Form 1065-X Tax Year 2018 Filing Checklist
Year-Specific Context
Form 1065-X for 2018 represents the transitional year distinguishing pre-2018 partnerships under TEFRA audit rules from post-2017 partnerships under the centralized Bipartisan Budget Act audit regime. The BBA rules require the designation of a partnership representative and imputed underpayment calculations. The Tax Cuts and Jobs Act created Section 163(j) business interest limitations, which are reportable on this form. The form captures either partnership-representative-signed AAR adjustments or traditional amended-return corrections for rental real estate and ordinary income lines.
2018-Specific Tax Programs
Section 163(j) limitation on business interest expense applies to partnerships deducting business interest beginning in tax year 2018. The limitation restricts deductible business interest to 30 percent of adjusted taxable income plus business interest income and floor-plan financing interest. Excess amounts are allocated to partners on Schedule K-1 code K for partner-level limitation application.
New section 199 A qualified business income deduction allows up to a 20 percent deduction and flows through partnership returns, but does not directly appear on Form 1065-X line items. It affects partner basis and deduction limitations indirectly.
The BBA centralized audit regime applies only to partnerships with tax years beginning after December 31, 2017. Partnerships with 2018 and later tax years must follow partnership-representative AAR procedures, not TEFRA tax-matters-partner procedures. Partnerships with tax years beginning before January 1, 2018, continue under TEFRA rules unless they elected into BBA.
Ten-Step Filing Checklist
Step 1: Determine Applicable Audit Regime
Check the Part I box for the tax year rule. For tax years beginning before January 1, 2018, select TEFRA AAR, NonTEFRA, or ELPs/REMICs as applicable. For tax years beginning after December 31, 2017, select BBA AAR or NonBBA.
For TEFRA determination, answer questions B and C. A partnership must have 10 or fewer partners, and all partners must be U.S. citizens, resident aliens, C corporations, or estates of deceased partners. If both answers are yes, the partnership is not subject to TEFRA proceedings. A husband and wife count as one partner for TEFRA purposes.
Step 2: Identify Partnership Representative or Tax Matters Partner
If BBA AAR applies to post-2017 tax years, the partnership representative or designated individual must sign Form 1065-X under Item D, Section 2. The partnership representative attests under penalties of perjury that all required statements have been provided to the reviewed-year partners. This replaces the tax matters partner requirement for returns filed before 2018.
For pre-2018 TEFRA returns, either the tax matters partner or the partner with authority must sign under Item G after completing Section 1.
Step 3: Complete Schedule K and K-1 Line Item Identification
Identify each line being amended on Schedule K or Schedule K-1. For 2018 returns, Schedule K includes a new line 6c for dividend equivalents under section 871(m). Line 13 uses updated codes, with code K now reporting excess business interest expense under section 163(j) rather than the previous portfolio deductions. Lines 11, 16, and 20 also have updated codes. Use exact line numbers when reporting corrections in Part II for partnerships or Part III for ELPs and REMICs.
Step 4: Gather Documentation for Original and Corrected Amounts
Collect the original Form 1065 and Schedules K-1 as filed or as previously adjusted. If audited by IRS, use IRS-adjusted amounts as the starting point. Obtain amended W-2s, 1099s, or other income documents supporting corrections.
For section 163(j) adjustments applicable to 2018 and later years, gather business interest expense calculations and ensure proper grouping by trade or business as required by the section 163(j) limitation. Calculate adjusted taxable income using the 30 percent threshold for deductible business interest.
Step 5: Complete Part II for Partnerships or Part III for ELPs and REMICs
Part II for partnerships reports ordinary business income on line 1, net rental real estate income on line 2, guaranteed payments on line 4, interest income on line 5, and dividends on lines 6a through 6c. Line 6c is new for 2018 and reports dividend equivalents under section 871(m).
Line 12 reports the section 179 deduction. Line 13 reports other deductions with codes A through W per the 2018 Schedule K-1, including the new code K for excess business interest expense under Section 163(j). Line 15 reports credits, line 16 reports foreign transactions, line 17 reports AMT items, line 18 reports tax-exempt items, and line 19 reports distributions.
Enter the original amounts in column A, the net increase or decrease in column B, using parentheses for decreases, and the corrected amounts in column C. All adjustments must reconcile across columns.
Step 6: Calculate Imputed Underpayment for BBA AAR
If filing BBA AAR for post-2017 tax years and adjustments result in an imputed underpayment, complete Part IV lines 1 through 2. Use the highest tax rate in effect under section 1 or section 11 for the reviewed year.
The partnership must decide whether to pay the imputed underpayment directly or push adjustments to partners under the section 6227(b)(2) election. If applying modifications to reduce imputed underpayment under section 6225(c), attach Form 8980. Modifications may include amended returns from partners, tax-exempt partner adjustments, and rate differential calculations.
Step 7: Prepare Amended Schedules K-1 or Forms 8986
For non-BBA amended returns covering pre-2018 tax years, file amended Schedules K-1 with Form 1065-X and furnish copies to partners on or before the filing date. Partners use amended Schedules K-1 to file amended individual returns.
For BBA AAR covering post-2017 tax years, do not furnish amended Schedules K-1. Instead, furnish Form 8986 to each reviewed-year partner reflecting allocated adjustments. Accompany Form 8986 with Form 8985. Partners receiving Forms 8986 and 8985 report adjustments in the year the AAR is filed, not the reviewed year.
Step 8: Complete Part V Explanations
For each line in Part II or Part III being changed, enter the line number and explain the reason for the change. Show the Schedule K-1 box number and code for partnerships.
Detail all computations supporting adjustments. If imputed underpayment was calculated, explain grouping, subgrouping, netting of adjustments, and any modifications under section 6225(c) applied. Provide sufficient detail for IRS review and partner understanding.
Step 9: Sign and Assemble Required Attachments
For non-BBA amended returns covering pre-2018 tax years, any partner or LLC member signs Form 1065-X under penalties of perjury. For BBA AAR covering post-2017 tax years, the partnership representative or designated individual signs Item D, Section 2.
Paid preparers complete the preparer section with PTIN, not SSN. Paid preparers may sign using a rubber stamp, a mechanical device, or computer software.
If you are changing the partnership representative at the same time as filing the AAR, please attach Form 8979. Attach Form 8980 if modifying the imputed underpayment. Attach amended Schedules K-1 for non-BBA returns or Forms 8986 and 8985 for BBA AAR. Include all supporting documentation and schedules.
Step 10: File with the Correct Service Center
File Form 1065-X with the IRS service center where the original return was filed. Consult the IRS’s “Where to File” instructions for Form 1065-X to identify the correct service center based on your partnership’s location and asset size.
Include all required supporting documentation and schedules. Retain copies for partnership records for at least three years. For non-BBA returns, furnish amended Schedules K-1 to partners. For BBA returns, furnish Form 8986 to partners on the date AAR is filed.
Line Changes for 2018
Line 6c Dividend Equivalents
Added in 2018, line 6c reports section 871(m) income. Before 2018, Schedule K reported only ordinary dividends on line 6a and qualified dividends on line 6b. The 2018 addition captures dividend-equivalent payments under section 871(m) applicable to certain derivatives and forwards on U.S. equities held by foreign persons.
Section 163(j) Business Interest Limitation
Lines 13k and 20 now include codes K and Z for section 163(j) reporting. Box 13, code K, reports excess business interest expense under Section 163(j), representing disallowed deductions carried forward. Prior treatment did not separately track section 163(j) excess amounts.
For tax years beginning after 2017, partnerships calculate deductible business interest at the partnership level using 30 percent of adjusted taxable income plus business interest income and floor-plan financing interest. Excess amounts allocated to partners on Schedule K-1, code K, require a partner-level limitation application using Form 8990.
Form-Specific Limitations for 1065-X
Electronic Filing Restrictions
Non-BBA partnerships covering pre-2018 tax years cannot use Form 1065-X for electronic filing and must file on paper. BBA partnerships covering post-2017 tax years are restricted to filing an AAR on paper using Form 1065-X. Electronic AAR filings must use Form 8082 with Form 1065.
No partnership can use Form 1065-X to file a notice of inconsistent treatment under section 6222 for TEFRA or BBA purposes. Continue using Form 8082 for inconsistent treatment notices.
Schedule and Attachment Requirements
Non-BBA amended returns must file amended Schedules K-1 with Form 1065-X and furnish them to partners. Partners receiving amended Schedules K-1 file amended individual returns for the same tax year.
BBA AAR must file Forms 8985 and 8986 with Form 1065-X. Do not furnish amended Schedules K-1 or K-3 to partners under BBA procedures. Information is reported on Form 8986 only, and partners report adjustments in the year the AAR is filed.
Section 163(j) Reporting Requirements
Partnerships subject to the section 163(j) limitation beginning in 2018 must complete Form 8990 unless meeting an exception. Small businesses with average annual gross receipts of 27 million dollars or less for the three prior tax years are exempt from the section 163(j) limitation.
Partnerships must separately report business interest income, business interest expense, floor-plan financing interest expense, and adjusted taxable income items on Schedule K. Partners use this information to calculate their own section 163(j) limitation at the partner level.
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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.
