Amending a partnership return.

• Author: O'Connell, Frank J., Jr.

Many partnerships are not eligible to file an amended Form 1065, U.S. Return of Partnership Income, to correct an error on a previously filed partnership return. The Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) and subsequent regulations issued thereunder on the unified partnership audit procedures, provide a set of procedures for partnerships, their partners and the IRS to follow to adjust partnership items. Although the procedures are commonly referred to as the TEFRA unified audit rules, they also cover how a partnership amends a previously filed return.

Who Can File?

The TEFRA unified audit rules apply to entities treated as a partnership for Federal tax purposes, except for small partnerships (as defined in Sec. 6231 (a)(1)(B), see below) and electing large partnerships specifically excluded under See. 6240(b).

How to File

A partnership subject to the TEFRA unified audit rules may not simply file an "amended" Form 1065 to correct a partnership item reported on a previously filed partnership return. Under these rules, the tax matters partner (TMP) must file Form 8082, Notice of Inconsistent Treatment or Administrative Adjustment Request (AAR), on the partnership's behalf and request the Service to treat the AAR as a substituted return.

The request must include a revised schedule of distributive shares, an explanation of the changes and other information required by Regs. Sec. 301.6227(c)-1(a). To fall within the statute of limitations (SOL), the TMP has to file the AAP, within the three-year period beginning on the later of the filing of the partnership return for the year or the last day for filing the return (without extensions). Additionally, the TMP would have to file the AAR before the Service issues a final partnership administrative adjustment (FPAA), if a partnership audit is under way.

As provided in Sec. 6227(c), the IKS may respond in one of the following ways in the AAR:

* Treat the request as a correction of mathematical or clerical errors;

* Allow credits or make refunds on some or all items contained in the request (other than items no longer partnership items);

* Conduct a partnership-level proceeding; or

* Take no action.

If the IRS agrees to the request, it substitutes the treatment of the partnership items on the AAR for the treatment of such items on the original partnership return. It treats the substituted return as a correction of a mathematical or clerical error and mails a Notice of Clerical or...