A guide to changing previously filed partnership returns.

• Author: Usseglio, James

$ 1,559.04 -401.47 1,093.07 $ 1,405.75 190.62 702.50 $ 1,606.05 -264.51 576.42 $ 2,190.07 181.40 406.09 $ 1,920.00 374.10 607.05 $ 2,086.25 -204.16 305.61 $ 1,790.10 -190.58 1,103.10 $ 2,405.06 175.23 993.32 $ 1,830.71 -290.43 771.85 $ 1,305.10 251.85 1,355.10 $ 1,450.40 -250.10 945.10 $ 2,051.70 160.00 1,302.50 $ 1,968.25 312.05 760.75 $ 1,427.80 -280.05 1,005.10 $ 2,275.92 305.82 1,293.30 Partnerships needing to modify a previously filed Form 1065, U.S. Return of Partnership Income, must be mindful of the changes brought about by the Bipartisan Budget Act (BBA) of 2015, (1) which created a new centralized partnership audit regime. In addition to providing new rules for partnership examinations, the BBA altered the procedures for partnerships to make adjustments to a previously filed partnership return.

The purpose of this article is to provide partnerships a guide to the various filing procedures and tax forms to use to modify a previously filed Form 1065. The information presented here is based on tax forms, instructions, and other guidance issued by the IRS (including informal comments) that are available as of this writing. The procedures may change as the IRS gains more experience in this area. The present discussion is not in-depth and does not cover, for instance, partnerships needing to take corrective action for certain late elections. (2) For more AICPA resources on the BBA, see the AICPA's Partnership Audit and Adjustment Rules page, available at tinyurl.com/yaer8wnl.

Special rules apply to 2018 and 2019 partnership returns because of the COVID-19 crisis. For the most part, the discussion here focuses on the standard procedures for making adjustments rather than the special rules adopted in Rev. Proc. 2020-23 (see the sidebar, "Relief for Eligible BBA Partnerships for 2018 and 2019").

Background

The BBA, which generally is effective for partnership tax years beginning after Dec. 31, 2017, (3) replaced the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), P.L. 97-248, partnership procedures. Unlike TEFRA, the BBA generally provides for the determination of adjustments and the assessment and collection of related tax at the partnership level. (4) A partnership can make an election, however, to "push out" the adjustments to its reviewed-year partners, in which case the tax attributable to the adjustments is assessed and collected from such partners. (5) A reviewed-year partner is a partner who held an interest in a partnership in the reviewed year, (6) which is the partnership tax year to which a partnership adjustment relates. (7)

The BBA applies to all partnerships unless the partnership makes a valid election out of the BBA for a partnership tax year. (8) Partnerships subject to the BBA are referred to as BBA partnerships, while partnerships that validly elect out of the BBA are referred to as non-BBA (or BBA elect out) partnerships. Partnerships subject to the BBA must designate a partnership representative (PR), as well as a designated individual (DI) if the designated PR is an entity, for the partnership tax year. (9)

The most relevant consideration here is that the process for modifying a previous partnership return depends on whether the partnership is BBA or non-BBA. If a BBA partnership wishes to change the amount of one or more partnership-related items (10) on a partnership return that has already been filed with the IRS, (11) it ordinarily must file an administrative adjustment request (AAR). (12) The partnership generally can no longer file an amended Form 1065 that includes amended Schedules K-1, Partner's Share of Income, Deductions, Credits, etc., (13) as a non-BBA partnership can.

The specific procedures that must be followed depend on various factors, including whether the partnership is filing electronically (14) and whether the partnership holds an interest in another partnership (partnership-partner (15)). Depending on the circumstances, changes to partnership returns can be made via superseding returns, amended returns, and AARs.

Superseding returns

A superseding return is different from an amended return. It is a second return filed before the originally filed return's due date, including extensions. A superseding return is considered the return of record, as it replaces any other return previously filed within the filing period. (16) To avoid causing confusion, a partnership filing a superseding Form 1065 should indicate the return is such by selecting the "Superseding Return" box in its tax preparation software when filing electronically. If paper-filing the return, the partnership should write "Superseding Return" at the top of Form 1065 and Schedules K-1.

When the BBA first became mandatory--for tax years beginning in 2018--the IRS provided one-time transition relief (17) to eligible BBA partnerships. If a partnership had timely filed its Form 1065 and Schedules K-1 for the 2018 tax year and had not requested an extension, it was treated as having requested a six-month extension and thus was eligible to file a superseding Form 1065 and Schedules K-1 up to the extended deadline.

Practice tip

Every partnership should consider filing an extension request as a best practice, even when timely filing its return, so that it has the option of filing a superseding Form 1065 and Schedules K-1 up to the extended due date of the return, if needed, rather than having to rely on an amended return or AAR to make changes. A superseding Form 1065 will also provide the partnership a subsequent opportunity to file missed elections and attachments that might otherwise be treated as late.

Amended returns

An amended return is a return filed after the due date of the original return filed (including extensions). Unlike BBA partnerships, non-BBA partnerships can revise a previous partnership return by filing an amended Form 1065 and Schedules K-1, rather than an AAR. (18) The specific form they use to amend a partnership return depends on whether the amended return is filed electronically or on paper.

Generally, a non-BBA partnership may file an amended partnership return within three years after the later of (1) the date on which the partnership return for that year is filed or (2) the last day for filing the partnership return for that year (excluding extensions). (19) The relevant tax forms include:

Form 1065: If filing electronically, non-BBA partnerships that wish to change a previous partnership return must use Form 1065 and check the "Amended Return" box. If information previously provided to any partner is also changing, the partnership would file an amended Schedule K-1 for that partner with the amended Form 1065. Any partner or limited liability company (LLC) member may sign the amended partnership return.

Form 1065X: If filing on paper, non-BBA partnerships must make any corrections to a previous Form 1065 by using Form 1065X, Amended Return or Administrative Adjustment Request (AAR). If applicable, they should submit amended Schedules K-1, too. Any partner or LLC member may sign the amended partnership return.

Form 8982: A partnership-partner (a partnership holding an interest in another partnership) that files a modification-amended return as part of an amended return modification request by a lower-tier BBA partnership under examination completes and signs Form 8982, Affidavit for Partner Modification Amended Return Under IRC Section 6225(c)(2)(A) or Partner Alternative Procedure Under IRC Section 6225(c)(2)(B). The partnership-partner provides the form to the PR of the source partnership requesting the modification. The PR will submit Form 8982 with the source partnership's Form 8980, Partnership Request for Modification of Imputed Underpayments Under IRC Section 6225(c). See...