How to File a BBA Partnership Amended Return

Partnerships that have elected into the Bipartisan Budget Act (BBA) centralized audit regime must follow specific procedures when amending their tax returns. Unlike traditional partnership filings, these amendments involve unique rules and potential implications for both the entity and its partners. Understanding the correct process is essential to avoid penalties and ensure compliance with IRS regulations.

Filing an amended BBA partnership return requires attention to procedural steps, required documents, and partner-level adjustments.

Eligibility Criteria

Not all partnerships can amend their returns under BBA procedures. Eligibility depends on whether the entity is subject to the centralized audit regime and whether the amendment falls within the allowable timeframe. Partnerships that have elected out of the BBA rules must follow different procedures, typically requiring each partner to amend their individual returns instead.

An amended return must generally be filed within three years from the later of the original due date or the date the return was filed. If the IRS has issued a Notice of Administrative Proceeding (NAP) for an audit, the partnership may be restricted from making changes without IRS approval. If the partnership has received a final partnership adjustment (FPA), it may need to follow modification and payment procedures outlined in Internal Revenue Code (IRC) 6226 instead of filing an amended return.

Certain tax attributes can also affect whether an amendment is allowed. If the partnership previously made a push-out election under IRC 6226, adjustments may need to be handled at the partner level. Partnerships that elected to pay imputed underpayments at the entity level under IRC 6225 may face limitations on further modifications.

Filing Procedures

Amending a BBA partnership return starts with identifying the adjustments and determining whether they affect the entity or individual partners. Since changes under the centralized audit regime impact the partnership as a whole, amendments must follow IRS guidelines for accurate reporting and tax liability calculations. The partnership representative plays a central role, as they have exclusive authority to act on behalf of the entity in all dealings with the IRS.

Instead of modifying specific line items, the partnership must submit a revised return reflecting the corrected information. Unlike individual tax amendments, which often involve filing a separate correction form, a BBA partnership must submit an entirely new return marked as an “Administrative Adjustment Request” (AAR). This designation determines how the IRS processes the amendment and whether resulting tax liabilities are assessed at the partnership or partner level. The timing of the submission also affects interest and penalties, as underpayments may accrue additional charges if not addressed promptly.

If the partnership elects to pay imputed underpayments at the entity level, it must apply the highest applicable tax rate under IRC 6225, which for 2024 remains at 37%. However, the partnership may reduce this liability by demonstrating that certain partners qualify for lower rates or exemptions, such as tax-exempt entities or individuals subject to preferential capital gains treatment. Proper documentation is required to support these claims, and failure to provide sufficient evidence could result in the IRS rejecting the adjustment or imposing penalties.

Required Forms and Schedules

Submitting an amended return under the BBA regime requires specific forms and schedules. The primary document is Form 1065, U.S. Return of Partnership Income, which must be marked as an Administrative Adjustment Request (AAR). This designation ensures the IRS processes the return under the centralized audit framework rather than treating it as a standard amended filing. Partnerships must also include a revised Schedule K-1 for each partner, detailing their updated share of income, deductions, and credits.

If adjustments require further reporting at the partner level, Form 8985, Partnership Adjustment Tracking Report, may be necessary. This form helps the IRS track how changes flow through to individual partners. If the partnership elects to push adjustments out to its partners rather than paying at the entity level, Form 8986, Partner’s Share of Adjustments, must be provided to each affected partner. This document serves as formal notification of their revised tax position, allowing them to make necessary modifications to their personal or corporate filings.

Supporting documentation is essential. Partnerships should maintain records, including workpapers, financial statements, and tax reconciliation reports, to substantiate the changes. If the amendment involves reclassification of income or deductions, an explanatory statement outlining the rationale can help avoid IRS challenges. If the partnership is claiming a reduction in imputed underpayments, it may need to submit supporting schedules demonstrating eligibility for lower tax rates or exemptions.

Partner-Level Adjustments

When a partnership amends its return under the BBA framework, adjustments at the partner level can create complications, particularly when partners have already filed their individual returns based on the original allocation of income, deductions, and credits. Since the centralized audit regime treats the partnership as a single entity for tax purposes, changes made at the entity level may require partners to reconcile prior filings with the revised figures.

This reconciliation process can be complex, especially when adjustments impact tax attributes that carry forward, such as net operating losses (NOLs) under IRC 172 or passive activity losses under IRC 469. If an amended return increases taxable income for a prior year, affected partners may need to file amended individual or corporate returns, which can result in additional tax payments, interest accruals under IRC 6601, or penalties under IRC 6662 for substantial understatement of tax. If adjustments decrease taxable income, partners may be eligible for refunds, though refund claims are subject to the statute of limitations under IRC 6511, which generally limits claims to three years from the original filing date or two years from the date of tax payment, whichever is later.

Submission and Tracking

Once the amended return is completed, it must be submitted to the IRS following BBA-specific procedures. Unlike traditional partnership filings, which may allow for paper submissions in some cases, BBA amendments must generally be filed electronically through the Modernized e-File (MeF) system. This ensures efficient processing and reduces the likelihood of errors or delays. Partnerships should verify that their tax software supports AAR filings, as not all platforms can handle these submissions. If electronic filing is not feasible due to system limitations or IRS restrictions, a paper filing may be permitted, but the partnership must follow the IRS’s alternative submission guidelines.

Tracking the status of the amended return is necessary to ensure proper processing. The IRS does not provide real-time updates for AAR filings, so partnerships must rely on their e-filing provider or direct IRS correspondence for status updates. If the IRS identifies discrepancies or requires additional information, it may issue a Notice of Proposed Partnership Adjustment (NOPPA), outlining any changes the agency believes are necessary. Partnerships should respond promptly to avoid prolonged processing times or penalties. If the amendment results in an imputed underpayment, ensuring timely payment is necessary to prevent interest accrual under IRC 6601.