership return for that year is filed or (2) the last day for filing the partnership return for that year (excluding extensions).¹⁹ The relevant tax forms include:

Form 1065: If filing electronically, non-BBA partnerships that wish to change a previous partnership return must use Form 1065 and check the “Amended Return” box. If information previously provided to any partner is also changing, the partnership would file an amended Schedule K-1 for that partner with the amended Form 1065. Any partner or limited liability company (LLC) member may sign the amended partnership return.

Form 1065X: If filing on paper, non-BBA partnerships must make any corrections to a previous Form 1065 by using Form 1065X, Amended Return or Administrative Adjustment Request (AAR). If applicable, they should submit amended Schedules K-1, too. Any partner or LLC member may sign the amended partnership return.

Form 8982: A partnership-partner (a partnership holding an interest in another partnership) that files a modification-amended return as part of an amended return modification request by a lower-tier BBA partnership under examination completes and signs Form 8982, Affidavit for Partner Modification Amended Return Under IRC Section 6225(c)(2)(A) or Partner Alternative Procedure Under IRC Section 6225(c)(2)(B). The partnership-partner provides the form to the PR of the source partnership requesting the modification. The PR will submit Form 8982 with the source partnership’s Form 8980, Partnership Request for Modification of Imputed Underpayments Under IRC Section 6225(c). See “Special Rules for Tiered Partnerships” below for more information.

Administrative adjustment requests (AAR)

As mentioned earlier, BBA partnerships that wish to modify a previous partnership return generally must follow different procedures from non-BBA partnerships (with the important exception of 2018 and 2019 returns noted above). Instead of filing an amended Form 1065 and Schedules K-1, BBA partnerships submit an AAR. To do so, they file Form 8082, Notice of Inconsistent Treatment or Administrative Adjustment Request (AAR), and include Form 1065, or else file Form 1065X, Amended Return or Administrative Adjustment Request (AAR), as discussed in more detail below. (For a comparison of BBA and non-BBA filing procedures, see the table, “Changing a Previously Filed Form 1065,” below.)

Any adjustments made through the AAR process will generally be determined and taken into account for the partnership tax year in which the AAR is filed.²⁰ If the adjustments requested in an AAR result in an imputed underpayment²¹, the partnership pays the tax, penalties, and interest when the AAR is filed.²² Within certain constraints as defined by Sec. 6227(b)(1), the imputed underpayment may be self-modified by the partnership.²³

As an alternative, the partnership may elect to push out adjustments resulting in an imputed underpayment to its reviewed-year partners,²⁴ and the adjustments are then taken into account by the partners when they file their tax returns for the reporting year, which is the partner’s tax year that includes the date the statement is furnished.²⁵ If the partnership elects to push out the adjustments in an AAR, any modifications with respect to those adjustments are disregarded, and all adjustments requested in the AAR must be taken into account by each reviewed-year partner.²⁶

If the adjustments requested in an AAR do not result in an imputed underpayment, the adjustments must be pushed out to the reviewed-year partners, also to be taken into account by the partners when they file their tax returns for the reporting year.²⁷ See “Special Rules for Tiered Partnerships” below for information applicable to passthrough partners.

An AAR must be filed within three years from the later of (1) the date the partnership return was filed or (2) the last day for filing the return (excluding extensions). An AAR generally cannot be filed after a notice of administrative proceeding has been mailed to the partnership and PR for the same tax year.²⁸ An AAR may only be signed by the PR (or DI, if applicable) on behalf of the partnership.²⁹

A partnership that has not been issued a notice of selection for examination may elect into the BBA for tax periods beginning after Nov. 2, 2015, and before Jan. 1, 2018, for the purpose of filing an AAR.³⁰

The BBA only applies to tax imposed under Chapter 1 and not with respect to any tax imposed under Chapter 2 (tax on self-employment income), Chapter 2A (unearned income Medicare contribution), Chapter 3 (withholding of tax on nonresident aliens and foreign corporations), or Chapter 4 (FATCA withholding). However, any partnership adjustment determined under the BBA shall be taken into account for purposes of determining and assessing tax under these chapters to the extent that the partnership adjustment is relevant to such determination.³¹ The author is unaware of any IRS guidance that exists, as of this writing, regarding how and when such required adjustments are taken into account for purposes of Chapters 2 and 2A when a partnership files an AAR.³²

For AARs, the relevant tax forms include:

Form 8082: If filing electronically, BBA partnerships submit an AAR using Form 8082, Notice of Inconsistent Treatment or Administrative Adjustment Request (AAR). They should submit it with Form 1065 and include, as applicable, Forms 8979, 8980, 8983, 8985, 8986, and 15028, each of which is discussed in more detail later.

Form 8082 provides for the payment of an imputed underpayment (with interest and penalties) by the partnership or, alternatively, the push-out of adjustments to the reviewed-year partners.

The instructions for Form 8082, it is worth noting, provide details on how partnerships may elect into the BBA for tax periods beginning after Nov. 2, 2015, and before Jan. 1, 2018. (Similar information is found in the Form 1065X instructions.)

Form 1065: When submitting an AAR electronically, the partnership must attach Form 1065 (with the “Amended Return” box checked) because Form 8082 technically is not a return and does not have a signature section. If the adjustments result in an imputed underpayment and the partnership is choosing to pay it (with interest and penalties), the amount is reported on Form 1065, page 1, line 25. Informal comments from the IRS indicate that no other amounts should be entered on Form 1065 and that Form 1065 (with the “Amended Return” box checked) is needed regardless of whether the partnership is paying or pushing out.

Form 1065X: If a BBA partnership is not filing electronically, an AAR can be paper-filed using Form 1065X. Form 1065X provides for the payment of an imputed underpayment (with interest and penalties) by the partnership reported in Part IV or the push-out of adjustments to the reviewed-year partners. Forms 8979, 8980, 8983, 8985, 8986, and 15028 (described below), as applicable, should be submitted with Form 1065X.

Form 8979: When seeking to modify a PR designation, BBA partnerships can submit Form 8979, Partnership Representative Revocation, Designation, and Resignation, in conjunction with the filing of an AAR; however, the partnership may not file an AAR solely for the purpose of changing the designation of a PR or changing the appointment of a DI.³³

Form 8980: A BBA partnership may apply certain modifications otherwise allowed under Regs. Sec. 301.6225-2 to the amount of an imputed underpayment.³⁴ The permitted AAR modifications relate to tax-exempt partners, rate modifications, certain passive losses of publicly traded partnerships, limitations or restrictions in the grouping of adjustments, certain qualified investment entities, tax treaties, and other modifications to the extent permitted under IRS guidance. Form 8980 is used to report such modifications and is filed (along with all required Form 8980 supporting forms and attachments) either with Form 8082 included with Form 1065, or with Form 1065X.

Form 8983: If a BBA partnership wishes to modify an imputed underpayment for partnership adjustments allocable to a tax-exempt partner with respect to which the partner would not be subject to tax, the partner must complete and sign Form 8983, Certification of Partner Tax-Exempt Status for Modification Under IRC Section 6225(c)(3), so that it can be submitted with Form 8980 as a supporting attachment.³⁵

Form 8985: An audited partnership, an AAR partnership, or a passthrough partner uses Form 8985, Pass-Through Statement — Transmittal/Partnership Adjustment Tracking Report, to summarize and transmit Forms 8986, Partner’s Share of Adjustment(s) to Partnership-Related Item(s) (passthrough statement). Form 8985 is also used to report payment made and related calculations by a passthrough partner. See “Special Rules for Tiered Partnerships” below for more information related to passthrough partners. An AAR partnership pushing out adjustments to its partners includes Form 8985 with its AAR along with Forms 8986.

Form 8985–V: A passthrough partner (including a partnership-partner) uses Form 8985-V, Tax Payment by a Pass-Through Partner, to submit a tax payment by check or money order for an imputed underpayment related to a lower-tier BBA partnership AAR or examination push-out. See “Special Rules for Tiered Partnerships” below for more information related to passthrough partners.

Form 8986 (passthrough statement): A BBA partnership that pushes out adjustments to its reviewed-year partners related to an AAR or examination uses Form 8986 to furnish such information to its partners and to the IRS.³⁶ A partnership filing an AAR that is pushing out adjustments to its partners provides Forms 8986 to its partners and includes Forms 8986 along with Form 8985 with its AAR. A passthrough partner that receives a Form 8986 and chooses to further push out the adjustments to its partners also use Form 8986 with Form 8985. See “Special Rules for Tiered Partnerships” below for more information related to passthrough partners.

Form 8978: Partners (except passthrough partners) that receive a Form 8986 passthrough statement report any increase or decrease in Chapter 1 tax using Form 8978, Partner’s Additional Reporting Year Tax, and the corresponding Schedule A. The partners take into account the adjustments reported on Form 8986 as if the adjustments had been included on the partner’s first affected-year tax return. This increase or decrease in tax is then reported on the appropriate line of the partner’s income tax return for the reporting year (the partner’s tax year that includes the date the partnership furnished the Form 8986 to its direct partners).³⁷ For example, individual partners for the 2019 tax year would report any increase to tax from Form 8978, Part I, line 14, on Form 1040, U.S. Individual Income Tax Return, line 12a, and any decreases on Form 1040, Schedule 3, line 6c. Form 8978 must be timely filed with the partner’s federal income tax return for the partner’s reporting year.

Form 15028: Form 15028, Certification of Publicly Traded Partnership to Notify Specified Partners and Qualified Relevant Partners for Approved Modifications Under IRC Section 6225(c)(5), is used by a publicly traded partnership (PTP) that is requesting modification under Sec. 6225(c)(5) to certify to the IRS that the partnership will report to each specified partner or qualified relevant partners their respective amount of reduction to their suspended passive activity loss carryover based on the source partnership’s approved modification under Sec. 6225(c)(5).³⁸ The form is required as a supporting attachment to Form 8980.

Other forms: In addition to the tax forms listed above that are applicable to BBA partnership AARs (and also in many cases to BBA partnership examinations), the IRS has released a number of other forms that apply solely to BBA partnership examinations that are not covered in this article.³⁹

For another discussion of AARs, see Tax Clinic, “Administrative Adjustment Requests Under the BBA,” also in this issue.

Special rules for tiered partnerships

Special rules apply under the BBA to passthrough partners (direct and indirect).⁴⁰ A passthrough partner is a passthrough entity — a partnership, an S corporation, a trust other than a grantor trust, and a decedent’s estate⁴¹ — that holds an interest in a partnership. If the passthrough entity is a partnership (i.e., a partnership-partner), it may find itself needing to change a previously filed partnership return as the result of a lower-tier audited partnership requesting modification based on its partners’ filing amended returns, or a lower-tier partnership pushing out adjustments either related to an AAR or examination.

The partnership-partner (regardless of whether it elected out of the BBA) is permitted to file a modification amended return and pay any tax due solely for purposes of an amended return modification request by a lower-tier BBA partnership that is under examination.⁴² The instructions for Form 1065 provide that partnership-partners that are filing amended returns electronically as part of the modification process report the applicable tax payment on Form 1065, page 1, line 25. The “Amended Return” box should be checked on the Form 1065. A statement is required to be attached disclosing certain information regarding the BBA partnership under examination for which the modification applies.

Informal comments from the IRS indicate that the amended return should be submitted electronically without a Form 8082 when filed for amended return modification purposes. Partnership-partners that are not filing electronically as part of the amended return modification process should check the appropriate box in Part I and complete Section 3 of Form 1065X and report the applicable tax payment in Part IV. Payments may be made by check or electronically. Whether the partnership-partner is filing a modification amended return electronically or via paper, the partnership-partner must also complete and sign Form 8982 and provide it to the PR of the source partnership requesting the modification.

A partnership-partner that receives a Form 8986 (passthrough statement) from a lower-tier partnership related to a BBA examination or AAR must generally file Form 8985 to track the partnership adjustments⁴³ and file Forms 8986 to further push out the adjustments to its reviewed-year partners.⁴⁴ Alternatively, if the partnership-partner does not furnish such passthrough statements and chooses to account for the adjustments reflected on the statement furnished to it by paying an imputed underpayment (including penalties and interest), the partnership-partner must file Form 8985 (checking the payment box to report such payment), and Form 8985-V if payment is made by check or money order (payment may instead be made by IRS electronic payment systems).⁴⁵

AAR-related adjustments that do not result in an imputed underpayment must be pushed out.⁴⁶ Those related to an examination that are not pushed out are taken into account by the partnership-partner in its tax year that includes the date the required payment is made (or, if no payment is required, the date the Form 8986 is furnished to the partnership-partner of the audited partnership).⁴⁷ Tiered partnerships have a single due date for all direct and indirect passthrough partners to file and provide passthrough statements or pay — the return’s extended due date for the adjustment year of the audited or AAR partnership.⁴⁸ These rules apply regardless of whether the partnership-partner elected out of the BBA.⁴⁹

State conformity

Most states continue to allow partnerships and partners to file amended returns. Partnerships needing to change a previously filed state tax return along with its federal partnership return will need to check whether (and if so how) a particular state conforms to the BBA and whether the state accepts superseding and/or amended returns. For more on the BBA at the state level, see Tax Clinic, “State Considerations When Amending BBA Partnership Returns,” also in this issue. See also the AICPA Partnership Audit and Adjustment Rules resource page and the Multistate Tax Commission’s “Model Uniform Statute for Reporting Adjustments to Federal Taxable Income and Federal Partnership Audit Adjustments.”

Focusing on previously filed returns

Most of the attention related to the BBA has understandably centered on questions about whether eligible partnerships should elect out of the new rules, whether to push or pay, designating a PR, and amending partnership and LLC agreements. However, partnerships must take care not to overlook the new BBA procedures for changing a previously filed partnership return — and the myriad new tax forms released to effect these changes.

For 2018 and 2019 tax years, be aware of the relief granted in Rev. Proc. 2020-23 for making adjustments to BBA partnership returns. 

Relief for eligible BBA partnerships for 2018 and 2019

The IRS has granted relief to eligible BBA partnerships so they can quickly take advantage of certain beneficial tax provisions in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136, which Congress enacted to speed aid to businesses and individuals suffering from the economic fallout of the coronavirus pandemic. Rev. Proc. 2020-23 permits eligible BBA partnerships to file amended partnership returns, instead of administrative adjustment requests (AARs), when making adjustments to 2018 and/or 2019 returns.

The relief was needed because an AAR is poorly suited for providing rapid refunds made possible by the CARES Act, which may retroactively reduce some partnerships’ tax liability for past years. With AARs, taxpayer-favorable adjustments generally must be pushed out to the reviewed-year partners, who take account of the adjustments in the year they receive them — which in this case might mean a 2020 tax return filed in 2021 — too much of a delay when the purpose of the legislation is to deliver refunds speedily. Furthermore, the reviewed-year partners would effectively only be allowed a credit against taxes owed for such year and not entitled to claim a refund of any excess amount.

To address the problem of the reviewed partners’ only being able to receive any tax benefits on the current year’s tax return, the IRS issued Rev. Proc. 2020-23. The procedure allows eligible BBA partnerships to file amended returns for 2018 and/or 2019, rather than having to rely on the AAR process. More specifically, if a BBA partnership filed Form 1065, U.S. Return of Partnership Income, and furnished all required Schedules K-1 for tax years beginning in 2018 or 2019 before this revenue procedure was issued (April 8, 2020), it has the option to file amended partnership returns and Schedules K-1 before Sept. 30, 2020, instead of using AARs. The amended returns can reflect both CARES Act tax changes as well as changes for any other tax attributes.

Under Rev. Proc. 2020-23, BBA partnerships amend returns for 2018 and/or 2019 by filing a Form 1065 (with the “Amended Return” box checked) and furnishing corresponding amended Schedules K-1 to its partners. When doing so, the BBA partnership must write “Filed pursuant to Rev. Proc. 2020-23” at the top of the amended return and attach a statement containing the same notation with each Schedule K-1 sent to the partners. Although partnerships can file by mail or electronically, the IRS says that filing electronically will speed the process. BBA partnerships currently under IRS examination that wish to take advantage of this option should notify the revenue agent (RA) coordinating the partnership’s examination in writing prior to or contemporaneously with filing the amended return and furnish a copy of the amended return and Schedules K-1 to the RA. If a BBA partnership has previously filed an AAR for a year that it is amending, it should use the figures on the AAR when filing the amended return.

Footnotes

¹Bipartisan Budget Act of 2015, P.L. 114-74, as amended.

²Regs. Sec. 301.9100-2 provides for automatic extension relief for making certain late elections, including the election to adjust basis on partnership transfers and distributions under Sec. 754, by taking corrective action. Regs. Sec. 301.9100-2(c) provides that corrective action includes the filing of an amended return. Since partnerships subject to the BBA can no longer generally file amended partnership returns, questions have arisen whether such partnerships can satisfy the regulatory requirements by filing an administrative adjustment request (AAR), an amended return solely for purposes of making such a late election, or by other means. See Yauch, “Audit Regime Creates Confusion for Extension Relief Seekers,” 166 Tax Notes Federal 1333 (Feb. 24, 2020). See also Rev. Proc. 2020-22 released on April 10, 2020, which allows certain taxpayers to make a late election, or to withdraw an election, under Sec. 163(j)(7) on an amended Form 1065 or AAR; and Rev. Proc. 2020-25 released on April 17, 2020, which allows certain taxpayers to make a late election, or revoke or withdraw an election, under Sec. 168, also on an amended Form 1065 or an AAR.

³Partnerships may elect into the BBA for tax years beginning after Nov. 2, 2015, and before Jan. 1, 2018. See BBA, §1101(g)(4); Regs. Sec. 301.9100-22(a).

⁴Sec. 6221(a); Regs. Sec. 301.6221(a)-1(a).

⁵Secs. 6226(a) and (b); Regs. Sec. 301.6226-1.

⁶Regs. Sec. 301.6241-1(a)(9).

⁷Sec. 6225(d)(1); Regs. Sec. 301.6241-1(a)(8).

⁸Secs. 6221 and 6241(1).

⁹Sec. 6223(a); Regs. Secs. 301.6223-1(a) and (b).

¹⁰As defined under Sec. 6241(2)(B) and Regs. Sec. 301.6241-1(a)(6)(ii) as any item or amount with respect to the partnership that is relevant in determining the tax liability of any person under Chapter 1, any partner’s distributive share of any such item or amount, and an imputed underpayment. An item or amount is with respect to the partnership if the item or amount is or is required to be shown or reflected on a partnership return or the applicable IRS forms and instructions for the tax year, or is required to be maintained in the partnership’s books or records.

¹¹Regs. Sec. 301.6227-1(b).

¹²Sec. 6227 and corresponding regulations.

¹³Sec. 6031(b).

¹⁴Regs. Sec. 301.6011-3(a) provides that partnerships that have more than 100 partners are required to file partnership returns electronically. Regs. Sec. 301.6011-3(d)(4) provides that the term “partnership return” means a “form in Series 1065.” An amended Form 1065 is a “form in Series 1065” and thus subject to these same requirements (see IRS, “Guidance for Amended Partnership Returns” (rev. Dec. 20, 2019)). See also instructions for Form 1065X, which provide that the criteria used to determine whether the original Form 1065 is required to be filed electronically also are used to determine if the amended return or AAR must be filed electronically. Mandated partnerships that cannot meet the requirements to file electronically may request a waiver to file such return electronically pursuant to Regs. Sec. 301.6011-3(b). Other partnerships generally have the option to file electronically. Informal comments from the IRS indicate that if a partnership chose to file its original return electronically, it should also file any amended return or AAR electronically.

¹⁵Regs. Sec. 301.6241-1(a)(7).

¹⁶The legal basis for superseding returns is found in Haggar Co., 308 U.S. 389 (1940) (the Supreme Court held that “[a] timely amended return is as much a ‘first return’. . . as is a single return filed by the taxpayer”).

¹⁷Rev. Proc. 2019-32. The relief applied only to partnership tax years that ended prior to the issuance of the revenue procedure and for which the extended due date for such partnership tax year was after July 25, 2019.

¹⁸Sec. 6031(b)(1).

¹⁹See instructions for Form 1065X.

²⁰Sec. 6227(b).

²¹Generally meaning the computed amount of partnership-level tax due under Sec. 6225(b)(1), determined in accordance with Regs. Sec. 301.6227-2(a). Computation of the imputed underpayment generally involves the appropriate grouping and netting of partnership adjustments, multiplying the total netted partnership adjustment by the highest federal income tax rate in effect for the reviewed year, and then increasing or decreasing that amount by adjustments to credits and creditable expenditures.

²²Secs. 6227(b)(1) and 6232(a)(2); Regs. Sec. 301.6227-2(b)(1).

²³Regs. Sec. 301.6227-2(a)(2).

²⁴Sec. 6227(b)(2); Regs. Sec. 301.6227-2(c). See also Regs. Sec. 301.6227-3(b)(1), which provides that the additional two percentage points of interest imposed under Sec. 6226 do not apply.

²⁵Regs. Sec. 301.6227-3(a).

²⁶Regs. Sec. 301.6227-2(c).

²⁷Sec. 6227(b)(2); Regs. Secs. 301.6227-2(d) and 301.6227-3.

²⁸Sec. 6227(c); Regs. Sec. 301.6227-1(b).

²⁹Regs. Sec. 301.6227-1(c)(1).

³⁰Regs. Sec. 301.9100-22(c). See also Regs. Sec. 301.9100-22(b) to make election on notification of an examination by the IRS.

³¹Secs. 6241(2)(B)(i) and 6241(9)(A); Regs. Sec. 301.6241-6(a)(1).

³²See Interim Guidance Memorandum LB&I-04-1019-010 for examination procedures when auditing partnership returns subject to the BBA with respect to non-Chapter 1 tax. See also Sec. 6501(c)(12) regarding the statute of limitation on assessment of taxes under Chapter 2 or 2A that are attributable to any partnership adjustment.

³³Regs. Secs. 301.6223-1(e)(2)(ii); 301.6223-1(e)(8), Example (1); and 301.6227-1(a).

³⁴Sec. 6227(b)(1); Regs. Sec. 301.6227-2(a)(2).

³⁵Sec. 6225(c)(3); Regs. Sec. 301.6225-2(d)(3).

³⁶Sec. 6226(a)(2); Regs. Secs. 301.6226-2(a) and 301.6227-1(d).

³⁷Regs. Secs. 301.6226-3 and 301.6227-3.

³⁸Sec. 6225(c)(5); Regs. Sec. 301.6225-2(d)(5).

³⁹Examples of such forms include: Form 8984, Extension of the Taxpayer Modification Submission Period Under Section 6225(c)(7); Form 8988, Election for Alternative to Payment of the Imputed Underpayment — IRC Section 6226; and Form 15057, Agreement to Rescind Notice of Final Partnership Adjustment.

⁴⁰Not addressed in this article are the special rules that apply to passthrough partners subject to Chapter 1 tax. See Regs. Sec. 301.6226-3(e)(6).

⁴¹Regs. Sec. 301.6241-1(a)(5).

⁴²Secs. 6225(c)(2)(A) and (F); Regs. Secs. 301.6225-2(d)(2)(ii)(A) and (d)(2)(vi).

⁴³Sec. 6226(b)(4)(A)(i); Regs. Secs. 301.6226-3(e)(1), 301.6226-3(e)(4)(ii), and 301.6227-3(c).

⁴⁴Sec. 6226(b)(4)(A)(ii)(I); Regs. Secs. 301.6226-3(e)(1) and 301.6227-3(c).

⁴⁵Sec. 6226(b)(4)(A)(ii)(II); Regs. Secs. 301.6226-3(e)(2) and 301.6227-3(c).

⁴⁶Regs. Secs. 301.6227-1(e)(2) and 301.6227-3(c)(2).

⁴⁷Regs. Sec. 301.6226-3(e)(4)(v). See the example in Regs. Sec. 301.6226-3(h)(8).

⁴⁸Sec. 6226(b)(4)(B); Regs. Secs. 301.6226-3(e)(1), 301.6226-3(e)(3)(ii), and 301.6226-3(e)(4)(ii).

⁴⁹Sec. 6226(b)(4)(C).