What Is the 6221(b) Push-Out Election?

The election under Internal Revenue Code (IRC) Section 6226 is a choice for partnerships audited under the Bipartisan Budget Act (BBA) of 2015. This legislation created a centralized audit system where the Internal Revenue Service (IRS) can assess and collect tax directly from the partnership itself. The “push-out” election is an alternative to this default rule, allowing a partnership to shift the responsibility for a tax underpayment to the individuals who were partners during the year the error occurred. This ensures the tax liability is borne by the partners who received the incorrect tax benefit, rather than the partnership in the year the audit is finalized.

This election should not be confused with the election under IRC Section 6221(b), which allows certain eligible partnerships to opt out of the BBA audit rules entirely.

Understanding the Push-Out Election

Under the BBA audit rules, if an examination reveals an underpayment of tax, the IRS calculates an “imputed underpayment.” This figure represents the total tax effect of the adjustments, calculated at the highest individual or corporate tax rate, which the partnership itself is required to pay in the year the audit concludes. This default method can create a mismatch, as the financial burden falls on the partners present during the adjustment year, who may be different from the partners who were present during the year under audit (the “reviewed year”).

The decision to make this election rests solely with the Partnership Representative. This is an individual or entity designated by the partnership with the exclusive authority to act on its behalf in all matters related to an IRS audit.

Information and Forms for Making the Election

To execute a push-out election, the Partnership Representative must first gather specific information. This includes the full name, current address, and correct taxpayer identification number (TIN) for every person or entity that was a partner during the reviewed year. The representative must also calculate each reviewed-year partner’s share of the audit adjustments.

With this information compiled, the representative must complete key IRS forms. The primary form is Form 8988, Election for Alternative to Payment of the Imputed Underpayment. The second is Form 8986, Partner’s Share of Adjustment(s) to Partnership-Related Item(s). A separate Form 8986 must be prepared for each reviewed-year partner, detailing their specific share of the adjustments. This requires a careful allocation of the final audit adjustments to ensure each partner receives a correct statement of their portion of the changes.

The Election Process

The Partnership Representative must file the election with the IRS within 45 days of the date on the Final Partnership Administrative Adjustment (FPAA) notice. The FPAA is the official IRS document that finalizes the audit and details the imputed underpayment. This 45-day window cannot be extended.

The submission package sent to the IRS must include the completed Form 8988 and a copy of every Form 8986 prepared for each reviewed-year partner. The partnership is also required to furnish a copy of the completed Form 8986 to each respective reviewed-year partner. This action informs the partners of their share of the adjustments and their resulting tax obligations. After filing the election with the IRS and furnishing the statements to the partners, the partnership has shifted the payment liability.

Partner Responsibilities After the Election

Once a reviewed-year partner receives Form 8986 from the partnership, the responsibility for the tax liability shifts to them. The form details the specific adjustments to their share of partnership items from the audited year. The partner does not amend their tax return for the reviewed year. Instead, they must account for these adjustments on the tax return for the year they receive the Form 8986, which is known as the “reporting year.”

The partner must recalculate their tax liability for the reviewed year, and any other affected tax years, as if the adjustments on Form 8986 had been reported correctly in the first place. The total increase in tax resulting from this recalculation is then reported as an additional tax on their reporting year’s income tax return. This amount is paid along with any other taxes owed for the reporting year, effectively settling the partner’s portion of the audit liability.