Form 1065-X: Amended Returns, AAR, and Push-Out Elections

Form 1065-X is the form a partnership uses to correct a previously filed Form 1065, but since the Bipartisan Budget Act of 2015 took effect, it does two very different jobs. For tax years beginning before 2018, or for partnerships that validly elected out of the BBA’s centralized audit regime, Form 1065-X works as a traditional amended return. For everyone else, it functions as an Administrative Adjustment Request (AAR), which changes who calculates the tax, who pays it, and when.¹ Getting the track wrong can mean paying tax at the highest individual rate at the entity level when the corrections could have been passed out to the partners who actually owe.

Check First Whether a Superseding Return Works

If the original filing deadline (including any extension) hasn’t passed, skip Form 1065-X entirely. File a complete replacement Form 1065 as a superseding return. The IRS treats it as if the original never existed, so there’s no AAR process, no imputed underpayment, and no separate partner notifications.² The superseding return must be complete, with every schedule and attachment. Partnerships that routinely extend get a longer window to use this simpler route.

Amended Return or Administrative Adjustment Request

Once the filing deadline has passed, the first question is which track you’re on. Form 1065-X acts as a traditional amended return in only two situations: the tax year began before January 1, 2018, or the partnership made a valid annual election to opt out of the BBA centralized audit regime for that year.¹ On that track, the partnership corrects the items, issues updated Schedules K-1, and the partners amend their own individual returns for the same year.

For every other partnership with a tax year beginning after 2017, Form 1065-X is an AAR. The AAR doesn’t simply fix the old return. It creates an adjustment that gets resolved in the current year, either through an entity-level tax payment or by pushing the corrections out to the partners who were there during the year being fixed. That two-year structure is the core complication.

How the Imputed Underpayment Is Calculated

The default AAR method requires the partnership to calculate an Imputed Underpayment (IU) and pay it at the entity level. The IU represents the tax that would have been owed if the partnership had originally reported the corrected amounts. Section 6225 lays out the sequence.³

The partnership determines the difference between items as originally reported and the corrected amounts. Adjustments are grouped by category (the same categories used on Schedule K under Section 702(a)) and netted within each category. Reallocation items, which shift income between partners without changing the total, are handled separately and can only increase the IU, never decrease it.³ The total netted positive adjustment is multiplied by the highest rate in effect for the reviewed year under Section 1 (individuals) or Section 11 (corporations), whichever is higher, which for recent years is 37%.⁴ Interest runs from the original due date of the reviewed year return, and applicable penalties are added. The partnership pays this amount when it files the AAR.

Applying the top rate to the entire adjustment almost always overstates the actual tax owed, because not every partner sits in the top bracket. That’s what the modification process fixes.

Modifying the Imputed Underpayment Down

Section 6225(c) lets a partnership request a lower IU by showing that certain partners would have owed tax at reduced rates or not at all. The request is made on Form 8980, submitted electronically and signed by the Partnership Representative with a five-digit PIN.⁵

Tax-exempt partners: the share of the adjustment allocable to a partner that wouldn’t owe tax because of its tax-exempt status can be excluded.⁶
C corporation partners: their share can be recalculated at 21% rather than 37%.
Amended returns by partners: if reviewed year partners file their own amended returns and pay the additional tax on their share, the partnership reduces the IU by that amount.
Tax treaty rates: partners entitled to a reduced rate under a treaty can support a rate modification for their share.⁶

Each claimed reduction needs supporting documentation. For partnerships with significant income flowing to C corporations or tax-exempt entities, modification can dramatically cut the entity bill. Skipping the step and paying the default IU is one of the most expensive mistakes in the AAR process.

Pushing the Adjustments Out to Partners

Instead of paying the IU at the entity level, the Partnership Representative can elect under Section 6227(b)(2) to push the adjustments out to the reviewed year partners.⁷ The election is made on the AAR itself, not on a separate form filed later. Each partner then accounts for their share of the corrections on their own return for the adjustment year (the year the AAR is filed), not the reviewed year, and pays additional tax at their actual rate plus interest running from the original due date of the reviewed year return.

The Partnership Representative’s choice is binding. Individual partners have no statutory right to override it, which is why the PR designation on the original Form 1065 matters so much: their decision can shift hundreds of thousands of dollars in liability between the entity and the partners.

The mechanics are strict. The partnership must furnish Form 8986 to each reviewed year partner on the same date the AAR is filed with the IRS, and file Form 8985 as a transmittal report with copies of all Forms 8986 in the AAR submission.⁸ Form 8986 tells each partner their share of the adjustment and the interest computation they need. Miss the same-day furnishing requirement and the push-out election can be invalidated, leaving the partnership on the hook for the full IU plus additional interest.

The obligation follows whoever held the interest during the reviewed year, even if they’ve since sold out. Keep current contact information for former partners. And partners who receive Form 8986 should not file an amended return for the reviewed year; the BBA framework requires them to report everything on the adjustment year return.

When the Correction Reduces Tax

A net negative adjustment does not produce a refund check to the partnership. When the IU calculation yields zero or a negative number, the partnership must furnish Forms 8986 to the reviewed year partners and file Form 8985 with the AAR, even though no entity-level payment is due.⁸⁷ The reviewed year partners then claim the benefit on their own adjustment year returns. Partnerships expecting a refund from the IRS will be disappointed; the BBA framework doesn’t work that way.

Paper Form 1065-X or Electronic Form 8082

Form 1065-X is now the paper option, not the only option. For BBA partnerships filing an AAR electronically, use Form 8082 with Form 1065 instead of Form 1065-X.⁹ If making a push-out election, or if the AAR contains adjustments that don’t produce an IU, attach Forms 8985 and 8986 regardless of filing method.

Non-BBA partnerships that want to file an amended return electronically use Form 1065 itself (not Form 1065-X) following the instructions for electronically filed amended returns. Form 1065-X is the paper-only option on that track as well.⁹

The IRS applies the same e-filing thresholds to amended returns and AARs as to original Form 1065 filings, so partnerships required to e-file their original return are expected to e-file the correction using Form 8082 rather than mailing a Form 1065-X.¹ If you do file on paper, mail Form 1065-X to the service center where the original return was filed, and have the Partnership Representative sign it.

Deadline and the Audit Cutoff

An AAR must be filed within three years of the later of the date the reviewed year return was filed or the last day for filing that return determined without regard to extensions.⁷ Extensions don’t move the earlier of those two dates.

There’s also a hard stop: once the IRS mails a notice of administrative proceeding for that year under Section 6231, no AAR can be filed for it.⁷ Once the IRS starts its own audit, the window for a voluntary correction through an AAR is closed.

What the AAR Package Must Include

The IRS can reject an incomplete filing. A complete AAR submission includes:

The AAR itself: Form 1065-X on paper, or Form 8082 with Form 1065 electronically.⁸
A written explanation of each adjustment and why the original reporting was incorrect.
A statement showing how the IU was calculated, even when the partnership elects the push-out or the adjustments produce no IU.
Form 8985 whenever the partnership pushes out or the AAR contains adjustments that don’t result in an IU.
Form 8986 for each reviewed year partner, filed with the IRS and furnished to the partner on the same day.
Payment of the IU, if one is due at the entity level, remitted with the filing to stop further interest.

Do not include amended Schedules K-1 or K-3 with a BBA AAR. The IRS has directed that Forms 8986 replace amended K-1s in the AAR context.⁸

1
Internal Revenue Service. Instructions for Form 1065-X
2
Internal Revenue Service. Amended and Superseding Corporate Returns
3
Office of the Law Revision Counsel. 26 USC 6225 – Partnership Adjustment by Secretary
4
Internal Revenue Service. How to Figure an Imputed Underpayment
5
Internal Revenue Service. Publication 5346 – Partnership Request for Modification of Imputed Underpayments Under IRC Section 6225(c)
6
eCFR. 26 CFR 301.6225-2 – Modification of Imputed Underpayment
7
Office of the Law Revision Counsel. 26 USC 6227 – Administrative Adjustment Request by Partnership
8
Internal Revenue Service. File an Administrative Adjustment Request for a BBA Partnership
9
Internal Revenue Service. Instructions for Form 1065-X (10/2025)