Understanding partnership tax returns can be challenging, especially when you need to fix mistakes or report changes after filing. Form 1065-X is the IRS form designed specifically for partnerships to correct their previously filed tax returns. Whether you're a small business partnership or part of a more complex business structure, this guide will walk you through everything you need to know about Form 1065-X for the 2021 tax year.

What Form 1065-X Is For

Form 1065-X serves two primary purposes for partnerships and similar entities that filed Form 1065 (U.S. Return of Partnership Income), Form 1065-B, or Form 1066 (for Real Estate Mortgage Investment Conduits, or REMICs). First, it allows you to correct errors on a previously filed return—such as incorrect income amounts, deductions, or partner information. Second, it's used to file an Administrative Adjustment Request (AAR), which is how certain partnerships voluntarily correct their returns under special IRS audit rules. IRS.gov

Think of Form 1065-X as the partnership equivalent of an individual's amended tax return, but with some important twists. Starting in 2018, most partnerships became subject to new audit rules called the Bipartisan Budget Act (BBA) centralized partnership audit regime. Under these rules, partnerships with tax years beginning after 2017—which includes your 2021 return—must use Form 1065-X to file an AAR rather than a simple amended return when correcting partnership-level items. This change shifted how the IRS handles partnership audits and adjustments, making the partnership itself potentially liable for taxes rather than individual partners. IRS.gov

The form is also used by partnerships acting as partners in other partnerships when dealing with audit adjustments, and by electing large partnerships (ELPs) and REMICs with specific correction needs.

When You’d Use Form 1065-X (Late/Amended)

You'll need Form 1065-X in several situations. The most common scenario is discovering an error after filing—maybe you understated partnership income, missed a deduction, or incorrectly allocated items to partners. You might also need it if you receive corrected information from another partnership or entity, or if the IRS provides guidance that affects how you should have reported certain items.

Timing is critical. Generally, you must file Form 1065-X within 3 years of the later of: (1) the date you actually filed your partnership return, or (2) the original due date of that return (not counting extensions). For a 2021 partnership return with a calendar-year end, if you filed on time in March 2022, your deadline to file Form 1065-X would typically be March 2025. IRS.gov

However, there's an important exception: you cannot file an AAR after the IRS has mailed you a Notice of Administrative Proceeding for that tax year. Once the IRS formally starts an audit, the window for voluntary corrections closes, and you'll need to work within the audit process instead. IRS.gov

It's worth noting that Form 1065-X cannot be used to change only your partnership representative designation (the person authorized to handle IRS matters for the partnership). For that, you'll need Form 8979.

Key Rules for 2021

For 2021 tax returns, several key rules apply depending on your partnership's situation. Since 2021 falls squarely under the BBA regime (which applies to tax years beginning after December 31, 2017), most partnerships are subject to the centralized audit rules unless they elected out.

Who Must Sign

Only the partnership representative (PR) or designated individual (if the PR is an entity, not a person) can sign Form 1065-X when filing an AAR under BBA rules. For partnerships not under BBA rules, any partner or LLC member can sign. The signature requirement is non-negotiable—an unsigned form isn't considered a valid return. IRS.gov

What to Attach

You must include supporting documentation for all corrections. This includes schedules, statements, or forms that support your corrected amounts. For BBA partnerships filing an AAR, you must always include a computation of the "imputed underpayment" (IU)—even if the calculation shows zero or a negative amount. The IU is essentially the tax the IRS would assess at the partnership level based on your adjustments. If you're marking previously filed documents as attachments, write "Copy Only—Do Not Process" at the top to avoid confusion.

Where to File

Mail your Form 1065-X to the same IRS service center where you filed the original 2021 return. The address matters because different service centers handle different geographic regions, and sending it to the wrong location can delay processing significantly. IRS.gov

Payment Requirements

If your corrections result in an imputed underpayment greater than zero, you must pay that amount when you file the AAR—unless you elect to "push out" the adjustments to your partners (explained more below). Payments should be made payable to "United States Treasury" with notation including your partnership's name, EIN, tax year, and "BBA AAR Imputed Underpayment."

Step-by-Step (High Level)

Step 1: Determine your filing type.

First, identify whether you're filing an amended return or an AAR, and determine if your partnership is subject to BBA, TEFRA (older audit rules), or neither. Most 2021 returns fall under BBA. Complete Part I of Form 1065-X by checking the appropriate boxes that describe your situation.

Step 2: Identify and document all changes.

Gather documentation for every item you need to correct. Review your original return line by line and identify exactly what changed. This requires careful attention—you'll need the original amount, the net change, and the corrected amount for each item.

Step 3: Complete the form's main sections.

In Part II (or Part III for ELPs and REMICs), enter each corrected item showing the amount as originally reported, the net change (positive or negative), and the final corrected amount. The form essentially creates a three-column comparison that helps the IRS understand exactly what changed.

Step 4: Calculate the imputed underpayment (BBA only).

This is often the trickiest part. Using Part IV of Form 1065-X, you must calculate the tax impact at the partnership level by grouping and netting adjustments according to specific IRS rules. The instructions provide detailed guidance on grouping partnership adjustments and applying the highest federal tax rates to determine the IU. Even if your calculation shows no additional tax is owed, you must still complete this section. IRS.gov

Step 5: Decide how to handle the tax liability.

If there's an imputed underpayment, you have two choices: (1) pay it at the partnership level, or (2) elect to "push out" the adjustments to the partners from the reviewed year, who will then account for the changes on their individual returns. If you choose push-out, you must complete and file Forms 8985 and 8986, providing each partner with their share of the adjustments.

Step 6: Prepare partner notifications.

For non-BBA partnerships, you must provide amended Schedules K-1 to all partners, who will then file their own amended returns. For BBA partnerships electing push-out, furnish Form 8986 to each partner instead (not amended K-1s). These must be provided on the same date you file the AAR with the IRS. IRS.gov

Step 7: Complete the explanation section.

Part V requires a detailed explanation of each change. Don't be vague—clearly state what was wrong, why it was wrong, and how you corrected it. Include supporting calculations and references to tax law if applicable.

Step 8: Sign, pay (if applicable), and mail.

Have the appropriate person sign the form, include payment if required, attach all supporting documents, and mail everything to the correct service center.

Common Mistakes and How to Avoid Them

Mistake #1: Filing to the wrong IRS location.

Many partnerships send Form 1065-X to their current service center rather than where the original return was filed. Always check your original return's filing address and use that same service center. Filing to the wrong location can cause months of processing delays.

Mistake #2: Failing to calculate or attach the imputed underpayment computation.

BBA partnerships must always include an IU calculation with supporting documentation, even when it's zero or negative. Omitting this is one of the most common errors and will likely result in the IRS rejecting your AAR or requesting additional information.

Mistake #3: Providing wrong forms to partners.

Many partnerships mistakenly issue amended Schedules K-1 when filing a BBA AAR. Under BBA rules, if you're pushing out adjustments, you must provide Form 8986, not amended K-1s. Using the wrong form creates confusion and compliance issues for your partners. IRS.gov

Mistake #4: Missing the signature or having the wrong person sign.

For BBA partnerships, only the partnership representative or designated individual can sign an AAR. A signature from another partner or unauthorized person makes the filing invalid. Double-check who your current PR is before signing.

Mistake #5: Incomplete supporting documentation.

Failing to attach all required schedules, statements, and supporting calculations is a frequent problem. Each correction should be fully documented. Create a checklist of all attachments before mailing to ensure nothing is missing.

Mistake #6: Using Form 1065-X when Form 8082 is required.

Form 1065-X cannot be used for partner-level AARs or notices of inconsistent treatment—those require Form 8082. Understanding which form applies to your situation is crucial.

Mistake #7: Filing after receiving a Notice of Administrative Proceeding.

Once the IRS formally begins an audit, you cannot file an AAR. Monitor your IRS correspondence carefully and file promptly if you discover errors.

What Happens After You File

Once you mail Form 1065-X, the IRS begins its review process, though the timeline can vary considerably—from several months to over a year, depending on the complexity of your changes and the IRS's workload.

Initial Processing

The IRS will first verify that your form is complete, properly signed, and sent to the correct service center. They'll assign your filing to the appropriate unit based on whether it's an AAR or amended return and which audit regime applies.

Review and Verification

IRS personnel will examine your explanations, review your calculations (particularly the imputed underpayment computation), and may verify your corrections against the original return and supporting documentation. They may request additional information if anything is unclear or if documentation is missing.

For BBA Partnerships with Push-Out

If you elected to push adjustments out to partners, the IRS will track that you filed Forms 8985 and 8986. Your partners will then be responsible for reporting their shares of the adjustments on their individual tax returns using Form 8978 (for individual and C corporation partners) when filing for the year in which they receive the Form 8986. IRS.gov

Possible Outcomes

The IRS may accept your corrections as filed, resulting in either a refund (if you overpaid) or a request for additional payment. They may partially accept and partially reject your changes, leading to an adjusted assessment. Or they may fully disagree with your corrections and issue a notice explaining their position and your appeal rights.

Refunds and Additional Assessments

If your corrections show you overpaid taxes, any refund will be processed separately and may take several months. Refund interest may apply depending on timing. If the IRS determines you still owe money beyond what you paid with the form, they'll send a notice with payment instructions and applicable interest charges.

Appeals Rights

If you disagree with the IRS's determination, you generally have the right to appeal through the IRS Office of Appeals or, in some cases, file a petition in Tax Court.

FAQs

Q: Can I e-file Form 1065-X for my 2021 return?

A: For 2021, Form 1065-X is primarily a paper form when filing as a standalone amended return. However, BBA partnerships can e-file an AAR by using Form 8082 with an amended Form 1065 (marking box G(5) for "Amended return"). Check the IRS e-file guidance for partnerships to confirm current e-filing options. IRS.gov

Q: Do my partners need to amend their individual returns when I file Form 1065-X?

A: It depends. For non-BBA partnerships, yes—you must provide amended Schedules K-1 to partners, and they should file amended individual returns (Form 1040-X). For BBA partnerships that pay the imputed underpayment at the partnership level without push-out, partners generally don't need to amend. If you elect BBA push-out, partners receive Form 8986 and report adjustments on Form 8978 with their current year return, not amended prior year returns.

Q: How do I know if my partnership is subject to BBA or can elect out?

A: All partnerships with tax years beginning after December 31, 2017 (including your 2021 return) are automatically subject to BBA unless they qualify and elect out. To elect out, a partnership must have 100 or fewer partners, all partners must be eligible persons (generally individuals, C corporations, or estates of deceased partners), and the partnership must make the election annually on its timely filed Form 1065. IRS.gov

Q: What if I can't pay the imputed underpayment right now?

A: Unlike individual tax returns, you cannot request an installment agreement directly on Form 1065-X. However, you may be able to arrange a payment plan with the IRS by contacting them directly. Be aware that interest will accrue on any unpaid amounts. It's generally better to pay what you can when filing to minimize interest charges, then work out a payment arrangement for the balance.

Q: Is there a penalty for filing Form 1065-X late?

A: The 3-year statute of limitations isn't technically a "deadline" with penalties—it's the window during which you're allowed to make corrections. However, if your corrections show you owe additional tax and you don't file promptly after discovering the error, interest will continue to accrue on the unpaid amount from the original due date. Filing sooner is always better.

Q: Can I file multiple Forms 1065-X for the same tax year?

A: Yes, you can file more than one Form 1065-X for the same year if you discover additional errors after filing the first one. However, each subsequent filing should include all previously reported corrections plus the new changes. This prevents confusion and ensures the IRS has a complete picture of all adjustments.

Q: What's the difference between "amended return" and "AAR" on Form 1065-X?

A: The terminology primarily relates to which audit regime applies. An "amended return" is typically used by partnerships not subject to BBA or TEFRA—they're simply correcting errors. An "AAR" (Administrative Adjustment Request) is the term used under BBA rules and represents a formal request to adjust partnership-related items. Both use the same Form 1065-X, but the procedures and consequences differ based on your partnership's audit regime status. For most 2021 returns, BBA partnerships file AARs while small partnerships that elected out file amended returns.

Sources & Resources

Need help? For the most current Form 1065-X and detailed instructions, visit IRS.gov/Form1065X. Consider consulting a tax professional experienced in partnership taxation, especially for complex situations involving BBA rules and imputed underpayment calculations.