Understanding tax forms can feel overwhelming, but Form 1065-X doesn't have to be complicated. Whether your partnership discovered an error on a previously filed return or needs to make adjustments for other reasons, this guide breaks down everything you need to know about correcting your 2023 partnership tax return.

What Form 1065-X Is For

Form 1065-X is the IRS document that partnerships use to fix mistakes on previously filed partnership tax returns (Form 1065, Form 1065-B, or Form 1066 for REMICs). Think of it as the partnership world's equivalent to the "oops button" – it allows partnerships to go back and correct errors in their tax filings when they discover something was reported incorrectly.

There are two main purposes for using Form 1065-X. First, partnerships not subject to special audit rules can file an amended return to correct simple errors like miscalculated income or deductions. Second, partnerships subject to the Bipartisan Budget Act (BBA) centralized audit rules must file an Administrative Adjustment Request (AAR) instead of a regular amended return. The BBA rules apply to virtually all partnerships with tax years beginning after December 31, 2017, unless they elect out of the system.

The key distinction here is important: if your partnership falls under the BBA rules (which most modern partnerships do), you're not technically "amending" your return in the traditional sense – you're requesting that the IRS administratively adjust your previously filed return. This procedural difference has significant implications for how corrections are processed and who ultimately pays any additional tax owed. IRS.gov

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

Common Reasons to File

You would file Form 1065-X when you discover errors on your partnership's previously filed tax return. Common scenarios include finding unreported income, discovering you claimed deductions you weren't entitled to, realizing you incorrectly allocated profits among partners, or uncovering mathematical errors that affected the partnership's tax position.

Timing Rules

Timing is critical. Generally, partnerships must file Form 1065-X within 3 years after the later of: (1) the date the partnership return was actually filed, or (2) the last day for filing the return (not counting extensions). For example, if your 2023 partnership return was due March 15, 2024, but you filed it on February 28, 2024, your 3-year window starts from March 15, 2024 – not from when you actually filed. This gives you until March 15, 2027, to file Form 1065-X for that return.

However, there's an important exception for BBA partnerships: you cannot file an AAR after the IRS has already mailed you a "Notice of Administrative Proceeding" – essentially, once the IRS has started auditing you for that year, the window closes. This is why it's crucial to file Form 1065-X promptly once you discover an error rather than waiting until the deadline approaches. IRS Instructions

Key Rules or Details for 2023

Form Update for 2023

The 2023 tax year brought several important considerations for Form 1065-X filers. The August 2023 revision of the form introduced a new checkbox (Item C2 in Part I, Section 2) to specifically indicate when adjustments don't result in an imputed underpayment – this is crucial for BBA partnerships because it determines whether the partnership owes tax immediately or can push adjustments out to partners.

BBA vs. Non-BBA Status

BBA vs. Non-BBA Status: For 2023 partnerships, virtually all partnerships are subject to BBA rules unless they successfully elected out. To elect out, the partnership must have had 100 or fewer eligible partners, all of whom must be individuals, C corporations, estates of deceased partners, or certain foreign entities treated as C corporations. S corporations, partnerships, trusts, disregarded entities, and non-resident aliens disqualify you from electing out.

Electronic Filing Requirements

Electronic Filing Requirements: If your partnership was required to file its original Form 1065 electronically (generally partnerships with more than 100 partners), you must also file the amended return or AAR electronically. For electronic BBA AARs, you'll use Form 8082 along with an amended Form 1065 with the "Amended return" box checked. For paper filings, you use Form 1065-X directly.

Partnership Representative (PR) Authority

Partnership Representative (PR) Authority: Under BBA rules, only the designated Partnership Representative or Designated Individual (if the PR is an entity) can file and sign the AAR on behalf of the partnership. Individual partners cannot file Form 1065-X for the partnership unless they are also the designated PR. This centralizes authority and is a significant departure from pre-2018 rules. IRS.gov

Step-by-Step (High Level)

Step 1: Determine Your Partnership Type

First, figure out whether you're filing under BBA rules (most 2023 partnerships), TEFRA rules (only partnerships with years beginning before 2018 that didn't elect into BBA), or as a non-TEFRA partnership. This determines which boxes you check in Part I of Form 1065-X and what your obligations are.

Step 2: Calculate the Imputed Underpayment (BBA Partnerships Only)

If you're a BBA partnership, you must calculate whether your adjustments create an "imputed underpayment" (IU) – essentially, the tax the partnership would owe at the highest tax rate if it were a taxpayer. Even if the result is zero or negative, you must document this calculation and include it with your filing. The IU calculation treats all income-increasing adjustments as taxable at the highest rate (currently 37%) and limits credit increases.

Step 3: Decide How to Handle the Correction

BBA partnerships have two options: (1) Pay the imputed underpayment at the partnership level and push out non-IU adjustments to partners, or (2) Elect "push out" treatment where all adjustments flow through to the reviewed-year partners, who then report the corrections on their own returns. The push-out election must be made on the AAR itself and requires filing Forms 8985 and 8986 with your AAR.

Step 4: Complete Form 1065-X

Fill out Part I (classification), Part II (the actual amended items), Part IV (imputed underpayment calculation if applicable), and Part V (explanation of changes). For each line item you're correcting, you'll show three columns: the original amount reported, the corrected amount, and the difference. Attach supporting schedules and documentation.

Step 5: Prepare Partner Forms

If you're pushing out adjustments to partners (either by election or because there's no IU), prepare Form 8985 (transmittal/tracking report) and individual Forms 8986 for each partner showing their share of adjustments. These must be furnished to partners on the same date you file the AAR with the IRS.

Step 6: File and Pay (If Applicable)

Submit Form 1065-X to the same IRS service center where you filed the original return. If you owe an imputed underpayment, payment must be made simultaneously with filing using EFTPS, debit/credit card, or check payable to "United States Treasury" with proper identification (partnership name, Form 1065, EIN, tax year, and "BBA AAR Imputed Underpayment").

Common Mistakes and How to Avoid Them

Using Form 1065-X When You Should File Electronically

Many partnerships that were required to e-file their original returns incorrectly file paper Form 1065-X for amendments. Solution: Check your electronic filing obligation from the original return. If you were required to e-file originally, use Form 8082 with an amended Form 1065 filed electronically instead of paper Form 1065-X.

Filing Form 1065-X as a Partner Instead of Through the PR

Individual partners cannot file corrections on behalf of BBA partnerships – only the Partnership Representative has this authority. Solution: Ensure the designated PR (or Designated Individual if the PR is an entity) signs and files the AAR. If there's no valid PR designation, use Form 8979 to designate one before or simultaneously with the AAR filing.

Failing to Calculate or Document the Imputed Underpayment

BBA partnerships commonly omit the IU calculation or fail to attach supporting documentation. Solution: Always complete Part IV of Form 1065-X showing your IU calculation, even if it results in zero. Include all worksheets and supporting schedules demonstrating how you arrived at the amount. The IRS needs this documentation to process your AAR.

Sending Amended Schedules K-1 Instead of Forms 8986

Partnerships operating under BBA rules should not issue amended Schedules K-1 to partners when filing an AAR. Solution: Use Form 8986 (Partner's Share of Adjustments to Partnership-Related Items) instead of amended K-1s. This form is specifically designed for BBA adjustments and provides partners with the information they need to comply with their own reporting requirements.

Missing the Filing Deadline

Partnerships often miscalculate the 3-year deadline, particularly when the original return was filed early. Solution: The 3-year period runs from the later of the actual filing date OR the return due date (without extensions). Mark this date on your calendar. Also remember that once the IRS issues a Notice of Administrative Proceeding for an audit, you can no longer file an AAR for that year.

Failing to Make Payment with the AAR

If your AAR results in an imputed underpayment and you don't elect push-out treatment, payment must accompany your filing. Solution: Make payment simultaneously with filing using the correct payment type designation: "BBA AAR Imputed Underpayment" when using EFTPS or your payment method, applying it to Form 1065.

What Happens After You File

Non-BBA Partnerships

The IRS will review your amended return and may accept the changes, propose different adjustments, or request additional information. If your changes result in a refund, the IRS will process it after completing their review. Partners will need to file their own amended individual or corporate returns if the partnership adjustments affect their tax liability.

BBA Partnerships That Paid the IU

If you paid the imputed underpayment at the partnership level, the IRS will review your calculation and either accept it or propose modifications. For adjustments that don't result in an IU, you'll need to furnish Forms 8986 to your reviewed-year partners, who must then account for these adjustments on their own tax returns using Form 8978 (for individuals and C corporations) or by paying their own calculated IU or further pushing out (for pass-through partners).

BBA Partnerships That Elected Push Out

Partners who receive Form 8986 must take action. Individual and C corporation partners will file Form 8978 with their tax return for the year that includes the date the partnership furnished the Form 8986 (the "reporting year"). Pass-through entity partners (S corporations, other partnerships, trusts) must either calculate and pay their own imputed underpayment using Form 8985 or further push out the adjustments to their own partners/shareholders/beneficiaries.

Interest, Penalties, and Status

Interest runs from the original due date of the return being corrected until the date of payment. For push-out elections, interest is calculated at the partner level. Penalties may apply for substantial understatements or negligence, calculated as if the partnership were an individual taxpayer for the reviewed year.

You won't receive a formal "acceptance letter" in most cases. Instead, you may receive a notice if the IRS disagrees with your calculations or needs additional information. If you don't hear anything after 6-8 months, you can check your AAR status by calling the IRS practitioner priority line (if you have a POA) or the business tax line.

FAQs

Q1: Can I file Form 1065-X just to change who the Partnership Representative is?

No. Partnerships cannot file an AAR solely to change the PR designation. However, you can designate or change the PR when filing an AAR for substantive corrections. The designation or change becomes effective on the date the AAR is filed. Use Form 8979 to designate or change the PR.

Q2: What's the difference between an amended return and an Administrative Adjustment Request (AAR)?

The key difference is which audit regime applies to your partnership. If your partnership isn't subject to BBA rules (generally, tax years beginning before 2018 that didn't elect into BBA), you file an "amended return" to correct errors. If you're subject to BBA rules (most partnerships for 2023), you file an "AAR" – the procedural requirements and tax consequences differ significantly, particularly regarding who ultimately pays any additional tax.

Q3: Our partnership elected out of BBA for 2023. Do we still use Form 1065-X?

If you filed electronically originally, you should file an amended Form 1065 electronically (not Form 1065-X). Only use Form 1065-X if you're filing on paper. Non-BBA partnerships follow the simpler amended return procedures – just correct the items, issue amended Schedules K-1 to partners, and partners file their own amended returns if needed. You don't deal with imputed underpayments or Forms 8985/8986.

Q4: How do I know if my adjustments result in an imputed underpayment?

Generally, adjustments that increase income or decrease deductions result in an IU, while those that decrease income or increase deductions don't. Calculate the IU by treating all income-increasing adjustments as taxed at the highest rate (currently 37% for individuals), with special rules for capital gains and tax-exempt income. The instructions for Form 1065-X Part IV provide detailed calculation guidance. Importantly, you must always include this calculation with your AAR, even if it results in zero.

Q5: What if we need to correct our 2023 return but the 3-year deadline has passed?

Once the 3-year statute of limitations expires, you generally cannot file Form 1065-X to correct the return. Limited exceptions exist if the IRS has already extended the assessment period for other reasons or if you're filing in response to an IRS adjustment. However, if partners discover partnership-related errors after the partnership deadline expires, they may still be able to request corrections through other procedures if within their own statute of limitations.

Q6: Can partners file their own amended returns instead of the partnership filing Form 1065-X?

For BBA partnerships, generally no – corrections to partnership-related items must go through the AAR process at the partnership level. Individual partners cannot unilaterally change partnership items on their own returns. For non-BBA partnerships, if the partnership doesn't file an amended return, partners may file Form 8082 to report inconsistent treatment, though this becomes complicated and it's always preferable for the partnership to file the correction.

Q7: We discovered an error that increases our tax liability. Should we file Form 1065-X immediately or wait?

File as soon as possible. While you have up to 3 years, voluntarily filing promptly demonstrates good faith and stops additional interest from accruing on underpayments. Additionally, if the IRS discovers the error first and initiates an audit before you file, you lose the ability to file an AAR. The IRS audit process is generally more time-consuming and costly than the AAR process, so proactive correction is almost always preferable.

All information sourced exclusively from IRS.gov official publications and instructions.