Bipartisan Budget Act (BBA).

All partnerships with tax years beginning after 2017 are subject to the centralized partnership audit regime unless eligible partnerships elect out by making a valid election under section 6221(b). For purposes of these instructions (unless otherwise noted), the centralized partnership audit regime proceedings under sections 6221 through 6241 will be referred to as “BBA proceedings.”

If you're a non-TEFRA partnership (see Definitions and Section I, Part I, items B and C, later) or a non-BBA partnership (defined under Definitions, later) filing an amended return electronically, use Form 1065 and see the related instructions. If you aren’t filing electronically, use Form 1065-X.

Form 1065-X should only be used to make a paper filing. For electronic filing, use Form 8082 in conjunction with Form 1065.

Generally, the criteria used to determine whether the original Form 1065 is required to be filed electronically are also used to determine if the amended return or AAR must be filed electronically.

For information regarding when Form 1065 is required to be filed electronically, and how to electronically file an amended return or AAR for a partnership, see the Instructions for Form 1065.

Form 1065-X isn't used to elect out of BBA. See the Instructions for Form 1065 for electing out of BBA.

Amended return.

Partnerships and real estate mortgage investment conduits (REMICs) that become aware of incorrect items of income, deductions, etc., use Form 1065-X to correct their previously filed partnership or REMIC return. See Specific Instructions, later, for information on completing Form 1065-X as an amended return.

AAR-Partnerships (except electing large partnerships (ELPs)).

Partnerships that are subject to either BBA or TEFRA proceedings use Form 1065-X to file for an AAR. See Specific Instructions, later, for information on completing Form 1065-X as an AAR.

Protective TEFRA AARs.

Generally, a protective AAR is a request for credit or refund based on current litigation or expected changes in tax law or other legislation. The TMP or partner with authority (PWA) files a protective AAR when the right to a refund is contingent on future events and may not be determinable until after the period for filing an AAR has expired. Protective AARs are subject to AAR statutes set forth in sections 6227, 6228, and 6229 (prior to amendment by the BBA). If you're a TMP filing on behalf of the partnership, the petition period described in section 6228 (prior to amendment by the BBA) can be extended by using Form 9248, Agreement to Extend the Time to File a Petition for Adjustment by the Tax Matters Partner With Respect to Partnership Items. A protective AAR must clearly state that it is a protective AAR, alert the IRS to the essential nature of the adjustment, and specify the line item to be protected.

AAR under BBA.

File Form 1065-X if you're the partnership representative (PR) or designated individual (DI) requesting an administrative adjustment to correct a previously filed partnership return on behalf of the BBA partnership. See Partnership representative (PR) , later, for the definition of a PR. Go to IRS.gov/bbaaar for additional information.

AAR-Electing Large Partnerships (ELPs).

ELPs that file Form 1065-B and need to correct errors on a previously filed Form 1065-B use Form 1065-X to file for an AAR. See Specific Instructions, later, for information on completing Form 1065-X as an AAR.

AAR-REMICs.

For tax years beginning prior to January 1, 2018 (unless electing into BBA), REMICs that don’t meet the small REMIC exception under sections 860F(e) and 6231 (prior to amendment by the BBA), and related regulations, or make the election described in section 6231(a)(1)(B)(ii) (prior to amendment by the BBA) not to be treated as a small REMIC, use Form 1065-X to file for an AAR. For tax years beginning after December 31, 2017, REMICs that had more than one residual interest holder at any time during the tax year and didn’t elect out of the centralized partnership audit regime, use Form 1065-X to file an AAR. See Specific Instructions, later, for information on completing Form 1065-X as an AAR.

Non-TEFRA and non-BBA partnerships.

Any partner or limited liability company (LLC) member must sign the return. Form 1065-X isn’t considered to be a return unless it is signed. When a return is made for a partnership by a receiver, trustee, or assignee, the fiduciary must sign the return instead of the partner or LLC member. Returns and forms signed by a receiver or trustee in bankruptcy on behalf of a partnership must be accompanied by a copy of the order or instructions of the court authorizing the signing of the return or form.

BBA partnerships.

When filing an AAR, Form 1065-X must be signed by the PR (or the DI if the PR is an entity) for the reviewed year.

TEFRA partnerships.

The TMP must sign Form 1065-X. See Tax matters partner (TMP) , later, for the definition of a TMP.

ELPs.

The PWA must sign Form 1065-X. See Partner with authority (PWA) , later, for the definition of a PWA.

REMICs with a startup day after November 9, 1988.

For these REMICs, Form 1065-X may be signed by any person who could sign the return of the entity in the absence of the REMIC election. Thus, the return of a REMIC that is a corporation or trust would be signed by a corporate officer or a trustee, respectively. For REMICs with only segregated pools of assets, the return would be signed by any person who could sign the return of the entity owning the assets of the REMIC under applicable state law.

REMICs with a startup day before November 10, 1988.

These REMICs may elect to apply the rules for REMICs with a startup day after November 9, 1988 (as described in Regulations section 1.860F-4(c)(2)(iii)). Otherwise, Form 1066 must be signed by a residual interest holder or, as provided in section 6903, by a fiduciary, as defined in section 7701(a)(6), who is acting for the REMIC and who has furnished adequate notice, as described in Regulations section 301.6903-1(b).

In the prior paragraph, the term “startup day” means any day selected by a REMIC that is on or before the first day on which interests in such REMIC are issued. Otherwise, the startup day is the day on which the REMIC issued all of its regular and residual interests. However, a sponsor may contribute property to a REMIC in exchange for regular and residual interests over any period of 10 consecutive days and the REMIC may designate any 1 of those 10 days as the startup day. The day so designated is then the startup day, and all interests are treated as issued on that day.

Adjustment year.

For BBA partnerships, the adjustment year is the partnership tax year in which:

BBA partnership.

A partnership that is subject to the centralized partnership audit regime is referred to as a “BBA partnership.” All partnerships with tax years beginning after 2017 are BBA partnerships unless, under section 6221, they make a valid election out of the centralized partnership audit regime. A partner in a BBA partnership is referred to as a “BBA partner.” An AAR filed by a BBA partnership is referred to as a “BBA AAR” and must be filed by the PR. Go to IRS.gov/bbaaar for additional information.

Designated individual (DI).

When filing its annual Form 1065, a partnership appoints a DI if its PR is an entity. The DI is the only individual authorized to act on behalf of the PR.

Imputed underpayment (IU).

An IU is the amount a partnership is potentially liable for as a result of an adjustment to a partnership-related item (PRI). Whether an adjustment results in an IU is determined in accordance with the rules under Regulations section 301.6225-1, with that amount subject to possible modification under Regulations section 301.6227-2.

Non-BBA partnership.

Under BBA, certain partnerships with 100 or fewer eligible partners for the tax year can elect out of the centralized partnership audit regime. For additional information, see the Instructions for Form 1065. A partnership that elects out of the centralized partnership audit regime is referred to as a “non-BBA partnership.”

Non-TEFRA partnership.

A partnership with a tax year beginning before 2018 that isn’t subject to TEFRA proceedings and didn't elect into BBA for that tax year beginning after November 2, 2015, and before January 1, 2018, is referred to as a “non-TEFRA partnership.”

Partner with authority (PWA).

Each ELP must designate a partner (or other person) as the PWA who shall have the sole authority to act on behalf of the partnership. See section 6255(b)(1) (prior to amendment by BBA). If the partnership fails to designate a PWA, the IRS can select any partner to serve as the partner with such authority. The PWA has the authority to file an AAR on behalf of the partnership. The PWA does this by filing Form 1065-X.

Partnership-related item (PRI).

A PRI is any item or amount with respect to the partnership that is relevant in determining the tax liability of any person under chapter 1, and any partner’s distributive share of that item or amount. An item or amount is with respect to the partnership if it is shown or reflected, or required to be shown or reflected, on the partnership return or the forms prescribed by the IRS for the partnership's tax year or is required under the Code and related regulations to be maintained in the partnership's books or records. This includes an IU for which the partnership may be liable, as well as any tax, penalty, addition to tax, or additional amount imposed on the partnership under chapter 1.

Partnership representative (PR).

Under section 6223, BBA partnerships must designate a partner or other person with a substantial presence in the United States as the PR who shall have the sole authority to act on behalf of the partnership. If the PR is an entity, the partnership must also appoint a DI to act on behalf of the entity PR. The appointed DI must be an individual and may not be an entity. The partnership and all partners are bound by the actions of the PR in dealings with the IRS under BBA. Go to IRS.gov/bbaaar for additional information. A REMIC that's a BBA partnership (hasn't elected out of BBA) would need to designate a PR.

Pass-through entity.

A partnership (including an ELP), S corporation, estate, trust, or REMIC.

Reviewed year.

For BBA partnerships, the reviewed year is the partnership’s tax year to which a partnership adjustment relates.

Reviewed year pass-through partner.

For purposes of these instructions, under BBA, a reviewed year pass-through partner is a pass-through entity that held an interest in a BBA partnership at any time during the reviewed year, which is the partnership tax year to which the partnership adjustment relates. For example, if the BBA AAR is filed to make an adjustment to income for the 2023 tax year, 2023 is the reviewed year.

Schedule K-1.

Schedule K-1 is the annual schedule reporting the partner's, shareholder's, or beneficiary's share of income, deductions, credits, etc., from a partnership, S corporation, estate, or domestic trust.

Schedule K-2.

An extension of Form 1065, Schedule K, used to report items of international tax relevance from the operation of a partnership.

Schedule K-3.

An extension of Schedule K-1 (Form 1065) generally used to report to partners their share of the items reported on Schedule K-2.

Schedule Q.

Schedule Q is the quarterly schedule reporting the residual interest holder's share of taxable income or net loss from the REMIC.

Tax matters partner (TMP).

If the partnership is subject to the TEFRA procedures, it can designate a partner as the TMP for the tax year for which the return is filed. The TMP is a general partner (in most cases, the TMP must also be a U.S. person) designated by the partnership to represent the partners in the consolidated audit and litigation proceedings under sections 6221 through 6234 prior to amendment by BBA (TEFRA proceedings). The designation is made by completing the Designation of Tax Matters Partner section of Form 1065 used for tax years beginning before 2018.

Additionally, a REMIC may designate a tax matters person in the same manner in which a partnership may designate a TMP under Regulations section 301.6231(a)(7)-1. When applying that section, treat all holders of a residual interest in the REMIC as general partners. The designation may be made by completing the Designation of Tax Matters Person section of Form 1066 for tax years beginning before 2018. For tax years beginning after December 2017, a REMIC that's a BBA partnership (hasn't elected out of BBA) would need to designate a PR.

For an LLC, a member of the LLC is treated as a partner and a member-manager is treated as a general partner. A member-manager is any owner of an interest in the LLC who, alone or together with others, has continuing exclusive authority to make the management decisions necessary to conduct the business for which the LLC was formed. If there are no elected or designated member-managers, each owner is treated as a member-manager. For details, see Regulations section 301.6231(a)(7)-2.

TEFRA partnership.

The consolidated audit proceedings of sections 6221 through 6234 (prior to amendment by BBA) are referred to as “TEFRA proceedings” and partnerships that are subject to TEFRA proceedings are referred to as “TEFRA partnerships.” An AAR filed by the TMP of the TEFRA partnership is a TEFRA AAR. Any partner in a TEFRA partnership may file an AAR using Form 8082. TEFRA proceedings won’t apply to partnerships with tax years beginning after 2017.

Interest.

Generally, interest is charged on taxes not paid by the due date, even if an extension of time to file is granted. Interest is also charged on penalties imposed for negligence, fraud, substantial valuation misstatements, substantial understatements of tax, and reportable transaction understatements. The interest is charged from the due date (including extensions) to the date of payment. The interest charge is figured at a rate determined under section 6621.

Late payment penalty.

The penalty for not paying the tax when due is usually ½ of 1% of the unpaid tax for each month or part of a month that the tax remains unpaid. The penalty can’t exceed 25% of the unpaid tax.

Other penalties.

Penalties can also be imposed for negligence, substantial understatements of tax, reportable transaction understatements, and fraud. See sections 6662, 6662A, and 6663.

Interest and penalties applicable to the IU.

Except when the partnership elects to have its partners take into account the adjustments, BBA partnership interest and penalties are the following.

Election to apply the alternative to payment of the IU.

If the partners must take into account the adjustments because the BBA partnership filed an AAR and there are adjustments that don’t result in an IU, or if a BBA partnership elects the alternative to payment of the IU under sections 6227(b)(2) and 6226(c), interest shall be determined:

Judicial review of an AAR (for returns subject to the TEFRA procedures or ELPs).

If the IRS fails to act on an AAR, the TMP or PWA may file a petition for judicial review with the U.S. Tax Court, U.S. Court of Federal Claims, or U.S. District Court. The TMP or PWA must file the petition before the date that is 2 years after the date the TMP or PWA filed the AAR, but not until after the date that is 6 months from the date of such filing. The 2-year period may be extended if the IRS and the TMP or PWA agree in writing. For more details, see sections 6228 (prior to amendment by BBA) and 6252.

TEFRA partnerships filing AARs.

A TEFRA partnership filing an AAR to change items that were reported on its original return must do the following.

BBA partnerships filing AARs.

A BBA partnership filing an AAR to change items that were reported on its original return must do the following.

Column (a).

Enter the amounts from Form 1065, Schedule K, as originally filed or as was previously adjusted. If the return was changed or audited by the IRS, enter the amounts as adjusted.

Column (b).

Enter the net increase or decrease for each line being changed. Enter as a positive the amount by which column (c) exceeds column (a) or enter as a negative the amount by which column (a) exceeds column (c). Use parentheses around all amounts that are negative. Positive amounts are increases and negative amounts are decreases. Explain the increase or decrease in Part V.

Column (c).

Enter the correct amount. This will be the sum of column (a) and column (b).

ELPs only.

An ELP may file an AAR to adjust its partnership items. Generally, the ELP has two choices for handling the adjustment.

In either case, the partnership is liable for any interest and penalties on IUs that result from the adjustment. See section 6242(b) (prior to amendment by BBA) for details. Interest is figured on the IU for the period beginning on the day after the due date (excluding extensions) of the partnership return for the tax year the adjustment takes effect or, if earlier, the date the partnership paid the tax due under (2) above. The adjusted year is the partnership tax year in which the item being adjusted arose.

ELPs and REMICs.

Identify in Part III the amount and treatment of any item the partnership or REMIC is changing from the way it was reported on the original return.

Column (a).

Enter a description of the item that the partnership or REMIC is adjusting or amending.

Column (b).

Enter the amounts from the ELP's or REMIC's return as originally filed or as it was later adjusted. If the return was changed or audited by the IRS, enter the amounts as adjusted.

Column (c).

Enter the net increase or net decrease for each line being changed. Use parentheses around all amounts that are decreases. Explain the increase or decrease in Part V.

Column (d).

Enter the correct amount. This will be the sum of column (b) and column (c).

Line 6.

Show any increase or decrease to the ELP's tax or other payments.

Line 10.

Enter the total tax as follows.

Line 11.

Enter the amount of tax paid with Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns.

Line 14.

Enter the amount from the “Overpayment” line of the original return, even if the ELP or REMIC chose to credit all or part of this amount to the next year's estimated tax. This amount must be considered in preparing Form 1065-X because any refund due from the original return will be refunded separately from any additional refund claimed on Form 1065-X. If the original return was changed by the IRS and the result was an additional overpayment of tax, also include that amount on line 14.

Line 16.

If the ELP or REMIC doesn't use electronic fund transfers, including the Electronic Federal Tax Payment System (EFTPS), enclose a check with this form. Make the check payable to “United States Treasury.”

Line 17.

If the ELP or REMIC is entitled to a refund larger than the amount claimed on the original return, line 17 will show only the additional amount of overpayment. This additional amount will be refunded separately from the amount claimed on the original return. The IRS will figure any interest due and include it in the refund.

Changes in allocations.

If there is a change in the allocation of income, gain, loss, deduction, or credit to a partner, specify the nature and reasons for the changes.