This IRM sets forth field exam procedures implementing the BBA regime include the scope and election out of the BBA, partnership representative, consistency principle, imputed underpayment with respect to any partnership adjustment, administrative adjustment request, statute of limitations on making adjustments, communication, report writing, and case disposition guidelines.

Section 1101 of the Bipartisan Budget Act of 2015 (BBA) as amended by the Protecting Americans from Tax Hikes Act of 2015 (PATH Act) and sections 201 through 207 of the Tax Technical Corrections Act of 2018 (TTCA) repealed the TEFRA partnership procedures and the electing large partnership provisions and replaced them with a new centralized partnership audit regime.

Delegation Order 4-52 (Rev. 2), Partnership Matters Under the Centralized Partnership Audit Regime. See IRM 1.2.2.5.40, Servicewide Delegations of Authority.

All of the practice areas in LB&I share an equal responsibility in conducting a thorough examination. The practice area director is responsible for ensuring their employees follow the procedures outlined in the IRM.

The director, examination headquarters, is the executive responsible for providing policy and guidance for SB/SE examination employees and ensuring consistent application of policy, procedures and tax law administration.

The director, LB&I PTE practice area provides management oversight of the PTE specialty groups.

All IRS personnel have the responsibility to ensure that taxpayer rights are protected and observed.

Program Reports: Each year an exam plan is created for partnership examinations.

Program Effectiveness: the exam plan is monitored to ensure the partnership examination objectives are met. Open examinations are monitored to ensure a BBA determination is made and that the BBA Notice of Administrative Proceeding (NAP) date is entered on the Examination Returns Control System (ERCS).

Technical Services monitors a report to ensure BBA returns are identified in a timely manner. A report is generated in ERCS that shows all BBA cases in a field examination status. This report is generated monthly.

The following tables list commonly used terms and acronyms:

See the BBA Centralized Partnership Audit Regime website at https://www.irs.gov/businesses/partnerships/bba-centralized-partnership-audit-regime.

See the BBA landing page in the partnerships knowledge base on the virtual library at https://irsgov.sharepoint.com/sites/ETD-KMT-KB038/SitePages/AuditProcedures/BBA/BBALandingPg.aspx.

See Pub 5388, Bipartisan Budget Act (BBA) Roadmap for Taxpayers.

See Rev. Proc. 2020-23, Revenue Examiner Guidance for Amended BBA Partnership Returns Under Revenue Procedure 2020-23.

See Rev. Proc. 2021-29, Revenue Examiner Guidance for Amended BBA Partnership Returns Under Revenue Procedure 2021-29.

If a return is received after an SFR TC 150 has posted, see IRM 4.4.9.6, Delinquent return received after SFR TC 150 Posted at Master File.

For delinquent return statute concerns see IRM 4.4.9.6.2, Statute Concerns.

Prepare BBA Reports and Form 5344, Examination Closing Record. See IRM 4.4.9.6.3.1, Prepare Examination Report and Form 5344, Examination Closing Record.

Issue Letter 2205-D, Initial Contact to Schedule Appointment - Partnership Returns, with paragraph 5 selected for BBA. In the field that lists the PR, the examiner should write "OUR RECORDS DO NOT REFLECT A PARTNERSHIP REPRESENTATIVE FOR THE PARTNERSHIP TAXABLE YEAR" .

Allow 30 days for the partnership to submit a Form 8979, Partnership Representative Revocation/Resignation and Designation, that properly designates a PR. Utilize Form 15416, Form 8979 Validation Check Sheet to determine if the Form 8979 is valid.

The examiner and manager should proceed in accordance with IRM 4.31.9.7.6.6(4)(b), Providing an Opportunity to the Partnership to Make a PR Designation.

When it is time to send the NAP letters, mail certified Letter 5893 to the last known address of the partnership, mail certified Letter 5893-A to the last known address of the partnership representative, and separately mail certified a generic Letter 5893-A to "PARTNERSHIP REPRESENTATIVE" at the last known address of the partnership.

The BBA regime applies to Subtitle A, Chapter 1 Income Tax only and will not apply to the other taxes as shown below.

If the IRS makes adjustments to PRIs or determinations about PRIs in a BBA audit, those adjustments or determinations must be taken into account when determining a tax under Chapters 2, 2A, 3 & 4.

IRC 6501(c)(12) provides in the case of any partnership adjustment determined under the BBA regime, the period for assessment of any tax imposed on a partner under Ch 2 or 2A which is attributable to such adjustment shall not expire before the conclusion of the BBA audit which is the date that is one year after one of two events.

If a partnership adjustment subjects the partnership to withholding requirements under Chapter 3 or 4, the partnership can either pay the Chapter 1 tax (imputed underpayment under IRC 6225) allocable to the foreign partner’s distributive share of the adjustment or, if electing to push out the adjustments, remit Chapter 3 or 4 withholding tax on the foreign partner’s distributive share of the adjustment and file all applicable withholding tax returns.

All partnerships are required to determine a partner’s distributive share of Net Earnings from Self-Employment on Sch K/K-1 Line 14. Partnerships are also required to classify partners who are individuals as active or passive on the Analysis of Net Income/Loss. Partnerships do not determine whether their partners are subject to NIIT. However, partnerships are required to give partners information to allow partners to correctly figure their NIIT. Partnerships report information about NIIT by giving information directly to partners or on Schedules K and K-1, line 20, code Y (Line references 2018 through the 2021 version).

If there are relevant partners, PCS Linkage is required. See IRM 4.31.9.6.4, BBA Linkage Procedures. If there are no relevant partners, no linkage is required.

The partners’ returns can be controlled in the field or in Ogden PTE BBA Ch 2/2A Team but must still be PCS linked.

Examiners must control and link partners’ returns when working an NIIT-SECA Coverage issue. For partners who claim they are not subject to either SECA nor NIIT on their distributive share of partnership trade or business income, examiners should prepare a partner-specific Form 886-A detailing why the partner is subject to either SECA or NIIT.

Assessments of Ch 2/2A taxes are made at the partner (direct and indirect) level in proceedings outside of the BBA regime.

For examiners auditing a BBA partnership but are not auditing its partners, the procedure for assessing Ch 2/2A taxes resulting from partnership adjustments is to link the relevant partners of the BBA partnership and allow the BBA Ch 2/2A Team to assess the additional Ch 2/2A taxes, at the partner level, at the conclusion of the BBA examination in the one-year period under IRC 6501(c)(12). See IRM 4.31.9.6.5, Processing Partner Non-Pass-Through Adjustments.

For examiners auditing both a BBA Partnership and its partners, the examiner is required to link the key Form 1065 and relevant partners. The examiner may allow the BBA Ch 2/2A Team to assess the additional Ch 2/2A taxes, at the partner level, at the conclusion of the BBA examination; or, under Treas. Reg. 301.6241-6, the examiner may adjust PRIs at the partner-level and assess any additional Ch 2/2A tax related to those adjustments to PRIs. See IRM 4.31.9.6.5, Processing Partner Non-Pass-Through Adjustments.

When the examiner has secured the investor return and is examining only the issue of Ch 2/2A related to a BBA partnership, the examiner should use Letter 3458, Notice of Potential Adjustment Affecting Taxes under Chapters 2 and 2A, to inform the investor’s of the examination instead of a Letter 2205, Initial Contact. This assures the investor’s first contact is not a request for a statute extension, a 30-day letter, or a notice of deficiency. Separate notice requirements should be considered for taxpayers filing joint returns.

PCS linkage is required when auditing a BBA partnership that is a key case and the agent has determined there are additional assessments of Ch 2/2A taxes to be made at the partner level; this is because partners are subject to general deficiency proceedings for assessment of SECA or NIIT related to BBA Partnership adjustments. Linkage is required if there is a possibility that the IRS will be relying on the IRC 6501(c)(12) statute exception to make assessments of Ch 2/2A taxes at the partner level at the conclusion of the BBA examination.

The examiner and manager must determine who the relevant partners are (direct or indirect) prior to submitting the PCS linkage request. Form 15263, Bipartisan Budget Act (BBA) Partnership Chapter 2/2A Relevant Partner Determination, has been developed to assist the examiner in making relevant partner determinations. A relevant partner determination for BBA linkage purposes is based on IRM 25.6.23.4.5.1 for inconsistent application for investor returns. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

Form 15264, Bipartisan Budget Act (BBA) Chapter 2/2A Linkage Check Sheet is used to submit linkages for BBA Partnerships with relevant partners that have Chapter 2/2A issues.

The group manager must review the package and sign both Form 15263 and 15264 before submission to the linkage mailbox. The manager’s signature on Form 15263 signifies approval of the relevant partners or lack of relevant partners. The manager’s signature on Form 15264 indicates the linkage package has been reviewed, is accurate and complete. Incomplete packages can be returned to the group and will cause a delay in the linkage. If there are no relevant partners determined on Form 15263, then Form 15264 is not required.

Where the examiner is controlling a partner’s return, the examiner is responsible for protecting the partner’s IRC 6501(a) statute. The examiner is responsible for securing partner statute extensions using the partners’ appropriate Form 872. Examiners are always responsible for statutes for partners under their control. In general, partner returns may be transferred to Technical Services when the audit of non-pass-through issues is complete; in situations where the examiner is auditing an NIIT-SECA Coverage issue, refer to IRM 4.31.9.6.2(4). In addition, refer to IRM 4.31.9.6.5, Processing Partner Non-Pass-Through Adjustments and IRM 4.31.5.11, Investor Level Statute Control (ILSC) Examinations - Field Office Procedures, Extension of Investor Statute for ILSC Items.

Update ERCS (via 5348 - PBBA Section, BBA-Chapter-2-2A-CD) with the Ch 2/2A codes:

The examiner may have AIMS control of a partner that is linked because either the examiner controls the BBA partnership as well as the partner or that the partner is linked by another BBA partnership with Ch 2/2A issues. Below are sample scenarios to help you correctly process a partner with non-pass-through adjustments.

Scenario 1 - No-Change or Survey: You audit an individual for non-pass-through items and that individual is linked to a BBA partnership. If you do not propose any non-pass-through adjustments then you will close the individual to the TSPC due to the linkage. Before closing the case to the TSPC, you must update the partner’s statute to alpha code AF (or RR until AF is available) if the partner’s statute is within 210 days of expiration. The TSPC will send the individual to CCP to address the no-change or survey. Once CCP processes the no-change or survey, the individual will be transferred to the Ogden PTE BBA Ch 2/2A Team to suspend the return until the BBA audit is finalized and the Ch 2/2A issues stemming from the BBA audit can be finally determined and assessed.

When issuing a Form 4549 to a BBA linked partner under this scenario and no Ch 2 and/or 2A tax is included in the report, the following statement should be added in the explanation of items: “The following BBA partnerships are subject to partnership level proceedings pursuant to the Centralized Partnership Audit Regime under Subchapter C of Chapter 63 of the IRC with respect to the taxable year(s) included in this report and accordingly, you may be notified of an additional deficiency under Chapters 2 and/or 2A, to the extent partnership adjustments are relevant to such determination: (LIST BBA PARTNERSHIP LINKAGES).”

Scenario 2 - Agreed: You audit an individual for non-pass-through items and audit the related BBA partnership. The individual is linked to the BBA partnership for material IRC 6501(c)(12) Ch 2/2A issues. If the individual agrees with their individual non-pass-through adjustments, then you have two options with respect to the Ch 2/2A taxes related to the BBA Partnership Adjustment:

Option 1: If the taxpayer agrees with the additional Ch 2/2A taxes related to the BBA Partnership Adjustment; then you may include the additional Ch 2/2A tax on the partner’s Form 4549. The report should specifically note: “The IRS is, under Treas. Reg. 301.6241-6, adjusting PRIs on this partner’s return solely for the purpose of adjusting and assessing additional Ch 2 and/or 2A tax related to the partner’s interest in the BBA partnership.” An examiner utilizing this option must include a Form 8339 to resolve the linkage when closing a linked partner to the TSPC.

Option 2: If the taxpayer disagrees with the additional Ch 2/2A taxes related to the BBA partnership adjustment; then the next processing step is based on the number of days left on the partner’s ASED.

When issuing a Form 4549 to a BBA linked partner under Scenario 2 and no Ch 2/2A tax is included on the report, add the following statement in the explanation of items: “The following BBA partnerships are subject to partnership level proceedings pursuant to the Centralized Partnership Audit Regime under Subchapter C of Chapter 63 of the IRC with respect to the taxable year(s) included in this report and accordingly, you may be notified of an additional deficiency under Chapters 2 and/or 2A, to the extent partnership adjustments are relevant to such determination: (LIST BBA PARTNERSHIP LINKAGES).”

For partners who 1) have the NIIT-SECA Coverage issue, and 2) the examiner determines there is a related partnership adjustment to the BBA return Sch K/K-1 Line 14 NESE, you must include the partner-specific 886-A in the partner case file for the BBA Ch 2/2A Team to use to assess the additional SECA at the conclusion of the BBA exam. You must update the partner’s statute to alpha code AF (or RR until AF is available) before closing the case to the TSPC. Ensure the Partnership’s BBA-Chapter-2-2A-CD reflects a 2 or a 3.

For all other partners, the BBA Ch 2/2A Team will use standard language to assess the additional SECA and/or NIIT at the conclusion of the BBA exam. Ensure the partnership’s BBA-Chapter-2-2A-CD reflects a 1.

Scenario 3 - Unagreed to Appeals: You audit an individual for non-pass-through items and the individual is linked to a BBA partnership. If the individual does not agree with their individual non-pass-through adjustments and files a protest in response to the 30-day letter and requests to go to Appeals, then include the additional Ch 2/2A tax on the partner’s Form 4549. The report should specifically note “The IRS is, under Treas. Reg. 301.6241-6, adjusting PRIs on this partner’s return solely for the purpose of adjusting and assessing additional Ch 2 and/or 2A tax related to the partners interest in the BBA partnership.” Close the Form 1040 case to local Technical Services. Local Technical Services will send the Form 1040 case to Appeals. If an agreement between the individual and Appeals is reached, Appeals will send the case to Appeals and Processing Support (APS) for processing. If an agreement is reached regarding the individual non-pass-through items, but not the Ch 2/2A issue, the individual will be transferred to the Ogden PTE BBA Ch 2/2A team to suspend the return until the BBA audit is finalized and the Ch 2/2A issues stemming from the BBA audit can be finally determined and assessed.

Scenario 4 - Unagreed SND: You audit an individual for non-pass-through items and the individual is linked to a BBA partnership. If the individual does not agree with their individual non-pass-through adjustments (requiring issuance of a SND), you will close the Form 1040 case to local Technical Services and a SND will need to be issued to the individual (by local Technical Services) that will include any potential Ch 2/2A adjustments. The Form 4549-A issued with the SND should specifically note “The IRS is, under Treas. Reg. 301.6241-6, adjusting PRIs on this partner’s return solely for the purpose of adjusting and assessing additional Ch 2 and/or 2A tax related to the partners interest in the BBA partnership.” Once the individual agrees to the SND, the SND defaults, or the individual petitions the SND and the Tax Court’s decision is becomes final, any necessary assessment will be made.

Scenario 5 - BBA partnership audit finalized prior to investor audit: You are auditing an individual for non-pass-through items and the individual is linked to a BBA partnership. If the individual audit is being conducted (meaning the case is in ST12) and the BBA partnership audit has been finalized, then the BBA Ch 2/2A Team will send a closing package prepared for the Ch 2/2A adjustments stemming from the BBA partnership audit to you for you to solicit a partial agreement and complete a partial assessment. If a partial agreement cannot be secured, combine all adjustments on Form 4549. Follow the preceding scenarios in that event, but do not include any note regarding Treas. Reg. 301.6241-6. If the Ch 2/2A adjustment is the only unagreed issue, Close the individual to local Technical Services to issue a notice of deficiency.

This requires a mandatory referral to a BBA POC. See instructions in IRM 4.31.9.7.2, Mandatory Referral to the BBA Point of Contact (POC).

If after reviewing the Form 1065 filed by the partnership, it is determined that adjustments to non-PRIs should be made for purposes of tax under Ch 2/2A, then these adjustments are made outside of the BBA.

Procedures for allocating or reporting non-PRI adjustments to the partners of a BBA partnership may require the agent to examine both the partnership and partner, even though linked, to adjust and assess any SECA and/or NIIT.

A Form 4605-A adjusting and allocating or reporting adjustments to non-PRIs must be prepared and issued to the partnership, following general IRM 4.31.5 ILSC procedures, at the same time as the summary report is issued to the partnership representative.

Forms 886-A and 886-S must be prepared for each partner receiving an allocable share of the non-PRI adjustments.

An examiner is auditing the Form 1040 of an individual taxpayer. Taxpayer is a partner in a partnership that is subject to the BBA regime. The partnership issued a Schedule K-1 to the partner reporting $100,000 of ordinary income on line 1 and $100,000 of income subject to SECA on line 14 of Schedule K. The partner did not report the income as subject to SECA. The examiner determines, as part of the individual’s audit, a Chapter 2 deficiency of $3,800 ($100,000 X 3.8% maximum Medicare rate). BBA doesn’t apply to taxes under Chapter 2 and the inconsistent reporting rules under IRC 6222 can’t be used to assess non-chapter 1 taxes. The examiner is not required to open an audit of the BBA partnership because there are no adjustments to PRIs.

An examiner is auditing the Form 1040 of an individual taxpayer. That taxpayer is a partner in a partnership that is subject to the BBA. The partnership issued a Schedule K-1 to the partner reporting $100,000 of IRC 1231 gain on line 10 of Schedule K from the sale of assets used in one of its trade or business activities. The partner did not report the income as subject to NIIT. The examiner determines, as part of the individual’s audit, that the partner was a passive investor in the BBA partnership and its activities. As such the examiner determines a Chapter 2A deficiency of $3,800. This adjustment and assessment is made in a proceeding outside of the BBA regime. The examiner is not required to open an audit of the partnership under the BBA regime, because the partner’s failure to include this income as NIIT is exclusively a partner level issue.

An examiner is auditing the Form 1040 of an individual taxpayer. That taxpayer is a partner in a partnership that is subject to the BBA. The partnership issued a Schedule K-1 to the partner reporting $100,000 of ordinary income on line 1 and $0 of income subject to SECA on line 14 of Schedule K. The partner did not report the income as subject to SECA. Examiner reviews the partnership’s other partners and notes that all its partners took similar positions with respect to SECA that they, as partners, were not subject to SECA. The examiner may open the partnership for examination and follow procedures in IRM 4.31.9.6.2, Auditing Chapters 2 & 2A - BBA Partnership is the Key Case.

See Exhibit 4.31.9-1, Example 1 - $1,000,000 Adjustment to Sch K line 1 Ordinary Income and $1,000,000 Adjustment to Sch K line 14 Net Earnings from Self-Employment (NESE)- IRC 6501(c)(12) Applies

See Exhibit 4.31.9-2, Example 2 - $1,000,000 Adjustment to Sch K Portfolio Income Items - IRC 6501(c)(12) Applies

A partnership (domestic or foreign) is subject to the U.S. withholding tax rules that apply to payments of U.S. source income to foreign partners. If the partnership has any foreign partner, the examiner should:

Assessing Chapters 3 and 4 taxes are generally in proceedings outside of the BBA regime. If foreign withholding is the only issue, the examination is not subject to the BBA regime and the examiner does not have to follow these procedures.

Rate adjustments and failure to file or withhold are determinations that must be made under a Chapter 3 or 4 audit; such as:

Base adjustments may be made under either a Chapter 1 BBA audit or a Chapter 3 or 4 audit which include items identified by Form 1042 or Form 8804 audit; such as:

A base adjustment to increase the partnership's income is an adjustment to a PRI and will likely result in an IU. The tax imposed on the partnership for its failure to withhold on that income, however, is not a tax imposed by Chapter 1; rather, it is a tax imposed by Chapter 3.

Examples of Chapter 3 or 4 audits:

Subsequent filings: To establish a correct starting point of examination, obtain IDRS prints to determine whether:

Previous audit adjustments

Negative adjustments (see IRM 4.31.9.9.2.1(2)(b) for definition: If it is determined that the year currently under examination is also an adjustment year for a previous audit with negative adjustments, the examiner should determine if negative adjustments flowing from the previous audit were reported correctly in the adjustment year. To check if negative adjustments were reported in the review year:

Consider any potential non-chapter 1 tax issues; such as, Chapter 2, 2A, 3, and 4 issues.

The examiner must contact the appropriate BBA POC if the partnership exam year involves any of the following:

A referral should be made as soon as the need is identified.

The centralized partnership audit regime applies to all partnerships required to file information returns under IRC 6031(a) whose tax years begin on or after January 1, 2018, except:

The examiner must determine, for each tax year, whether the partnership return is subject to the BBA regime by completing Form 15260, Determination of Pass-through Audit Regime check sheet. This is necessary for each tax year since a partnership may have elected out of the BBA for one year under examination but not another. Once Form 15260 is completed by the examiner, it must be signed by the manager and filed in the case file under SAIN 724 for LB&I or Section 600 for SB/SE.

Section 1101(g)(4) of the BBA also provides that partnerships may “elect” to have the centralized partnership audit regime apply to partnership returns filed for tax periods beginning after November 2, 2015 and before January 1, 2018. This election may only be made within 30 days of the date the IRS first notifies a partnership in writing that its return has been selected for examination (via Letter 2205-D) or by filing an Administrative Adjustment Request under IRC 6227.

If the partnership is not subject to the BBA regime, the examination is subject to deficiency procedures at the partner level. Follow IRM 4.31.5, Investor Level Statute Control (ILSC) Field Office Procedures.

Record the determination whether it’s a BBA partnership or not on the activity record.

If there is an election out, determine if the election is valid. An election out is deemed valid until the IRS says it’s invalid.

Eligible partnerships may make the election under IRC 6221(b) to elect out of the centralized partnership audit regime on their timely filed Form 1065/1066, Schedule B, question 25 (including extensions). AMDISA in the BBA PARTNERSHIP section will display “ELECT-OUT-OF-BBA-CD>1” if there’s an election out.

In addition, eligible partnerships must attach Schedule B-2 to provide information concerning their partners as required by IRC 6221(b)(1)(D) to include each partner’s name, correct TIN, and federal tax classification.

The goal is to have a complete list of the terminal partners for linkage and assessment purposes. The examiner and his/her manager have the discretion to approve the election out even if the information reflected on Schedule B-2 was transposed incorrectly, and the IRS has information that would remedy the incorrect information. Always consult the BBA POC if there are any concerns.

Once an election is made by the partnership to elect out of the BBA regime, it cannot be revoked without the consent of the IRS.

A request to revoke the election out of the BBA regime can be made within the first 30 days after the partnership has received notification from the IRS that an examination will take place (via Letter 2205-D). An election to revoke an election out must be done on a year-by-year basis.

Partnership must mail or submit Form 15288, Request to Revoke Partnership Election under IRC 6221(b) or Request to Revoke Election under 1101(g)(4), to the person whose name appears on Letter 2205-D:

If IRS accepts the Revocation of the Election Out of the BBA, the partnership should be given 30 days to file a BBA AAR before the NAPs are issued.

The partnership must designate a PR on each return filed for tax years beginning after December 31, 2017. The designation is effective on the date the return is filed.

A PR has a key role in a BBA proceeding. Under IRC 6223, the PR that has the sole authority to act on behalf of the partnership. All partners and the partnership are bound by the PR’s actions and the PR’s final decision in a BBA proceeding.

A PR can be any person, including the partnership itself. The PR is not required to be a partner, an employee, or have any other relation to the partnership. This allows the partnership to select the person best situated to represent the partnership. The PR must have a substantial presence in the United States. See IRM 4.31.9.7.6.1 for Substantial Presence Test.

A partnership representative can be either an entity or an individual person.

The IRS is not bound by any limitations, restrictions or agreements placed upon the PR by the partnership in the partnership agreement, any side agreements or any other document to which it is not a party.

The designation of a PR remains in effect until the designation is terminated by a valid revocation, a valid resignation, or a determination by the IRS that the designation is not in effect (no PR designation in effect). If there is a change to the PR or DI, any valid actions of the former PR or DI prior to the change will remain valid and in effect.

A partnership, through an authorized person, may designate or change the PR or DI by submitting Form 8979 to an IRS point of contact (i.e., examiner, Appeals Officer, or Counsel Attorney). An authorized person is a person who was a partner at any time during the partnership tax year to which the designation or change relates. For more information on Form 8979, see the Form 8979 instructions at https://www.irs.gov/forms-pubs/about-form-8979.

Form 8979 may also be submitted in conjunction with the partnership’s filing of an administrative adjustment request. The change in designation (or appointment) is treated as occurring just prior to the filing of the administrative adjustment request. It is the new PR that signs the AAR.

Document all actions concerning the identification of the PR in the case file under Section 600 for SB/SE or SAIN 724 for LB&I cases. Examiners may use the Partnership Representative of Record Job Aid to keep track of all the designations. The Partnership Representative of Record Job Aid can be found at https://irsgov.sharepoint.com//:x:/r/sites/ETD-KMT-KB038/_layouts/15/.

The examiner is required to make a mandatory referral for a BBA POC when an AAR or other subsequent filing is part of the exam year filings.

A partnership may file an AAR under IRC 6227 with respect to any PRI and correct errors on a previously filed partnership return. However, a partnership may not file an AAR solely for the purpose of changing the designation of a PR. Under certain Rev. Proc. guidance, partnerships were permitted to file subsequent returns that are not AARs.

Upon assignment of the case, the examiner should check to see if a subsequent filing has been made. To do this, check IDRS prints (TXMODA or BMFOLT) for the presence of a TC 976. This TC may or may not be preceded by a TC 971 with action codes 010 or 013. If a TC 290 exists, it means that the Campus has processed the subsequent filing. If a TC 290 is not present, that is an indication that the Campus has not yet made a disposition with regard to the subsequent filing.

If a subsequent filing is indicated on IDRS or the examiner encounters subsequent filings during a BBA examination, the examiner should immediately notify the IRS “BBA Point(s) of Contact (BBA POC)”. The BBA POC will assist the examiner on how to:

If the partnership directly provides the examiner a subsequent filing upon exam the examiner should immediately notify the BBA POC. The BBA POC will assist the examiner on how to do the following and determine next steps:

The table in Exhibit 4.31.9-4 describes the various scenarios for which an AAR may be filed and the applicable audit regime to be applied.

All initial taxpayer contacts must be made by mail. Prepare and mail Letter 2205-D, Initial Contact to Schedule Appointment - Partnership Returns, to all partnerships regardless of the tax year.

Letter 2205-D is used to:

Letter 2205-D has selectable paragraphs.

The letter also alerts the partnerships to the time sensitive election for partnerships whose tax periods begin after November 2, 2015 and before January 1, 2018 to elect into the centralized partnership audit regime (BBA). The election must be made within 30 days from the date on Letter 2205-D.

Mail Letter 2205-D to the partnership’s last known address (which is either the address on the return or on IDRS Master File Entity if more current).

A copy of Letter 2205-D should be filed under Section 600 for SB/SE and under SAIN 724-BBA for LB&I.

Letter 2205-D should be re-issued and another 30 days allowed to respond, if one of the following occurs.

If the taxpayer fails to respond to the initial contact letter, and it was not returned as undeliverable, follow the procedures in IRM 4.31.9.7.6.9, Irresponsive Partnership.

If Letter 2205-D was issued, but the NAP letters (Letter 5893 and Letter 5893-A) have not been issued, records have not been inspected and there is a decision to withdraw from the exam and survey the return:

The BBA partnership check sheets are designed to assist examiners in completing the required BBA procedures as well as the BBA elect out (BEO) Investor Level Statute Control (ILSC) procedures. Managerial involvement and signatures are required on all the mandatory forms.

It is critical for the IRS to follow BBA / ILSC rules and procedures during examinations, since procedural errors can affect the validity of adjustments, assessments, infringe on taxpayer rights, and result in improper disclosures of tax information.

The check sheets in paragraph (4) will be used when examining a partnership or a limited liability company filing as a partnership subject to the BBA regime or alternatively an entity that is subject to the ILSC provisions. Additionally, some of the check sheets will be used while considering the applicability of Ch 2/2A tax (SECA and NIIT) and any resulting PCS linkage controls. The check sheets will serve as documentation to confirm the actions taken or decisions made in following the BBA/ILSC and Ch 2/2A procedures.

The following check sheets are mandatory and must be completed for each tax period of the BBA entity / ILSC entity (fka non-TEFRA entity) being examined.

SB/SE examiners will file these check sheets and other BBA work papers under a separate line item in Section 600 on the Form 4318, Examination Workpaper Index. LB&I examiners will file the BBA check sheets and work papers under SAIN number 724.

Form 2848, Power of Attorney and Declaration of Representative, is used to authorize an individual to represent a partnership representative (PR) who is acting on behalf of the partnership under the Centralized Partnership Audit Regime. Refer to IRM 4.11.55, for Power of Attorney rights and responsibilities.

The Individual Partnership Representative (IPR) or Designated Individual (DI) (for an Entity Partnership Representative (EPR)) of record must sign the Form 2848.

If the PR is changed (revoked, resigns, etc.) a new POA Form 2848 will be required. The new Form 2848 will have to be signed and dated by the newly appointed PR.

There should be a separate Form 2848 for each year as the PR could be different and a POA is appointed by a specific PR for a specific tax return year.

An individual authorized on Form 2848 must be eligible to practice before the IRS. Under IRM 4.11.55, you should verify the credentials and document the verification in the case file. To verify, you may use the following resources.

For matters unrelated to the centralized partnership audit regime, a separate Form 2848 must be signed by a partner that has authority to do so under state law. Please refer to IRM 4.31.9.7.10.2, Form 2848, Part I for Chapter 2, 2A, 3 and 4 Income Items Outside of the BBA Regime, below. For dissolved partnerships, see 26 CFR 601.503(c)(6).

The IRS must mail the partnership and the PR a NAP when initiating an examination of the partnership for a tax year, including an examination following an AAR filed by the partnership. Issue the NAP no earlier than 30 days from the issuance of Letter 2205-D and no later than the earlier of the opening conference date or the date books and records are first inspected.

Prepare and mail the NAP letter via certified mail. If there is a foreign address, then use registered mail. The letter date should match the mailing date.

If both NAP letters were mailed to the respective last known addresses, but either was returned as undeliverable, contact the Partnership Representative or POA and request an alternative address for the purposes of mailing copies of notices. If both letters were returned, request an alternative address for both the partnership and the PR. Ask the Partnership Representative or POA to make the alternative address request in writing so that it can be documented for the case file. Inform the PR or POA that statutory notices will still be mailed to the last known address per IRS records; however, copies will be mailed to an address of convenience if documented in the way described here. Therefore, upon receiving the written alternative address request, you can send copies of the NAP letters to such address.

A partnership cannot file an AAR and its partners cannot amend their returns to file inconsistently from the partnership after the NAP letters have been mailed with respect to the tax year.

A separate set of NAP letters are sent for each year under examination since each year stands on its own. Do not delay issuing the NAP. Letter 5893 and 5893-A need to be sent in separate envelopes.

The case file should be documented to show that the partnership and PR NAP letters were issued in accordance with IRC 6223. Letter 5893 and Letter 5893-A should be filed within SAIN 724 (LB&I) or Section 600 (SB/SE).

In general, under IRC 6222 a BBA partner’s return must be consistent with the partnership return in all respects, including:

Also, a partner is bound by any action taken by the partnership representative and any final decision in a proceeding with respect to the partnership under the BBA regime.

If the treatment of an item on the partner’s return is consistent with how the item was treated on a schedule (e.g., Schedule K-1) or other information furnished to the partner by the partnership but inconsistent with the treatment of the item on the partnership return that is filed with the IRS, the partner’s reporting is considered inconsistent with the partnership return.

A partner’s treatment of a PRI attributable to a partnership that did not file a return is always treated as being inconsistent.

For a pass-through partner that is a partnership (PTPP), the consistency principle applies whether the PTPP is subject to the centralized partnership audit regime or has made an election out pursuant to IRC 6221(b). For a BEO PTPP, the examination math error procedures would apply to the BEO PTPP individual partner level inconsistencies.

A carve out provision in the regulations does exist whereby a BBA PTPP or a BEO PPTP can resolve an inconsistency prior to math error assessment by filing an AAR or amended return, respectively. For details see IRM 4.31.9.8.2.3, Notify the Partner of an Assessment on Account of Mathematical Error (paragraph 3).

As discussed above, after a NAP is issued, an AAR cannot be filed. However, for LB&I taxpayers, the partnership may submit informal claims within 30 days from the opening conference which is consistent with the LB&I Examination Process (LEP), see IRM 4.46.3.7.1.1, The 30-day Window Expectation. An informal claim is a request to change any PRI that may result in a negative adjustment.

Informal claims timely submitted by a BBA partnership must meet the standards of Treas Reg 301.6402-2, which provides that a valid claim must:

A BBA partnership must submit or mail the informal claim to the person whose name appears on Letter 2205-D within 30 days from the initial conference.

If the informal claim complies with the above requirements the informal claim issue(s) must be included in the audit plan. Develop the issue(s) and prepare Form 886-A accordingly.

Do not accept any informal claim after the 30-day window has lapsed unless certain exceptions are met as provided under the LEP. LB&I examiners refer to the LEP and Pub 5125, LB&I Examination Process, for details.

Statute control is usually the number one priority in all programs. Refer to IRM 25.6, Statute of Limitations Handbook.

Under the centralized partnership audit regime, the statute is controlled at the partnership level. Ensure that cases transferred from the team/group to Technical Services will be received with the following periods of time remaining on the statute; otherwise, the examiner must follow IRM 4.31.9.11.5, BBA Imminent Statute Procedures:

Utilize Form 15271, Bipartisan Budget Act (BBA) Partnership Adjustment Statute Extension Check Sheet, for BBA statute extensions.

If a case has been referred to Criminal Investigation (CI) or is under joint investigation with CI, written agreement from CI must be obtained before a request is made to extend the statute. See IRM 25.6.22.2.1(6), Assessment Statute Extension.

If the examination results in a no-change, discuss the examination results with the PR. Notate the discussion in the activity record.

If the PR agrees with the no-change or if the PR is unresponsive, Technical Services will prepare and CCP will issue the no-change letters to the partnership (Letter 6099, BBA No Change - Partnership) and PR (Letter 6099-A, BBA No Change - Partnership Representative). The examiner will not prepare a summary report package or NOPPA package for an agreed no-change. Go to IRM 4.31.9.11, Case Disposition Procedures for next steps.

If an LB&I case, and if the PR doesn’t agree with the no-change determination because the PR presented an informal claim, prepare a summary report and a 30-day letter package - IRM 4.31.9.8.3 - Informal Claims (LB&I Taxpayers). Issue a 30-day letter if there is sufficient time on the IRC 6235(a)(1) date.

LB&I will not require a formal claim if an issue has been identified for examination, unless IRS published guidance specifically requires formal claims to be filed for an issue (e.g. Notice 2008-39 for research credit claims).

A partnership does not compute and pay an income tax upon filing Form 1065 but instead passes through any profits and losses to its partners. However, when a partnership is examined under the BBA regime, any partnership adjustment resulting in an imputed underpayment and the applicability of any penalty, addition to tax, or additional amount (plus interest as provided by law) that relate to such an adjustment are determined, assessed and collected at the partnership level.

Partnership adjustments are communicated to the partnership in accordance with the existing report writing procedures for SB/SE and LB&I. In general, Form 886-A, Explanation of Items, is used to convey each adjustment. In addition to preparing a Form 886-A for each substantive issue, prepare a Form 886-A for each applicable penalty, and for the imputed underpayment calculation.

An imputed underpayment may reflect an amount that is larger than the cumulative amount of tax the partners would have paid as a result of the partnership adjustments. This is not an attempt to maximize tax revenue. The imputed underpayment is calculated under IRC 6225 which has its own specific computation. The partners’ individual tax circumstances are not taken into account when computing the imputed underpayment under IRC 6225. The imputed underpayment is a partnership-level tax that is unrelated to the partners’ tax.

There are two types of imputed underpayments: a general imputed underpayment and a specific imputed underpayment. Each type of imputed underpayment is based solely on partnership adjustments with respect to a single tax year, and is separately calculated.

The BBA requires some additional language to be added to substantive adjustment explanations as well as an explanation of how the imputed underpayment was computed. Specific language should be added to the Form 886-As issued for substantive issues and a Form 886-A dedicated to the computation of the IU should also be added.

Provide the TCS the following information for all proposed adjustments in sequential numbers with the following information:

If the PR clearly indicates a desire to go to Appeals, in the interest of time, you may skip issuance of the summary report package and issue only the 30-day letter package. Document this decision in the activity record.

After all Forms 886-A are finalized and issued, proceed with the summary report package, which includes:

Request and work with the TCS to prepare Form 14791.

Contact the appropriate CCP campus and request interest computation. See Interest and Penalties section above. Update Form 14791 and incorporate the following:

Prepare Letter 5895 and remember to include the audit control number (ACN) in the header. The ACN is system generated and can be found on AIMS, BMF and IMS.

Issue the summary report package to the PR no later than 14 months prior to the 6235(a)(1) date. A summary report (or a 30-day letter) should be issued on every case unless there is a case specific reason why it cannot be issued. If it is an imminent statute, the field agent can issue a summary report with Letter 5895, utilizing selectable paragraph B and give the partnership a minimum of 2 days to request a conference.

A partnership may protest and want to go to Appeals for any unagreed partnership adjustment, including the substantive issues, imputed underpayment amount and penalty.

If the partnership requests to go to Appeals, there must be at least 18 months remaining on the 6235(a)(1) date when the case is transferred to Technical Services. An extension via Form 872-M should be requested if necessary.

If there’s at least 20 months left on the statute, prepare and issue the 30-day letter package to the PR. The package does not need to be sent by certified mail.

The 30-day letter package includes the following:

After the issuance of the 30-day letter package, update the case status to 13.

Follow existing procedures for responding to the 30-day letter package, including the protest letter.

The NOPPA package is required in any administrative proceeding (examination) under the BBA regime, including an administrative proceeding with respect to an administrative adjustment request (AAR) filed by a partnership under IRC 6227. A separate NOPPA package is prepared for each partnership tax year unless it’s a no-change.

Prepare the NOPPA package no later than:

The NOPPA package includes the following:

Contact and work with the TCS to prepare Form 14792.

Prepare Letters 5892 and 5892-A without the following:

The examiner does not issue the NOPPA package. Technical Services or Appeals will issue the NOPPA package to the partnership and PR.

The manager must review and approve the NOPPA package. This managerial review and approval should be documented in the case file activity record.

Include the NOPPA package and 30-day letter package (if applicable) in the case file.

The examiner should transfer the case file to Technical Services within 30 days from the approval of the no-change determination.

If applicable, the examiner must prepare and submit a closing package with the following documents for a Net Investment Income Tax (NIIT) or Self-Employment Contribution Act (SECA) case to resolve the PCS linkage for the partners:

Follow existing procedures to completing Form 5344, Examination Closing Record. See Exhibit 4.31.9-5 (No-change column) for line items required to be completed.

Complete Form 3198, Special Handling Notice for Examination Case Processing, and follow existing procedures except as otherwise provided below:

A no-change BBA case with adjustments is a case where no partnership adjustments (adjustments to PRIs) are being made, but partner returns are adjusted due to:

The examiner must prepare and submit a closing package to TS with the following documents for a Chapter 2A NIIT case to resolve the linkage for the linked partners:

The examiner should transfer the case file to Technical Services within 30 days from the approval of the no-change determination.

Complete Form 3198, Special Handling Notice for Examination Case Processing, and follow existing procedures except as otherwise provided below:

Campaigns, projects, initiatives or other workstream assignments may provide direction to use DC 01 in other scenarios consistent with expanded definitions in Document 6036.

After the NOPPA package is prepared, transfer the case file to Technical Services within 30 days.

Technical Services will review the case. If no corrections are warranted, Technical Services will mail the NOPPA package to the partnership and PR; otherwise, the case will be returned back to the examiner and manager for corrections.

If applicable, the examiner must prepare and submit a closing package with the following documents for a SECA/NIIT case to resolve the linkage for the linked partners:

Follow existing procedures to completing Form 5344, Examination Closing Record. See Exhibit 4.31.9-5 (Adjustments no Appeals column) for line items required to be completed.

Complete Form 3198, Special Handling Notice for Examination Case Processing, and follow existing procedures except as otherwise provided below:

After the NOPPA package is prepared, transfer the case file to Technical Services within 30 days.

Technical Services will review the case, the protest, and the examiner’s rebuttal (such as Letter 5072 or other transmittal method used.) If no corrections are warranted, Technical Services will forward the case to Appeals; otherwise, the case will be returned back to the examiner and manager for corrections. Appeals will mail the NOPPA package to the partnership and PR once the Appeals process has been completed.

If applicable, the examiner must prepare and submit a closing package with the following documents for a SECA/NIIT case to resolve the linkage package:

Follow existing procedures to completing Form 5344, Examination Closing Record. See Exhibit 4.31.9-5(Adjustments to Appeals column) for line items required to be completed.

Complete form 3198, Special Handling Notice for Examination Case Processing and follow existing procedures except as otherwise provided below:

A BBA partnership case no-change (no adjustment) with less than 6 months remaining on the IRC 6235(a)(1) statute of limitations at the time the case is received by Technical Services is considered imminent. The imminent statute procedures must be followed:

A BBA partnership case with adjustments (no Appeals) with less than 12 months remaining on the IRC 6235(a)(1) statute of limitations at the time the case is received by Technical Services is considered imminent. The imminent statute procedures must be followed:

A BBA partnership case with adjustments (to Appeals) with less than 18 months remaining on the IRC 6235(a)(1) statute of limitations at the time the case is received by Technical Services is considered imminent. The imminent statute procedures must be followed:

Pursuant to Treas. Reg. 301.9100-22(b)(2)(ii), the election statement must include:

Examiners should do the following if they receive an election:

IRS must wait at least 30 days after a valid election is received before issuing a notice of administrative proceeding (NAP) in case the partnership wants to file an AAR under IRC 6227 as amended by the BBA. During this 30-day period, the examiner should conduct a cursory check to ensure that the partnership representative identified on Form 7036 or other election statement meets the requirements of Treas. Reg. 301.9100-22(b)(2)(ii)(D). This cursory check will include basic research to ensure the name, taxpayer identification number, address, and daytime telephone number of the partnership representative are correct.

If the election into the BBA is valid, the examiner should do the following relative to case file documentation and ERCS/AIMS updates:

This subsection describes procedures for examiners and managers when an AAR is filed under the BBA (BBA AAR) with respect to partnership tax years beginning after November 2, 2015 and before January 1, 2018 where the partnership elects to be subject to the BBA for such tax year. Form 15260, Determination of Pass-through Audit Regime, and Form 15262, BBA Audit Procedures Checklist, have been updated to accommodate Early Elections into the BBA.

Treas. Reg. 301.9100-22 provides that a partnership may file a BBA AAR for an eligible tax year to have the BBA apply to that tax year. A partnership may not file a BBA AAR solely for the purpose of changing the designation of the partnership representative as described in IRC 6223 as amended by the BBA.

Only partnerships may file a BBA AAR. A partner may file a BBA AAR on behalf of the partnership if they are acting in the capacity of a PR or the partner is the TMP filing an AAR for an eligible tax year together with an election into the BBA. See Treas. Reg. 301.9100-22(b)(2)(ii).

Generally, under IRC 6227(c) as amended by BBA, a partnership may file a BBA AAR within 3 years after the later of (1) the date of filing the partnership return, or (2) the due date of the return without regard to extensions. A partnership that receives a notification of selection for examination (Letter 2205-D) for partnership tax years beginning after November 2, 2015 and before January 1, 2018 may elect to apply the BBA to the partnership return filed for that tax year within 30 days from the date of Letter 2205-D. Once a valid election is made, the partnership has 30 more days to file a BBA AAR.

In no event, may a partnership file a BBA AAR after a Notice of Administrative Proceeding (Letters 5893 and 5893-A) has been mailed by the IRS for that partnership tax year.

A BBA AAR should be filed with the IRS service center where the original return was filed. In the case of a BBA AAR filed for a tax year after being selected for examination (but before the NAP has been issued), the partnership should also provide a copy of the BBA AAR to the examiner.

If the AAR is filed electronically, the partnership uses Form 1065, U.S. Return of Partnership Income (marking the amended return box), and Form 8082, Notice of Inconsistent Treatment or Administrative Adjustment Request (AAR) (marking the BBA AAR box in Part 1 and completing the appropriate items a-e). The partnership also includes a statement, "Election under Section 1101(g)(4)" , with the required information. The 2019 instructions to Form 8082 provide details on requirements.

If the AAR is filed on paper, the partnership uses Form 1065X, Amended Return or Administrative Adjustment Request (AAR), marks the BBA AAR box in Part I, completes the appropriate items a-e in Section 2, and completes Part IV (if necessary). The phrase "Election under Section 1101(g)(4)," should be written across the top of the Form 1065X and a statement attached with the required information. The 2019 instructions to Form 1065X provide details on requirements.

For information regarding eligibility to elect into the BBA and for how to make an election, see 26 CFR 301.9100-22.

If an examiner is assigned a BBA AAR for examination that was filed with the service center on or after 1/1/2018, they should immediately notify the BBA POC. The BBA POC will assist the examiner on how to:

If an examiner receives a BBA AAR directly from the taxpayer they are auditing, they should immediately notify the BBA POC. The BBA POC will assist the examiner on how to do the following and determine next steps: