IRC Section 6226 Push-Out Election: Filing, Form 8986, and Penalties

The Section 6226 push-out election is how an audited partnership shifts IRS audit adjustments off its own books and onto the partners who held interests during the year that was audited. Instead of the partnership paying a lump-sum “imputed underpayment” at the entity level, each reviewed-year partner receives a statement of their share of the adjustments and reports the additional tax on their own return. The partnership representative makes the election by filing Form 8988 within 45 days of the Notice of Final Partnership Adjustment, and the deadline cannot be extended.

What the Election Actually Changes

Under the centralized partnership audit regime created by the Bipartisan Budget Act of 2015, the default rule is that the partnership itself owes the tax on any audit adjustments. The IRS calculates the imputed underpayment by netting all adjustments and multiplying by the highest individual or corporate rate in effect for the reviewed year. Because every dollar of adjustment is taxed at the top rate, the bill is almost always larger than what the partners would have collectively owed based on their actual brackets.¹

The imputed underpayment is owed in the “adjustment year,” meaning the year the audit closes. Whoever holds partnership interests at that point bears the economic cost, even if the underlying adjustments trace back to a year when the ownership was completely different. Section 6226 solves that mismatch. When the partnership elects the push-out, the entity-level liability disappears, and each adjustment is routed back to the person who was actually a partner when the item arose.¹

Making the Election

The partnership representative has 45 days from the date the IRS mails the Notice of Final Partnership Adjustment to file the election. This window is hard: missing it locks the partnership into paying the full imputed underpayment.²

The election is made on Form 8988 (Election for Alternative to Payment of the Imputed Underpayment — IRC Section 6226). Attach a schedule listing each reviewed-year partner’s name, address, and taxpayer identification number, along with a copy of the Notice of Final Partnership Adjustment. Only the partnership representative can sign and file the election, and that decision binds every partner in the reviewed year. Individual partners have no right to override or opt out.²

Once filed, the election is irrevocable without IRS consent, and consent is rarely granted after statements have gone out to partners. Partners also cannot file inconsistently with the adjustment amounts shown on their statements. The amounts are binding.

You Give Up Judicial Review

The 45-day election window sits inside the 90-day window the partnership has to petition a court to challenge the adjustments. Electing the push-out in those first 45 days is an acceptance of the adjustments as final. Once the election is made and the imputed underpayment no longer applies, there is no partnership-level liability left for a court to review. If you want to contest the adjustments, hold off on the push-out and file a petition instead.¹

You Also Give Up Modification

Before the Notice of Final Partnership Adjustment is issued, the partnership representative can request modifications under Section 6225(c) to reduce the imputed underpayment. Modifications include showing that certain partners are tax-exempt, that partners filed amended returns and paid the tax, or that a lower rate should apply.³

If the partnership then elects to push out, any modifications that were or could have been requested are disregarded.⁴ You cannot modify the imputed underpayment down and then push out the rest. It is one path or the other, so evaluate whether modifications would shrink the entity-level bill enough to make paying it more attractive than shifting adjustments to reviewed-year partners.

What the Partnership Does After Electing

Once the election is filed, the partnership must furnish Form 8986 (Partner’s Share of Adjustment(s) to Partnership-Related Item(s)) to every partner who held an interest during the reviewed year. Each Form 8986 shows that partner’s allocable share of the adjustments. The partnership also submits all Forms 8986 to the IRS with Form 8985 (Pass-Through Statement — Transmittal/Partnership Adjustment Tracking Report), which aggregates the individual statements.⁵

These statements must be furnished and filed no later than 60 days after the partnership adjustments become final. Adjustments become final when the 90-day petition period expires without a court filing, or when a court issues a final determination.⁵ Miss the 60-day window and the IRS can invalidate the push-out election entirely, putting the partnership back on the hook for the full imputed underpayment.

Forms 8985 and 8986 must be submitted electronically through the IRS BBA Online Form Submission Service. The partnership needs an e-Services account and a Partnership Bipartisan Budget Act Transmitter Control Code before it can use the system.⁶ Do not issue amended Schedules K-1 or K-3 in connection with a push-out. The adjustment information flows through Forms 8986, not through amended K-1s.⁴

What Partners Do With a Form 8986

A partner who receives a Form 8986 owes any resulting additional tax in the “reporting year,” which is the partner’s tax year that includes the date the statement was furnished. The calculation, though, looks backward.

The partner determines a “correction amount” for the reviewed year by recalculating what their tax would have been if the audit adjustments had appeared on the original return. Then the partner traces the ripple effects through every year between the reviewed year and the reporting year. If an adjustment would have changed a net operating loss, credit carryforward, passive activity loss limitation, or any other tax attribute, the partner recalculates those intervening years as well. The total additional tax is the sum of the correction amounts across all affected years.

Partners other than pass-through entities report this liability on Form 8978 (Partner’s Additional Reporting Year Tax) and file it with the income tax return for the reporting year.⁷

Interest Runs at a Higher Rate

Interest runs from the original due date of the partner’s return for each year that produces a correction amount, through the date the partner pays. The rate is higher than the standard IRS underpayment rate. The normal underpayment rate equals the federal short-term rate plus 3 percentage points. For push-out adjustments, the statute substitutes 5 percentage points for 3.¹⁸ Partners can make advance payments to stop further interest from accruing.

Negative Correction Amounts

Not every push-out adjustment increases tax. When a correction amount for a given year is negative, the partner reports the decrease on Form 8978, and it offsets positive correction amounts from other years. A net negative result does not generate a refund claim through Form 8978, and the partner does not receive interest on decreases.⁷ Interest accrues on increases but not on decreases.

Penalties

Accuracy-related penalties, fraud penalties, and similar items are determined at the partnership level during the audit, not at the partner level. The IRS decides during the examination whether a penalty applies and computes the amount based on the partnership’s conduct. Reasonable cause and good faith defenses are evaluated with respect to the partnership only. A partner cannot raise an individual defense that was not raised at the partnership level.⁹

The reviewed-year partners still pay them. Penalty amounts flow through on the Forms 8986 alongside the adjustment amounts, so partners who had no involvement in the examination end up funding decisions the partnership representative made during it.

Tiered Partnerships

When a reviewed-year partner is itself a pass-through entity, the push-out doesn’t stop there. A pass-through partner that receives a Form 8986 has two choices: pay the imputed underpayment itself (with penalties and interest) or continue the push-out by issuing its own Forms 8986 to its partners.¹⁰

To continue the push-out, the pass-through partner furnishes Forms 8986 to its own reviewed-year partners and submits Forms 8985 and 8986 to the IRS by the extended due date of the audited partnership’s adjustment year return.¹¹ To instead pay the imputed underpayment, it should not issue Forms 8986 for those adjustments, but it must still complete Part IV of Form 8985 and attach a statement showing how the imputed underpayment, penalties, and interest were calculated.¹⁰

In multi-tier structures, each pass-through entity faces the same fork. The push-out keeps cascading until adjustments land with partners that are not pass-through entities, such as individuals or C corporations, who then report on Form 8978. Every entity in the chain has its own deadline, and a missed deadline at any level shifts the imputed underpayment onto that entity.

Push-Outs Outside the Audit Context

Two situations trigger push-out mechanics without a completed IRS audit, and partnerships often assume the rules don’t reach them. They do.

First, when a partnership voluntarily corrects a prior return by filing an Administrative Adjustment Request, it can elect under Section 6227(b)(2) to push adjustments out to reviewed-year partners instead of paying at the entity level. The election is made on Form 8082, with Forms 8985 and 8986 included in the filing.⁴ The same rule about modifications applies: electing to push out AAR adjustments disregards any modifications that could have reduced the imputed underpayment. AAR adjustments that do not produce an imputed underpayment must be pushed out regardless.

Second, when a partnership dissolves before audit adjustments take effect, there is no entity left to pay. The regulations treat the adjustments as if the partnership had made a push-out election, and the former partners from the partnership’s last tax year account for the adjustments on their own returns. The partnership representative’s authority and obligations survive the termination for BBA purposes, so a designated representative may still need to manage compliance after the entity stops operating.

1
Office of the Law Revision Counsel. 26 USC 6226 – Alternative to Payment of Imputed Underpayment by Partnership
2
GovInfo. 26 CFR 301.6226-1 – Election for an Alternative to the Payment of the Imputed Underpayment
3
Internal Revenue Service. BBA Partnership Audit Process
4
Internal Revenue Service. File an Administrative Adjustment Request for a BBA Partnership
5
Internal Revenue Service. Instructions for Form 8986 (Rev. December 2024)
6
Internal Revenue Service. Electronic Submission of Forms by Audited BBA Partnerships and Their Pass-Through Partners
7
Internal Revenue Service. Instructions for Form 8978 (Including Schedule A)
8
Office of the Law Revision Counsel. 26 USC 6621 – Determination of Rate of Interest
9
Internal Revenue Service. Centralized Partnership Audit Regime (BBA) Field Examination Procedures
10
Internal Revenue Service. Instructions for Form 8985 and Form 8985-V
11
Internal Revenue Service. Instructions for Form 8985 and Form 8985-V (Rev. December 2024)