Form 1065-X Tax Year 2020 Filing Checklist
Year-Specific Context
For tax year 2020, partnerships with tax years beginning in 2020 are subject to the BBA centralized audit regime unless a valid election out under section 6221(b) was filed and remains in effect. The BBA regime applies to all partnerships with tax years beginning after December 31, 2017. TEFRA procedures apply only to partnerships with tax years beginning before January 1, 2018, and do not apply to tax years beginning in 2020.
Partnerships filing for tax year 2020 must use the appropriate revision of Form 1065-X designated for their audit regime status. The form accommodates tax-based capital account reporting requirements that became mandatory beginning with the 2018 tax year and will continue through 2020. Partnerships with gross receipts exceeding specified thresholds must report additional information to partners for section 163(j) and section 448(c) compliance.
Applicable 2020 Programs and Provisions
Partnerships filing amended returns for the tax year 2020 must separately report business interest expenses on Schedule K-1 for compliance with Section 163(j). Business interest expense has been required to be separately stated as a distinct loss class under section 704(d) for partnerships with tax years beginning after November 12, 2018, meaning this requirement was already in effect for all 2020 tax years.
If a 2020 partnership claimed a Paycheck Protection Program loan, amended returns must reflect whether eligible expenses were deducted after loan forgiveness was determined. The IRS clarified in 2020 and 2021 guidance that expenses paid with forgiven PPP loan proceeds are deductible, but partnerships must ensure proper treatment on amended returns if initial filings were incorrect.
Ten-Step Amended Return Checklist
Step 1: Verify Partnership Classification and BBA Status
Determine whether the partnership is subject to the BBA centralized audit regime. All partnerships with tax years beginning in 2020 are subject to BBA unless they made a valid election under section 6221(b). The election applies only if the partnership has 100 or fewer eligible partners, which include individuals, C corporations, S corporations, foreign entities treated as C corporations if domestic, and estates of deceased partners.
Partnerships cannot elect out if any partner is a partnership, trust, or foreign entity that would not be treated as a C corporation if domestic, a disregarded entity, an estate of an individual other than a deceased partner, or a nominee holding an interest on behalf of another person. Document the election out-filing, if applicable, and verify that it remains valid for 2020.
Step 2: Gather Original Return and Amendment Support Documents
Collect the original 2020 Form 1065 and Schedule K-1 as filed with the IRS. Obtain all supporting schedules filed with the original return, including Schedule K-1 capital account information reported using the tax basis method. Tax basis reporting for capital accounts became mandatory for tax years beginning in 2018 and continues for 2020.
Assemble documentation supporting each line item being amended, including profit and loss statements, balance sheets, cost of goods sold calculations on Form 1125-A if applicable, depreciation records on Form 4562, and partner basis tracking worksheets. Maintain records showing the original amounts, adjustments, and corrected amounts for each amended line.
Step 3: Document Section 448(c) Gross Receipts Reporting
Verify whether the partnership had average annual gross receipts exceeding 27 million dollars for the three years ending with 2020. Partnerships that meet this threshold may be subject to specific accounting method requirements and must report information to their partners. If amending to correct gross receipts reporting, attach the corrected Schedule K-1 showing the appropriate information in Box 20 with the designated code.
Gross receipts reporting enables partners to determine their own Section 448(c) status and Section 163(j) business interest deduction limitations. Ensure amended Schedule K-1s include all required information for partners to properly calculate their limitations.
Step 4: Review Business Interest Expense Reporting
For 2020, all partnerships must separately report business interest expense on Schedule K-1. Business interest expense is required to be separately stated as a distinct loss class under section 704(d) for basis limitation purposes, effective for tax years beginning after November 12, 2018. This requirement was fully in effect for all tax years beginning in 2020.
If you are amending to add or correct a business interest expense, ensure the amount is clearly identified and separately stated from other deductions. Report excess business interest expense in Box 13, Code K. Report deductible business interest expense separately if it reduces income reported in Box 1, 2, or 3. Attach the amended Schedule K-1 showing corrected business interest expense amounts and proper classification.
Step 5: Identify Amendments Related to PPP Loan Treatment
If the partnership claimed eligible expenses paid with Paycheck Protection Program funds in 2020, verify the correct treatment on the original return. Following IRS guidance and legislation, expenses paid with forgiven PPP loan proceeds are deductible, despite the loan's forgiveness being tax-exempt income.
If the original return incorrectly disallowed deductions for PPP-funded expenses, file an amended return to claim the deductions. If the original return incorrectly claimed deductions before forgiveness was determined and the loan was subsequently required to be repaid, file an amended return to reflect the correct treatment. Document the PPP loan forgiveness determination letter or Small Business Administration notification.
Step 6: Complete Form 1065-X Part I Partnership Classification
For the 2020 tax year, check the appropriate box in Part I based on the partnership’s audit regime status. Partnerships with tax years beginning in 2020 are subject to BBA and should check the BBA AAR box in Section 2, unless they made a valid election out, in which case they should check the Non-BBA box.
If filing Form 1065-X for a different tax year that began before 2018 and is subject to TEFRA, check the appropriate TEFRA box in Section 1. Complete Section 2 if filing BBA AAR, answering questions about partnership representative designation changes, imputed underpayment results, push-out elections, and modification requests.
Step 7: Complete Form 1065-X Part II Amended Items
Enter amounts as originally reported on Schedule K in column (a) using figures from the original 2020 return as filed. In column (b), show the net change with increases as positive numbers and decreases in parentheses. In column (c), enter the correct amount, which must equal the sum of columns (a) and (b).
Amend all affected lines, including line 1 for ordinary business income or loss, line 2 for net rental real estate income or loss, line 4 for guaranteed payments, lines 6a through 6c for dividends and dividend equivalents, line 12 for section 179 deduction, line 13 for other deductions with appropriate codes, and line 19 for distributions. Ensure all three-column calculations are accurate and reconcile to supporting schedules.
Step 8: Attach Supporting Schedules and Required Forms
Include amended Schedules K-1 for each partner with the Amended K-1 box checked at the top. Each amended Schedule K-1 must show corrected amounts for all items affected by the amendments. Furnish copies of amended Schedule K-1s to all partners on or before the date Form 1065-X is filed with the IRS.
Attach all required supporting schedules, including Form 1125-A if the cost of goods sold changed, Form 4562 for depreciation or section 179 adjustments, and any other schedules supporting amended lines. If this amendment involves a change in partnership representative designation concurrent with the AAR filing, include Form 8979 and complete Item A in Section 2.
For BBA partnerships filing AAR, attach Forms 8985 and 8986 if electing to push out adjustments to reviewed-year partners under section 6227(b)(2). If requesting modifications to reduce imputed underpayment under section 6225(c), attach Form 8980 with complete supporting documentation.
Step 9: Document BBA AAR Requirements
If you are filing a BBA AAR for the tax year 2020, determine whether adjustments result in an imputed underpayment. Calculate imputed underpayment by grouping adjustments into reallocation, credit, creditable expenditure, and residual groupings. Net adjustments within subgroupings. Multiply total netted partnership adjustments by the highest federal tax rate in effect for the reviewed year.
If adjustments result in positive imputed underpayment and the partnership does not elect to push out adjustments to partners, the partnership must pay the imputed underpayment. Complete Part IV, showing the imputed underpayment calculation, the total amount due, payments made, and the balance due.
Suppose electing to push out adjustments under section 6227(b)(2); complete Section 2, Item C by checking yes. Prepare and furnish Form 8986 to each reviewed-year partner showing their share of adjustments. File Forms 8985 and 8986 with Form 1065-X. Partners report adjustments in the year the AAR is filed, not in the year being reviewed.
Step 10: Sign, Date, and File Form 1065-X
For BBA partnerships, the partnership representative or a designated individual (if the partnership representative is an entity) must sign and date the form in Section 2, Item D. The signature declaration attests, under penalty of perjury, that all required statements have been provided to the review-year partners.
For non-BBA partnerships filing amended returns, any partner or LLC member may sign and date the form in the designated signature area. Paid preparers must complete the Paid Preparer Use Only section with PTIN, not SSN.
Include complete explanations in Part V for each amended line, showing the line number, reason for change, Schedule K-1 box number, and code if applicable, and detailed computations. Mail Form 1065-X and all attachments to the IRS service center where the original 2020 Form 1065 was filed. Retain a complete copy for partnership records for a minimum of three years.
Key 2020 Reporting Requirements
Business Interest Expense as Separate Loss Class
Business interest expense must be separately stated as a distinct loss class under section 704(d) for basis limitation purposes. This requirement became effective for partnerships with tax years beginning after November 12, 2018, and applies to all tax years ending in 2020.
Partnerships report excess business interest expense in Schedule K-1, Box 13, Code K. If business interest expense reduces positive income, it is separately identified in the income calculation.
Tax Basis Capital Account Reporting
Partnerships must report partners’ capital accounts using the tax basis method on Schedule K-1, Item L. This requirement became mandatory for tax years beginning in 2018 and remains in effect through 2020. The tax basis method tracks each contribution, distribution, share of income, and share of loss using tax basis principles. Partners use this information to determine their outside basis for the partnership's interest.
Section 163(j) Information Reporting
Partnerships must provide partners with information necessary to calculate the section 163(j) business interest limitation at the partner level. This includes reporting business interest income, business interest expense, adjusted taxable income components, and excess business interest expense allocated to each partner. Partners use this information to complete Form 8990 and determine their deductible business interest expense.
Form-Specific Limitations
Form 1065-X cannot be used to file a notice of inconsistent treatment under section 6222 for TEFRA proceedings or partner-level AAR under section 6227(d). Use Form 8082 for these purposes.
Form 1065-X is only for paper filing. Partnerships cannot file Form 1065-X electronically. For the electronic filing of amended returns, or AARs, partnerships must use Form 8082 in conjunction with Form 1065. This applies to all partnerships regardless of whether they are BBA or non-BBA status.
REMICs and electing large partnerships filing for pre-2018 tax years use Part III of Form 1065-X, not Part II. Part II is for partnerships that file Form 1065. Part III accommodates the different line structure of REMIC and ELP returns.
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This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.
