A partnership that needs to correct a Form 1065 it has already filed follows one of two processes, and the choice is not optional. Non-BBA partnerships file an amended Form 1065 (electronically) or Form 1065-X (on paper). Partnerships subject to the centralized audit regime created by the Bipartisan Budget Act of 2015 must instead file an Administrative Adjustment Request. Picking the wrong path gets the filing rejected, and because most partnership penalties are assessed per partner, the cost of a misstep scales fast.
One shortcut worth checking first: if the original filing deadline (including extensions) has not yet passed, you can file a superseding return that completely replaces the original and is treated as though the first filing never happened. You can supersede more than once as long as each version arrives before the deadline. This avoids the amended-return and AAR machinery entirely and, if partners haven’t filed yet, keeps them from having to amend their own returns. Once the deadline passes, superseding is off the table.
Which Correction Process Applies to Your Partnership
The BBA regime applies to every partnership for tax years beginning after December 31, 2017, unless the partnership affirmatively elected out on a timely filed return for the year in question.1Internal Revenue Service. Centralized Partnership Audit Regime (BBA) Election out requires both:2Internal Revenue Service. Elect Out of the Centralized Partnership Audit Regime
- 100 or fewer partners, counting every required Schedule K-1 and, if any partner is an S corporation, that S corporation’s shareholders.
- All partners are eligible types: individuals, C corporations, S corporations, foreign entities that would be treated as C corporations if domestic, and estates of deceased partners. Partnerships with partners that are themselves partnerships, trusts, disregarded entities, or nominees cannot elect out.
Check the original return for that year. If the election-out box was checked and the partnership qualified, you’re in the amended-return process below. Otherwise, you’re filing an AAR.
Amended Return Process for Non-BBA Partnerships
Non-BBA partnerships use different mechanics depending on whether they file electronically or on paper.
Electronic Filing
Prepare a complete, corrected Form 1065 with every schedule that was included on the original, and check the Amended Return box.3Internal Revenue Service. Guidance for Amended Partnership Returns Attach an “Amended Return Statement” identifying each changed line, the corrected amount, and the reason for the change. Include every form or schedule that changed or supports a change. If the Amended Return box is not checked, the IRS rejects the submission as a duplicate filing.
Partnerships with more than 100 partners are generally required to file electronically, and that mandate covers amended returns. A partnership that cannot meet the e-file requirements for an amended return may request a waiver.
Paper Filing
Paper filers use Form 1065-X rather than refiling Form 1065.4Internal Revenue Service. Instructions for Form 1065-X The form has a three-column structure: column (a) for the amount originally reported, column (b) for the net increase or decrease, and column (c) for the corrected amount. Part V requires a written explanation for each change. Attach any supporting schedules or forms, and mark any previously filed forms being resubmitted “Copy Only — Do Not Process” at the top.
Mail the completed Form 1065-X to the IRS address that corresponds to the partnership’s principal place of business. The Form 1065 instructions list the address by state.
Administrative Adjustment Requests for BBA Partnerships
BBA partnerships cannot use the traditional amended return process. Only the partnership representative can file the AAR, and the partnership and all partners are bound by that person’s actions.5Internal Revenue Service. Designate or Change a Partnership Representative
Forms and Filing Method
An electronically filed AAR requires Form 8082 (Notice of Inconsistent Treatment or Administrative Adjustment Request) plus a Form 1065 with the Amended Return box checked for transmission. A paper-filed AAR uses Form 1065-X.6Internal Revenue Service. File an Administrative Adjustment Request for a BBA Partnership
Paying at the Partnership Level
Once the AAR is filed, the partnership must decide how the tax impact will be handled. Under the first option, the partnership pays an imputed underpayment in the year the AAR is filed. The IRS computes this by multiplying the net positive adjustment by the highest individual income tax rate for the reviewed year. For tax year 2026, that rate is 37%.7Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 The calculation ignores individual partner circumstances: a lower-bracket or tax-exempt partner still bears tax at 37% through the partnership. That makes this option expensive for many partnerships.
The Push-Out Election
The alternative pushes adjustments out to the partners who were partners during the reviewed year. The partnership makes the election on the AAR and files Form 8985 as a transmittal, with a Form 8986 for each partner’s share of adjustments.6Internal Revenue Service. File an Administrative Adjustment Request for a BBA Partnership
A partner who receives Form 8986 reports the adjustments on the return for the year they receive the statement rather than by amending the prior-year return. Individual and corporate partners use Form 8978 to calculate the tax effect and file it with their current-year return. If a reviewed-year partner is itself a pass-through entity, that entity can push out further to its own partners or compute and pay its own imputed underpayment.
When the AAR produces adjustments that do not result in an imputed underpayment, such as corrections that reduce the partnership’s reported income, the push-out election is mandatory. Partnership-level payment is not available in that situation.8Office of the Law Revision Counsel. 26 U.S. Code 6227 – Administrative Adjustment Request by Partnership
Corrected Schedules K-1 and Partner Follow-Up
Because partnership income flows through to the partners, any change to Form 1065 requires corrected Schedules K-1 for each affected partner. Mark every corrected K-1 “Amended” and include it with the amended return or AAR filing.3Internal Revenue Service. Guidance for Amended Partnership Returns Notify partners promptly and explain how the revisions affect their individual positions.
Partners who have already filed handle the change differently depending on the partnership’s regime. In a non-BBA amendment, individual partners file Form 1040-X9Internal Revenue Service. About Form 1040-X, Amended U.S. Individual Income Tax Return and corporate partners file Form 1120-X.10Internal Revenue Service. About Form 1120-X, Amended U.S. Corporation Income Tax Return Partners of a BBA partnership that made the push-out election do not amend the prior year — they report the adjustments on their current-year return using Form 8978.
Deadlines
A BBA partnership must file its AAR within three years after the later of the date the return was filed or the last day for filing the return, determined without extensions.8Office of the Law Revision Counsel. 26 U.S. Code 6227 – Administrative Adjustment Request by Partnership Once the IRS mails a notice of administrative proceeding for that tax year, the AAR window closes.
For non-BBA partnerships and for partners seeking refunds, a claim generally must be filed within three years from the date the return was filed or two years from the date the tax was paid, whichever is later.11Internal Revenue Service. 12Internal Revenue Service. Accuracy-Related Penalty For individual partners, a substantial understatement exists when the understatement exceeds the greater of 10% of the tax that should have been shown on the return or $5,000. For C corporation partners, the threshold is the lesser of 10% of the correct tax (or $10,000 if greater) and $10 million. Voluntarily correcting errors before the IRS makes contact generally strengthens a reasonable-cause defense, though it doesn’t guarantee one.
Interest on underpayments runs from the original due date until payment. Unlike penalties, which the IRS can sometimes abate for reasonable cause, statutory interest on underpayments cannot be waived.