What Is an Administrative Adjustment Request (AAR)?

An Administrative Adjustment Request, or AAR, is how a partnership subject to the centralized audit regime corrects an already-filed Form 1065. Under the Bipartisan Budget Act of 2015 (BBA), a partnership can no longer file a traditional amended return once the original due date has passed. It files an AAR instead, and the correction is resolved either at the partnership level or passed through to the partners who were in the partnership for the year being fixed.¹

The authority sits in 26 U.S.C. § 6227, which lets a partnership request an adjustment to any “partnership-related item” for a taxable year. That phrase reaches nearly everything on the return: income, deductions, credits, allocations, and partner information.²

Who Files the AAR

Only the partnership representative designated on the original return for the year being corrected can file and sign the AAR. That person has sole authority to act for the partnership in BBA proceedings, and both the partnership and its partners are bound by what the representative does.³ Individual partners cannot file their own AARs to fix their shares. If no representative is currently in place, the partnership has to resolve that first.

One boundary matters up front: not every partnership is inside the BBA system. A partnership with 100 or fewer partners, all of whom are individuals, C corporations, S corporations, foreign entities that would be treated as C corporations domestically, or estates of deceased partners, can elect out on a timely filed return using Schedule B-2 of Form 1065.⁴⁵ Partnerships, trusts, and disregarded entities as partners disqualify the election. A partnership that has elected out files a standard amended return, not an AAR.

Filing Deadline

An AAR must be filed within three years of the later of the date the return was actually filed or the last day for filing the return, determined without extensions.² For a calendar-year partnership that filed its 2023 return on March 15, 2024, the deadline is March 15, 2027.

There is one hard override. Once the IRS mails a notice of administrative proceeding (NAP) for a tax year, the AAR door closes for that year, even if the three-year window is still open. Because the NAP is outside the partnership’s control, waiting can cost the option entirely.

How to Prepare and File

Preparing an AAR means identifying every item that needs correction, computing the effect on each partner’s share, and determining whether the net adjustments produce an imputed underpayment. The form used depends on the filing method.

Electronic Filing

A partnership filing electronically uses Form 8082, Notice of Inconsistent Treatment or Administrative Adjustment Request, attached to Form 1065.⁶ The IRS points BBA partnerships to IRS.gov/BBAAAR for specific electronic submission instructions. BBA partnerships do not attach amended Schedules K-1 to the AAR.⁷

Paper Filing

A partnership that is not filing electronically uses Form 1065-X, Amended Return or Administrative Adjustment Request, and mails it to the service center where the original return was filed.⁸

Required Attachments

Whichever route the partnership takes, the filing package includes:

A schedule attached to Form 8082 explaining and supporting each position taken in the AAR.
Documentation showing how any imputed underpayment was calculated, including the grouping, subgrouping, and netting of adjustments.
Forms 8985 and 8986 when adjustments are being pushed out to partners or when adjustments do not result in an imputed underpayment.
Form 8980 if the partnership is modifying the imputed underpayment amount before paying it.

The Form 8082 instructions walk through the sequence: identify the changes, complete the form, calculate whether an imputed underpayment exists, decide whether to pay or push out, and file the assembled package.⁷

When Adjustments Increase Tax

If the corrections, after grouping and netting, raise taxable income or shrink deductions and credits, the AAR produces an imputed underpayment. That amount is calculated by applying the highest individual or corporate tax rate for the reviewed year to the net adjustment.⁹ The rate is steep because it presumes every dollar belongs to a partner in the top bracket.

Section 6227(b) gives the partnership two paths.²

Pay at the Partnership Level

The partnership pays the imputed underpayment, plus any interest and penalties, when it files the AAR.¹ Simpler, but often expensive: tax-exempt partners, partners in lower brackets, and partners with offsetting losses get no benefit from their circumstances unless the partnership modifies the imputed underpayment first.

Push Out to the Reviewed-Year Partners

The partnership can elect instead to push the adjustments out. Each reviewed-year partner gets a Form 8986 showing their share, and those partners account for the adjustments on their own returns for the year the AAR is filed, paying any additional tax with interest.¹⁰ The total tax bill is often lower because each partner’s actual rate applies, but coordination is heavier.

Modifying the Imputed Underpayment

A partnership that pays at the entity level does not have to accept the initial figure. Available modifications, requested by filing Form 8980 with the AAR, include:⁷

Partners filing amended returns that take their share of the adjustments into account and pay the resulting tax, which reduces the partnership-level liability.
Excluding adjustments allocable to partners that would owe no tax because of tax-exempt status.
Applying partners’ actual, lower rates instead of the highest statutory rate.
Adjustments allocable to foreign partners who qualify for treaty-based reductions.
Closing agreements between the partnership and the IRS addressing specific adjustments.

Modifications can move the number substantially when tax-exempt entities or lower-bracket partners hold significant interests. Skipping the modification step is one of the more expensive mistakes available in the process.

When Adjustments Decrease Tax

Not every AAR raises tax. When corrections reduce income or increase deductions, they may produce no imputed underpayment at all. The statute is direct about what happens next: adjustments that do not result in an imputed underpayment have to be pushed out to the reviewed-year partners.² The partnership cannot take a refund at the entity level. Partners receive statements and claim the benefit on their own returns.

Even when a single AAR contains both favorable and unfavorable items, the IRS treats them separately: anything falling outside the imputed underpayment calculation still gets pushed out to partners.¹ Forms 8985 and 8986 carry those adjustments to the partners.¹¹

Tiered Partnerships

Things get more involved when a reviewed-year partner is itself a partnership, S corporation, or other pass-through. A pass-through partner that receives a Form 8986 must either pay an imputed underpayment on the adjustments or push them further down. That downstream reporting has to be completed by the extended due date of the pass-through partner’s return for the adjustment year, typically September 15 for a calendar-year partnership. Each tier prepares its own Forms 8985 and 8986. If the combined package exceeds 100 pages, the IRS requires paper filing.¹¹

Effects to Weigh Before Filing

An AAR has a consequence that partnerships should consider before filing. Under the regulations, the IRS’s three-year limitations period runs from the latest of the return filing date, the return due date, or the date an AAR was filed.¹² Filing an AAR near the end of the original window gives the IRS a fresh three years from the AAR filing date to examine that year. A partnership with exposure on other items should factor that in when timing the filing.

State obligations are the other item easy to overlook. Many states now require partnerships and partners to report federal adjustments, including those from AARs, within a set period after the adjustments become final. The Multistate Tax Commission developed a model statute, and a growing number of states have enacted versions of it. Each state where the partnership files should be checked for notification deadlines and payment rules, because missing a state deadline can produce separate penalties even when the federal AAR itself is handled correctly.

1
Internal Revenue Service. File an Administrative Adjustment Request for a BBA Partnership
2
Office of the Law Revision Counsel. 26 USC 6227 – Administrative Adjustment Request by Partnership
3
Internal Revenue Service. Designate or Change a Partnership Representative
4
Office of the Law Revision Counsel. 26 USC 6221 – Determination at Partnership Level
5
Internal Revenue Service. Elect Out of the Centralized Partnership Audit Regime
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Internal Revenue Service. About Form 8082, Notice of Inconsistent Treatment or Administrative Adjustment Request (AAR)
7
Internal Revenue Service. Instructions for Form 8082
8
Internal Revenue Service. About Form 1065-X, Amended Return or Administrative Adjustment Request (AAR)
9
GovInfo. 26 USC 6225 – Partnership Payment of Imputed Underpayment
10
Office of the Law Revision Counsel. 26 USC 6226 – Alternative to Payment of Imputed Underpayment by Partnership
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Internal Revenue Service. About Form 8985, Pass-Through Statement Transmittal/Partnership Adjustment Tracking Report
12
eCFR. 26 CFR 301.6235-1 – Period of Limitations on Making Adjustments