Form 8985: What It Is and How to File It

Form 8985, the Pass-Through Statement — Transmittal/Partnership Adjustment Tracking Report, is a summary document a partnership files with the Internal Revenue Service (IRS). Its purpose is to accompany the Forms 8986, Partner’s Share of Adjustment(s) to Partnership-Related Item(s), which are prepared following certain audit or adjustment procedures.

The form acts as a cover sheet, consolidating the total adjustments being passed on to individual partners. It is used when a partnership elects to “push out” adjustments after an IRS audit or when filing an Administrative Adjustment Request (AAR).

The Role of Form 8985 in a Partnership Audit

The use of Form 8985 is rooted in the centralized partnership audit regime created by the Bipartisan Budget Act of 2015 (BBA). This legislation changed how the IRS assesses and collects tax for partnership adjustments for tax years beginning in 2018 and later. Under the BBA, when an audit results in an adjustment, the partnership itself is generally liable for a tax payment known as an “imputed underpayment.” This centralizes the process, so the IRS does not have to pursue each partner individually.

A partnership can choose an alternative to paying the imputed underpayment. It can make an election to “push out” the audit adjustments to the individuals and entities that were partners during the audited year, known as the “reviewed year.” This election shifts the tax liability from the partnership to its reviewed-year partners. Each partner then takes their share of the adjustments into account on their own tax return for the year they receive the information.

The decision to make this push-out election, either after an audit or as part of an AAR, is what triggers the requirement to file Form 8985. The form is the mechanism by which the partnership officially reports to the IRS that it has chosen this path. Without a push-out election, Form 8985 is not filed, as the tax liability would be settled at the partnership level.

Information Required to Complete Form 8985

Part I of the form requires basic identifying information about the partnership, including its legal name, Employer Identification Number (EIN), and mailing address. Part II asks for details about the partnership representative, the individual or entity designated to act on the partnership’s behalf during the proceedings. This includes the representative’s name and contact information.

Part III is where information directly from the audit correspondence or AAR filing is entered. The partnership will need the Notice of Final Partnership Adjustment (FPA) it received from the IRS or its own AAR documentation. From these documents, the partnership must provide the specific audit control number, the reviewed tax year, and the date the adjustments were finally determined.

Part IV serves as a summary of all the adjustments being pushed out to the partners. This part requires the partnership to aggregate the figures from every single Form 8986 it has prepared. The columns in this section are designed to report the adjustments and corrected amounts for items like income, gain, loss, deduction, and credits. This section provides the IRS with a total reconciliation of all the adjustments being passed through to the partners.

Step-by-Step Guide to Filing Form 8985

Form 8985 cannot be sent to the IRS by itself and must be submitted with a copy of every Form 8986 prepared for the reviewed-year partners. This package provides the IRS with both summary and detailed partner-level information. The IRS requires that this package be submitted electronically, and partnerships must use the designated portal on the IRS website to transmit the documents.

The partnership must also furnish each reviewed-year partner with their unique Form 8986. The deadline for furnishing these statements and filing with the IRS is 60 days after the date the partnership adjustments are finally determined.

After the forms are filed, partners use the information from their Form 8986 to calculate the additional tax they owe. They report these adjustments and any resulting tax on their income tax return for the year they receive the Form 8986. This is completed using Form 8978, Partner’s Additional Reporting Year Tax.