AAR Filing for Partnerships: Deadline and Push-Out Election

A partnership subject to the Bipartisan Budget Act (BBA) centralized audit regime corrects a previously filed Form 1065 by filing an Administrative Adjustment Request (AAR) under Internal Revenue Code Section 6227, not by filing an amended return. AAR filing for partnerships gives the Partnership Representative two choices: have the partnership pay the resulting tax as an Imputed Underpayment, or push the adjustments out to the partners who were in the partnership during the year being corrected.¹

Which Partnerships Use the AAR

The BBA regime generally applies to partnership tax years beginning after December 31, 2017. Under the regime, understatements are assessed and collected at the partnership level rather than from individual partners.² If your partnership falls under the BBA, sending out amended Schedules K-1 after the original due date no longer works. The AAR is the only path for a voluntary correction.³

Small partnerships can elect out of the BBA regime entirely if they have 100 or fewer partners and all partners are eligible types (individuals, C corporations, S corporations, or estates of deceased partners). A partnership that timely elected out follows the older amended-return rules and does not use the AAR process.

The Filing Deadline

The partnership must file the AAR within three years after the later of the date the partnership return for the reviewed year was filed, or the last day for filing that return without regard to extensions.¹

A hard cutoff sits inside that window. Once the IRS has mailed a Notice of Administrative Proceeding for the tax year, the AAR door closes for that year. Limited exceptions exist, such as foreign tax redeterminations, but as a practical matter, if you spot an error, file before any audit notice arrives.³

Two terms drive the paperwork. The reviewed year is the year being corrected. The adjustment year is the year the AAR is filed. Both appear on the forms and control who reports what.⁴

Who Files: The Partnership Representative

Only the Partnership Representative (PR) can file an AAR. The PR is designated on the return for the reviewed year and has sole authority to act for the partnership with the IRS under the BBA. The PR must have substantial presence in the United States: a U.S. address, phone number, and taxpayer identification number. If the PR is an entity, the partnership must also appoint a designated individual who meets the same requirements.⁵ Confirm the current designation before starting the filing.

The Central Choice: Pay at the Partnership Level or Push Out

This is the most consequential decision in the process, and it dictates almost everything that follows.

Partnership Payment

The partnership pays the Imputed Underpayment itself. Partners in the adjustment year then receive a tax-exempt income adjustment to their distributive shares, which prevents double taxation. Administratively this is simpler, but the current partners bear the cost of a prior-year error even if they were not partners in the reviewed year, and the default rate typically produces a higher total tax than the individual partners would have owed.

Push-Out Election

Under Section 6226, the partnership elects to push the adjustments out to the reviewed year partners. The partnership is then no longer liable for the Imputed Underpayment.⁶ Each reviewed year partner accounts for the adjustments on their own return for the adjustment year, using their personal tax rates and attributes. The election must be made on the AAR itself and is irrevocable without IRS consent. The partnership must prepare and furnish individual statements to every reviewed year partner, which is significant work when ownership is large or tiered.

One rule forces the choice in some cases: if the Imputed Underpayment calculation produces zero or a negative number, the partnership cannot use the payment method at all. Section 6227 requires those adjustments to be pushed out.¹

Calculating the Imputed Underpayment

The Imputed Underpayment is the default tax the partnership owes on the adjustments, and the number drives the filing whether or not the partnership ultimately pays it.

Start by grouping adjustments to income, gain, loss, and deduction items into the required categories and netting positive and negative adjustments within each group. Positive adjustments increase liability; negative adjustments can only offset positives within the same group. Any leftover net negatives cannot reduce the Imputed Underpayment and must be pushed out to the reviewed year partners no matter what reporting method the partnership uses for the rest.³

The remaining figure, the Total Netted Partnership Adjustment, is multiplied by the highest rate in effect for the reviewed year under IRC Section 1 (individuals) or Section 11 (corporations).⁷ For 2026, the highest individual rate is 37% and the corporate rate is 21%.⁸ The default calculation uses 37% unless every partner is a C corporation.

Modifications to Reduce the Imputed Underpayment

Paying at 37% when the partners actually owe at lower rates is a common problem. Section 6225 provides a modification process to account for partner-level attributes.⁹ The main modifications:

Rate modification for capital gains and qualified dividends allocable to individual partners (S corporations are treated as individuals for this purpose), taxed at the lower capital gains rate.
Tax-exempt partner modification, excluding from the Imputed Underpayment amounts allocable to tax-exempt entities that would owe no tax.
C corporation modification, applying the 21% corporate rate to amounts allocable to C corporation partners.
Amended return modification, where individual partners file amended returns (or use an alternative procedure) for the reviewed year and pay the tax they personally owe, with the partnership reducing its Imputed Underpayment by the portion those partners already covered.

The PR compiles documentation supporting each modification and attaches it to the AAR. The IRS can reject modifications that are not adequately substantiated.

Forms and How to File

The forms depend on whether the partnership files electronically or on paper.³

Electronic Filing

Electronic filers submit Form 8082 as the primary AAR form, with Part I, Line 1(b) checked and items B through C2 completed. It is filed alongside Form 1065 with box G(5) “Amended return” checked for transmission purposes. The PR (or designated individual) manually signs Form 8082 on item D, and a PDF of the signed page is attached to the electronic submission. Form 8985 and Forms 8986 are also required when the partnership makes a push-out election or when the AAR contains adjustments that do not produce an Imputed Underpayment.

Paper Filing

Paper filers use Form 1065-X in place of the Form 8082 and Form 1065 combination. Form 8985 and Forms 8986 are still required in the same push-out and no-Imputed-Underpayment situations.

What Happens After a Push-Out Election

Both the partnership and the reviewed year partners have obligations, and missed steps can carry penalties.

The partnership furnishes Form 8986 to each reviewed year partner and files all Forms 8986 with the IRS along with Form 8985 as a transmittal document, together with the AAR itself.⁴ Form 8985 summarizes the partner-level adjustments for the IRS.¹⁰

If a reviewed year partner is itself a pass-through entity, that pass-through partner must furnish its own Forms 8986 to its partners and file them with its own Form 8985 by the extended due date of the AAR partnership’s adjustment year return. Missing this step can trigger penalties under Sections 6698, 6651(i), and 6722 absent reasonable cause.⁴

Reviewed year partners that are not themselves pass-through entities (individuals, C corporations, trusts) compute their additional tax on Form 8978, reflecting what they would have owed had they filed a corrected reviewed year return, adjusted for their actual rate and offsetting attributes.¹¹ Form 8978 is filed with the partner’s adjustment year income tax return and the additional tax is paid at that time.

Interest

Interest applies under either method. Under partnership payment, interest on the Imputed Underpayment begins the day after the due date of the reviewed year return (without extensions) and runs until the earlier of the adjustment year return due date or the date the partnership pays.¹² Under a push-out, interest runs from the same starting point, but each partner computes and pays interest on their share when filing Form 8978. Over a long look-back, the interest can be substantial.

State Follow-Up

The federal filing does not close out the correction. Many states require the partnership to report the federal adjustments to the state taxing authority within a set period. The Multistate Tax Commission’s Model Uniform Statute sets a 180-day reporting window, and several states have adopted all or part of it, though the specifics vary widely. Some states apply their reporting rules to both IRS audits and partnership-filed AARs; others focus only on audit adjustments. Check your state’s requirements immediately after filing the federal AAR, because late reporting can trigger state-level penalties and interest.

1
Office of the Law Revision Counsel. 26 USC 6227 – Administrative Adjustment Request by Partnership
2
Internal Revenue Service. BBA Centralized Partnership Audit Regime
3
Internal Revenue Service. File an Administrative Adjustment Request for a BBA Partnership
4
Internal Revenue Service. Instructions for Form 8986 – Partner’s Share of Adjustment(s) to Partnership-Related Item(s)
5
eCFR. 26 CFR 301.6223-1 – Partnership Representative
6
Office of the Law Revision Counsel. 26 USC 6226 – Alternative to Payment of Imputed Underpayment by Partnership
7
Internal Revenue Service. How to Figure an Imputed Underpayment
8
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
9
Office of the Law Revision Counsel. 26 USC 6225 – Partnership Adjustment by Secretary
10
Internal Revenue Service. Instructions for Form 8985 and Form 8985-V
11
Internal Revenue Service. About Form 8978, Partner’s Additional Reporting Year Tax
12
eCFR. 26 CFR 301.6233(a)-1 – Interest and Penalties Determined From Imputed Underpayment