Instructions for Form 8978

Instructions for Form 8978

(Including Schedule A)

(Rev. December 2024)

Partner’s Additional Reporting Year Tax

For use with Form 8978 (Rev. January 2023)

Contents

Page

What’s New . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Purpose of This Form . . . . . . . . . . . . . . . . . . . . . . . . 1

Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

General Instructions . . . . . . . . . . . . . . . . . . . . . . . . . 2

Who Must File . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Where and When To File . . . . . . . . . . . . . . . . . . . 2

Completing Form 8978 and Schedule A . . . . . . . . 2

Specific Instructions for Form 8978 . . . . . . . . . . . . . . 4

Specific Instructions for Schedule A (Form 8978) . . . . 5

Inconsistent Positions . . . . . . . . . . . . . . . . . . . . . . . . 5

Section references are to the Internal Revenue Code unless

otherwise noted.

Future Developments

For the latest information about developments related to Form

8978 and its instructions, such as legislation enacted after they

were published, go to IRS.gov/Form8978.

What’s New

In general, adjustments from multiple Forms 8986 received from

partnerships can be reported by a partner on one Schedule A

(Form 8978) as long as the adjustments are from the same

source type. Totals from the Schedule A are carried by the

partner to Form 8978. However, adjustments from Forms 8986

related to administrative adjustment requests (AARs) must be

separated from adjustments from audits under the centralized

partnership audit regime of the Bipartisan Budget Act of 2015

(BBA). For this reason, check boxes have been added to Form

8978 and its Schedule A to indicate the source of the

adjustment(s) being reported: AAR filing or BBA audit.

If a partner has adjustments from more than one source (AAR

filing or BBA audit), each source type must be reported on a

separate Form 8978 and Schedule A. The partner indicates the

source of adjustment using the check boxes. Schedule A

adjustments related to an AAR filing are carried to a Form 8978

with the “AAR Filing” box checked. Schedule A adjustments

related to a BBA audit are carried to a Form 8978 with the “BBA

Audit” box checked.

Because each Form 8978 and its Schedule A only provide for

4 years of reporting, if there are more than 4 years of

adjustments for either source, the partner must file multiple

Forms 8978 and Schedules A relating to that source. See

Reporting adjustments from both an audit and from an AAR.

Purpose of This Form

Partners (other than pass-through partners such as partnerships

or S corporations) use Form 8978 and Schedule A (Form 8978)

to report adjustments shown on Forms 8986 received from

partnerships that have elected to push out adjustments to

partnership-related items to their partners.

items that are taxable to the entity partner, it should use Form

8978; and for adjustments to items that pass through to the

partner's owners or beneficiaries, it should follow the Forms

8985 and 8986 instructions for pass-through partners.

The Schedule A (Form 8978) lists all the adjustments a

partner receives on Form 8986. Schedule A is also used to

report any related amounts and adjustments not reported on

Form 8986 which may result from changes to partner-level tax

attributes as a result of adjustments from Form 8986.

Form 8978 should only be used for changes to a partner’s

income tax. Any non-income tax changes that are related to the

income tax adjustments on Form 8986 received by the partner,

such as self-employment tax changes, should be reflected on an

amended return for the partner’s first affected year. The

amended return should include a statement that explains how

the change to non-income tax was calculated, and the source of

the adjustment. See Instructions for IRS.gov/Form1040X for

further information.

Non-pass-through partners reporting credit amounts on

Form 8978. Partners other than pass-through partners (such as

partnerships or S corporations) use Form 8978 and Schedule A

(Form 8978) to calculate the tax in their reporting year from

adjustments shown on Forms 8986 (pushout statement)

originating from a BBA partnership because of a BBA

examination or a BBA partnership AAR filing. The partner's

reporting year is the partner's tax year that includes the date the

audited BBA partnership or BBA partnership that filed an AAR

furnished the Forms 8986 to its partners.

These partners do not report on Form 3800 any changes to

credits reported on the pushout statement. Instead, Form 8978

is used to calculate the change in tax for the first affected year

and any intervening years of the partner that result from the

adjustments included on the pushout statement (including

adjustments to credits). The first affected year is the partner's tax

year that includes the end of the audited partnership's reviewed

year or the year for which the AAR was filed. The intervening

years are the partner's tax years that end after the first affected

year and before the reporting year. The total change of tax for

these years is then reported on Form 8978 as an increase/

decrease to the reporting year tax.

Because the total tax change is reported on Form 8978,

which is then used to change the reporting year tax, a refund

claim is not made by the partner and the adjustments to credits

reported on Form 8978 should not be duplicated on Form 3800.

See Exception below pertaining to “Form 3800 for Form 8978

Calculation Only,” which will not duplicate reported credits but

only support the calculation contained on the Form 8978.

However, any carryforward credit amounts after the first affected

year and any intervening years are reported on Form 3800 for

the reporting year and reported as carryforwards (if appropriate)

on Form 3800 in years after the reporting year.

Note: An entity such as a trust or an estate can be both a

taxable partner and pass-through partner. For adjustments to

Dec 27, 2024

Instructions for Form 8978 (Rev. 12-2024) Catalog Number 69657Z

Department of the Treasury Internal Revenue Service www.irs.gov

Exception: In preparing Form 8978, the partner may

TIP attach Forms 3800 to support the applicable first

affected year or intervening year(s) calculations by

labeling each Form 3800 attachment in each header with: “Form

3800 for Form 8978 Calculation Only.”

Definitions

AAR partnership is a BBA partnership (see below) which has

filed an administrative adjustment request (AAR) under section

6227.

Additional reporting year tax is the partner’s change in

chapter 1 tax for the reporting year after taking into account the

adjustments.

Affected partner is a partner that held an interest in a

pass-through partner at any time during the tax year of the

pass-through partner to which the adjustments in the statement

relate.

Applicable tax year is any tax year that is impacted by the audit

adjustments shown on Form 8986. For example, if the

adjustments are from tax year 2020 (first affected year), that year

would be impacted as well as any year between the first affected

year and the reporting year that had related changes to

partner-level tax attributes.

Audited partnership, for purposes of Form 8978, is a BBA

partnership that made the election under section 6226 to have its

partners take into account their share of adjustments for

partnership-related items.

BBA AAR is an administrative adjustment request filed by a BBA

partnership.

BBA partnership is a partnership that is subject to the

centralized partnership audit regime that was enacted into law by

section 1101 of the Bipartisan Budget Act of 2015 (BBA).

First affected year is the partner’s tax year that includes the

end of the audited partnership’s reviewed year(s). Each reviewed

year of an audited partnership should have a corresponding first

affected year for each partner.

Intervening years include the partner’s tax years that end after

the first affected year and before the reporting year.

Non-pass-through partner is a partner that is other than a

pass-through partner.

Pass-through partner is a pass-through entity that holds an

interest, either directly or indirectly, in a partnership.

Pass-through entities include partnerships required to file a

return under section 6031(a), S corporations, trusts (other than

wholly owned trusts disregarded as separate from their owners

for federal tax purposes), and decedents’ estates. For this

purpose, a pass-through entity is not a wholly owned entity

disregarded as separate from its owner for federal tax purposes.

Note: An entity partner can be both a non-pass-through partner

and pass-through partner. To the extent the adjustments an

entity partner receives on a Form 8986 relate to items that are

taxable at the entity level, it is considered a non-pass-through

partner and with regard to adjustments that pass through to its

owners/beneficiaries it is considered a pass-through partner.

Reporting year is the partner’s tax year(s) that includes the

date the audited or AAR partnership furnished the Forms 8986 to

its partners. The date the audited partnership or BBA

partnership that filed an AAR furnished Forms 8986 to its

partners is found on Form 8986, Part II, item G. For example, if

the Form 8986, Part II, item G, date is 06/15/2023 and the

partner receiving the Form 8986 is a calendar-year-end partner,

that partner’s reporting year is tax year ending 12/31/2023.

Reviewed year is the audited or AAR partnership’s tax year to

which the partnership adjustment(s) relates.

Reviewed year partner is any person that held an interest in

the audited or AAR partnership at any time during the

partnership’s reviewed year.

2

General Instructions

Who Must File

Every partner (except pass-through partners) that receives a

Form 8986 from a pass-through entity must file Form 8978 to

report any additional reporting year tax as a result of taking into

account the partner’s share of the reviewed year(s) adjustments.

Where and When To File

A reviewed year partner or affected partner must file Form 8978

with a federal income tax return for the partner’s reporting year.

Example 1. Where and when to file. On March 1, 2024, an

audited partnership furnishes Forms 8986 to its two partners.

One of these reviewed year partners is a calendar year individual

and the other is a pass-through partner. On January 15, 2025,

the pass-through partner, in turn, furnishes Forms 8986 to its two

partners who are calendar year individuals. The reporting year

for all three individuals is the tax year that includes March 1,

2024. Because the partners all have a calendar year end, the

reporting year is the 2024 tax year. The partners must each

attach a completed Form 8978 to their individual income tax

returns which are due April 15, 2025 (without regard to

extensions).

Completing Form 8978 and Schedule A

What to report on Form 8978 and Schedule A (Form 8978).

The specific adjustments listed on Form 8986 received by a

reviewed year or affected partner, and other adjustments from

partner-level tax attributes that have changed as a result of

taking into account the adjustments, should be listed on the

partner’s Schedule A under lines 1, 3, and 5 for income,

deductions, and credits, respectively, for the applicable tax year.

The totals on lines 2, 4, and 6 of Schedule A are reported on

lines 1b, 3b, and 9b, respectively, of Form 8978.

Note. Tax attribute schedules should be adjusted to the extent

adjustments to non-income items were received. For example, if

the partner’s Form 8986 reflected a decrease to the partner’s

share of recourse liabilities, this could change the partner’s

amount at risk, which in turn could result in an adjustment on

Schedule A to reduce the allowable loss from the partnership. In

this example the partner's at risk schedule should be adjusted

and an increase to income should be reported on Schedule A to

reflect the decrease to the previously reported loss from the

partnership.

Tax calculations. Taxes should be figured and shown on a

separate statement. In general, non-pass-through partners that

receive adjustments from a Form 8986 should figure the

additional reporting year tax as if all the adjustments on Form

8986 had been included on the partner’s first affected year return

using a statement attached to Form 8978 to support the amounts

reported on lines 6 and 7 of the Form 8978. The additional

reporting year tax from line 14 is then reported on the partner’s

reporting year income tax return.

Columns (a) through (d). Columns (a) through (d) on Form

8978 and Schedule A can be used for adjustments for the first

affected year or intervening years. See Receipt of multiple Forms

8986, later.

Years to include and exclude on Form 8978 and Schedule A. Only applicable tax years (see Definitions, earlier) need

to be shown on Form 8978 and Schedule A. A year that is not

impacted does not have to be shown on the form or schedule.

For example, if the first affected year is 2020 and the reporting

year is 2025, years 2021–2024 are considered intervening years.

If the only intervening year impacted is 2023 (that is, 2023 is the

only intervening year that had related changes to partner-level

Instructions for Form 8978 (Dec. 2024)

tax attributes as a result of the 2020 adjustments), the form and

schedule only need to show 2020 and 2023.

Receipt of multiple Forms 8986. If a partner receives multiple

Forms 8986 for different years, a column on the form and

schedule could be both an affected year and an intervening year.

Note. If all of the adjustments from Forms 8986 cannot fit on

one Schedule A (Form 8986), multiple Schedules A can be

attached. If more than one Schedule A is needed, enter the

totals from all Schedule A lines 2, 4, and 6 on the corresponding

Form 8978 lines 1b, 3b, and 9b, respectively.

Reporting adjustments related to an AAR. Adjustments from

an AAR are reported separately from adjustments from a BBA

audit on Forms 8978 and Schedules A. A checkmark in box 1 or

2 of Part I, item A of Form 8986 indicates the adjustments are

related to an audit of a BBA partnership. A checkmark in box 3 or

4 of Part I, item A of Form 8986 indicates the adjustments are

related to an AAR. If a partner has no adjustments from a Form

8986 that are related to an audit, but only adjustments related to

an AAR, only the AAR-related Form 8978 and Schedule A need

to be included.

If one or more adjustments are from a Form 8986 that is

related to an AAR, a separate Form 8978 and Schedule A (Form

8978) must be completed to report the tax impact of these

adjustments and calculate the correct interest. The Form 8978

and its Schedule A should be filled out in the same way as for an

audit-related Form 8978 and its Schedule A. Select the “AAR

Filing” checkbox at the top of the Form 8978 and the Schedule A

and enter the employer identification number of the entity that

issued the Form 8986.

Note. If all adjustments are AAR-related, only one Form 8978

and one Schedule A need to be completed.

Reporting adjustments related to a BBA audit. The following

example shows how adjustments reported on Form 8986 related

to a BBA audit are reported on Form 8978 and its Schedule A.

Example 2. Completing Form 8978 and Schedule A for

an audit-related Form 8986. On June 10, 2024, Bill Jones,

who files as a single individual, calendar-year taxpayer, receives

a Form 8986 from an audited partnership of which Bill is a

partner. The Form 8986 is for reviewed year 2021. Part II, box G,

of the Form 8986 indicates that the audited partnership issued

Forms 8986 to its partners on June 8, 2024. Because June 8,

2024, is within Bill’s tax year ending December 31, 2024, Bill

must report these adjustments on his 2024 Form 1040 income

tax return and attach Form 8978.

The Form 8986 indicates that Bill's share of the adjustments

includes a $15,000 increase to ordinary income and a $10,000

decrease in other deductions, in Part V of Form 8986, and a

$6,000 decrease to capital gains, shown as a negative amount in

Part V of Form 8986.

Bill determines that the adjustments shown on Form 8986 are

from a partnership that he treats as a section 469 passive activity

for tax purposes.

Bill previously reported no capital gains or losses on his

Forms 1040 in 2021 and 2022 due to reported capital gains

being completely offset by reported capital losses, and now has

a $6,000 decrease to capital gains (increased capital loss). Due

to the $3,000 annual capital loss limitation, the $6,000 capital

loss adjustment is taken in $3,000 annual increments. So, Bill

claims a $3,000 capital loss in 2021 and the remaining $3,000

capital loss in 2022.

Bill enters the ordinary income, the capital gain/loss

adjustments, and the appropriate tracking numbers on

Schedule A (Form 8978), lines 1a and 1b, respectively. After

taking into account the BBA income adjustment for 2021, Bill

determines that there are $5,000 in previously suspended

Instructions for Form 8978 (Dec. 2024)

passive activity losses that can be used. He enters the $5,000

that he has determined is available for offset as a negative

amount on line 1c.

Bill carries the totals from lines 2 and 4 of Schedule A to Form

8978, lines 1b and 3b, respectively. Bill also completes lines 1a,

2, 3a, and 4 on the Form 8978, according to the instructions.

Bill attaches to Form 8978 a statement that shows how his tax

year 2021 corrected taxable income, income tax, and AMT, if

applicable, were figured. He includes the income adjustment as

an increase to income and the deduction adjustment as a

decrease to deductions.

Bill carries the amounts figured in the statement to lines 5, 6,

and 8 of Form 8978. He enters his corrected tax liability for tax

year 2021 on line 11 of Form 8978. He enters his income tax as

previously reported for tax year 2021 on line 12 of Form 8978

and subtracts this amount from the amount on line 11 to obtain

the increase or decrease to tax, which he enters on line 13.

If any applicable penalties are shown on Form 8986, Part V,

Bill must attach a statement to his Form 8978 that shows how the

additional penalties that result from the additional tax were

figured. If penalties are applicable, Bill needs to include this

amount on line 15 of Form 8978. Because Part V of the Form

8986 Bill received indicates that the section 6662 substantial

understatement penalty applies, Bill prepares a separate

calculation which shows that the additional $3,408 in tax

reported on line 13, column (a), of the Form 8978 does not

exceed the $5,000 threshold required for the penalty to apply. He

attaches this separate penalty calculation statement to his return

and enters zero on line 15 of his Form 8978.

Bill figures his additional interest on the increase in tax shown

on line 14 of his Form 8978 from April 15, 2022 (the due date of

his 2021 return), up to the date the additional reporting year tax

is paid. If penalties had been shown on his Form 8978, Bill would

have figured interest on penalties from the due date of his 2021

return, or the extended due date of his 2021 return, if a valid

extension request had been filed.

Note. The reduction in tax for 2022 reflected in column (b) of the

Form 8978 is included in the total increase to tax reported on

line 14, but is not included in the interest calculation.

Bill must report the additional reporting year tax from line 14

of Form 8978 on the appropriate line on his 2024 Form 1040,

following the Instructions for Form 1040.

Bill’s payment accompanying his 2024 Form 1040 should

include the tax and interest. If a penalty had been applicable, he

would include that in his payment as well.

Bill must attach Form 8978, Schedule A (Form 8978), and the

calculation statements to the Form 1040 he files for 2024. In this

example, Bill should include statements for tax and penalty

calculations related to Form 8978. He should also attach his

section 469 suspended loss and section 199A schedules; these

should include the adjustments shown on his Schedule A (Form

8978).

If a corporation received a Form 8986 identical to the one that

Bill received, the corporation would follow the same procedures

for completing Form 8978 and Schedule A, and include those

with its tax year 2024 income tax return. The additional tax,

penalties, and interest would be reported and paid following the

instructions for the corporation’s income tax return.

Reporting adjustments from both an audit and from an

AAR. If a partner receives one or more audit-related Forms

8986 and also one or more AAR-related Forms 8986, the

partner’s Form 8978 related to the AAR adjustments should be

completed first. The numbers shown on this first Form 8978

should be included in the “as previously reported” numbers on

the Form 8978 related to the audit adjustments. Each Form 8978

should have applicable lines completed, and the partner should

3

add all the amounts on line 14 (total increase/decrease to tax)

from all the Forms 8978 and report the sum on the appropriate

line of the tax return.

Example 3. Completing Forms 8978 and Schedules A for

an audit-related Form 8986 and an AAR-related Form 8986.

Frank Smith files as a single individual. On May 15, 2023, Frank

received a Form 8986 related to an AAR that was filed by a

partnership in which he is a partner. This Form 8986 reflects an

increase of $5,000 to Frank’s share of other deductions. On June

12, 2023, he received a Form 8986 related to an audit, showing

an additional $10,000 in income. No penalties were noted on

either Form 8986. According to the date shown on Parts II, item

D of the Forms 8986, both relate to adjustments made to the

2020 tax year.

Frank’s first step is to complete a Form 8978 and Schedule A

(Form 8978) for the AAR-related adjustments. He calculates a

decrease in tax of $1,200 from the AAR- related adjustments

and reports that amount on line 14 of the AAR-related Form

8978.

Frank’s second step is to complete another Form 8978 and

Schedule A (Form 8978) for the audit-related adjustments. On

this second Form 8978 (the audit-related Form 8978), he

includes the amounts from the AAR-related Form 8978 in the

“previously reported” amounts on lines 1a, 3a, 9a, and 12. He

figures a total increase to tax of $2,400 from the audit-related

adjustments and reports this on line 14 of the audit-related Form

8978. He reports the total net amount of $1,200 on the

appropriate line of his Form 1040, referring to the Instructions for

Form 1040.

Frank attaches the forms to his 2024 Form 1040 and includes

payment of the additional $1,200 in tax, following the Instructions

for Form 1040 with regard to amounts from Form 8978. The

amount of interest is figured on the audit-related increase to tax

on line 13 of the audit-related Form 8978 using the short-term

quarterly rate plus 5%; interest runs from the due date of Frank’s

2020 Form 1040 to the date of payment. This amount is reported

on lines 17 and 18 of the audit-related Form 8978.

Because the AAR-related Form 8978 showed a decrease to

tax, no interest is shown on that Form 8978. If the AAR-related

Form 8978 had an increase to tax, the interest would be figured

using the same dates as for the audit-related Form 8978, but the

rate would be the short-term quarterly rate plus 3%, and the

amount would have been reported on line 17 of the AAR-related

Form 8978.

More than 4 applicable tax years. If there are more than 4

applicable tax years (see Definitions, earlier), additional Forms

8978 should be prepared for the additional years. Each Form

8978 should have all lines completed and the total of all the

line 14 amounts should be reported on the appropriate line of the

partner’s return. Include a Schedule A for each Form 8978.

Foreign partners that receive Forms 8986. Foreign corporate

partners that receive Forms 8986 must complete separate

Forms 8978 and Schedules A (Form 8978) to report adjustments

pertaining to effectively connected income (ECI) under section

882, and fixed, determinable, annual, periodical (FDAP) income

under section 881. ECI is income effectively connected with the

conduct of a trade or business in the United States; FDAP

income is income from U.S. sources not effectively connected

with the conduct of a trade or business in the United States. The

Forms 8978 and related Schedules A should clearly indicate

whether they reflect ECI or FDAP income. Each “ECI Form 8978”

and its Schedule A should only include ECI figures, and each

“FDAP Form 8978” and its Schedule A should only include FDAP

figures.

Note. Attach a statement to each “ECI Form 8978” and each

“FDAP Form 8978” explaining how all line 13 income tax

4

numbers were calculated. Enter the total of all the line 13

amounts on line 14. Enter the amounts from line 14 on the

applicable lines on the partner’s reporting year income tax

return. See the instructions for the applicable income tax return.

You may receive a Form 1042-S or 8805 from the partnership (or

a pass-through partner) that has withheld on your additional

reporting year tax, and you may claim the withholding credit on

your income tax return.

Specific Instructions for Form 8978

Part I—Computation of Additional Reporting

Year Tax

Each column, (a) through (d), is figured separately for lines 1

through 13.

Line 1a—Total income per original return or as

previously adjusted. Enter the total income amount as shown

on your original or amended return, or as adjusted by the IRS.

Enter negative amounts in parentheses.

Line1b—Adjustments to income. Enter the amount from

Schedule A, line 2, Total adjustments to income.

Line 2—Corrected income. Enter the total of lines 1a and

1b.

Line 3a—Total deductions per return or as previously

adjusted. Enter the total amount of deductions shown on your

original or amended return, or as adjusted by the IRS.

Line 3b—Adjustments to deductions. Enter the amount

from Schedule A, line 4, Total adjustments to deductions.

Line 4—Corrected deductions. Combine the amount on

line 3b with the amount on line 3a and enter the result.

Line 5—Corrected taxable income. Subtract line 4 from

line 2 and enter the result. This should be the corrected taxable

income. If, as a result of changes in tax attributes, corrected

taxable income is different from the result obtained by

subtracting line 4 from line 2, include a separate statement

showing how the corrected taxable income amount was figured

and enter that corrected amount on line 5.

Line 6—Income tax. Include a separate statement showing

how the corrected income tax was figured and enter that

corrected income tax on line 6. See the Instructions for Form

1040 or the instructions for your income tax return for the

appropriate year(s).

Line 7—Alternative minimum tax (AMT). If AMT applies,

include a separate statement showing how the corrected AMT,

including the applicable adjustment(s) shown on Schedule A,

was figured and enter the corrected AMT on line 7. See the

Instructions for Form 1040 or the instructions for your income tax

return for the appropriate year(s) to figure the corrected AMT.

Line 8—Total corrected income tax. Enter the sum of lines

6 and 7.

Line 9a—Total credits per return or as previously

adjusted. Enter the total amount of credits shown on your

original or amended return, or as adjusted by the IRS.

Line 9b—Adjustments to credits. Enter the amount from

Schedule A, line 6, Total adjustments to credits.

Line 10—Total corrected credits. Combine the amounts on

lines 9a and 9b and enter the result on line 10.

Line 11—Total corrected income tax liability. Subtract

line 10 from line 8 to obtain the corrected income tax liability.

This amount should not include any non-income taxes. If, as a

result of changes not reflected on a line item on the form or

schedule, corrected income tax liability after credits is different

from the result obtained by subtracting line 10 from line 8,

include a separate statement showing how the corrected liability

was figured and enter that correct amount on line 11.

Line 12—Total tax shown on return or as previously

adjusted. Enter the amount shown on your original or

amended return, or as adjusted by the IRS.

Instructions for Form 8978 (Dec. 2024)

Line 13—Increase/decrease to tax. Subtract the amount

shown on line 12 from the amount on line 11 and enter the result.

Line 14—Total additional reporting year tax. Enter the

sum of line 13, columns (a) through (d). Report this amount on

the appropriate line of your income tax return for the reporting

year.

Line 15. Form 8986, Part V, Applicable Penalties, lists which

penalties, if any, apply and which line items are affected. If

penalties apply, include a statement showing how the penalties

were figured and enter the amount of penalties in the applicable

column(s) of Form 8978. Penalties for each applicable tax year

should be reported on line 15, columns (a) through (d).

Line 17. Interest on any increase in income tax is figured from

the original due date of your income tax return for each tax year

to which an increase in tax is attributable, as determined under

section 6226(b)(3). Interest is computed at the underpayment

rate under section 6621(a)(2), but substituting “five percentage

points” for “three percentage points” for purposes of section

6621(a)(2)(B) (that is, the sum of the federal short-term rate plus

five percentage points instead of three percentage points). For

additional reporting year tax reported as a result of a Form 8986

from an AAR, this substitution is not made. Interest for each

applicable tax year should be reported on line 17, columns (a)

through (d). Attach your interest computation.

Note. Interest should not be calculated on any decreases in tax

on line 13 for a tax year.

Note. Interest on penalties is figured in the same manner as

interest on tax, except it is figured from the due date of the

partner’s return including any valid extensions that were filed by

the partner.

Where to report additional reporting year tax. The total

additional reporting year tax from Form 8978, Part I, line 14, is

reported on the appropriate lines of the partner’s reporting year

return (see the instructions for the applicable reporting year tax

return). The additional penalties and interest should be included

in the net payment calculation for the partner’s reporting tax year

but these are not reported on the partner’s reporting year return

and are not included in the additional reporting year tax. If the

partner of a BBA audited partnership previously made a deposit

to suspend the running of interest on potential underpayments

(under IRC 6603, Rev Proc 2005-18), please include a

statement requesting the payment(s) be applied to the

underpayment. The statement must include the date(s) and

amount(s) of the original deposit(s), the name and TIN of the

BBA partnership under exam, the reviewed year of the BBA

partnership under exam, and the Audit Control Number (ACN) of

the BBA partnership under exam.

Specific Instructions for Schedule A

(Form 8978)

Adjustments. Enter the description of the item that

corresponds to the Schedule K-1 or Schedule K-3 line number

and title, as reflected in columns (a) and (b) of Form 8986, Part

V. For example, if Form 8986, Part V, column (a), shows “1” and

column (b) shows “Ordinary business income,” enter on

Schedule A, Adjustments column, “Schedule K-1, line 1,

Ordinary business income.” For adjustments due to changes in

partner tax attributes, use the description used on the partner’s

return.

Note. Schedule K-3 (Form 1065) adjustments that do not

directly increase or decrease a partner's taxable income should

be reported with a zero amount on Schedule A (Form 8978), with

any corresponding change to the partner's tax attributes, such as

the foreign tax credit, shown as a positive (increase) or negative

(decrease) amount.

Instructions for Form 8978 (Dec. 2024)

Tracking number. If an adjustment is from a Form 8986, the

tracking number column should be completed for that

adjustment line. The tracking number can be found at the top of

the Form 8986. If the tracking number is not on the Form 8986,

use the audit control number at the top of the Form 8986, and if

the audit control number is also blank, enter the tax identification

number of the entity that issued the Form 8986. Leave the

tracking number field blank for all adjustments to partner-level

tax attributes.

Reporting amounts from Form 8986. All adjustments

(positive and negative) from a Form 8986 should be shown as

reported on that form. When entering adjustments from a Form

8986, enter amounts from Form 8986, Part V, column (h), which

reflect the adjustments net of any approved modifications

(column (g) of Form 8986). These amounts should be entered in

the applicable columns (a) through (d) that correspond to the

partner’s affected year. However, if Form 8986 is a result of an

AAR partnership (and not an audited partnership), no

modifications should be shown on Part V, column (g), of that

Form 8986 and no modifications should be reported on

Schedule A.

Schedule A line instructions.

Line 1—Income. Enter all the adjustments individually from

Form 8986, Part V, that affect taxable income. Generally, this

includes adjustments to ordinary income, rental income, interest

income, dividends, royalties, gains and losses, and other

income. Also include related amounts and adjustments not on

Form 8986 that result from changes to partner-level tax attributes

and other items as a result of adjustments from Form 8986.

Line 2—Total adjustments to income. Enter the total of all

adjustments from line 1. Carry the total of each column to the

corresponding column on Form 8978, line 1b.

Line 3—Deductions. Enter all the adjustments individually

from Form 8986, Part V, that affect deductions from income.

Generally, this includes adjustments to separately stated items

such as a section 179 deduction. Also include related amounts

and adjustments not on Form 8986 that result from changes to

partner-level tax attributes as a result of adjustments from Form

8986.

Line 4—Total adjustments to deductions. Enter the total of

all adjustments from line 3. Carry the total of each column to the

corresponding column on Form 8978, line 3b.

Line 5—Credits. Enter all the adjustments individually from

Form 8986, Part V, that affect tax credits. Also include related

amounts and adjustments not on Form 8986 that result from

changes to partner-level tax attributes as a result of adjustments

from Form 8986.

Line 6—Total adjustments to credits. Enter the total of all

adjustments from line 5. Carry the total of each column to the

corresponding column on Form 8978, line 9b.

Inconsistent Positions

If you originally reported an amount for an item inconsistent with

the amount reported to you by the partnership on Schedule K-1

or Schedule K-3, and this same item is included as an

adjustment on the Form 8986 received, you should also include

the amount of inconsistency for that item on Schedule A (Form

8978).

Example 4. Inconsistent position and BBA audit

adjustment. Mary Johnson, a partner and calendar year

taxpayer, received a tax year 2023 Schedule K-1 with $100 of

ordinary business income. If she only reported $70 on her Form

1040 or 1040-SR, she would have taken a $30 inconsistent

position on her Form 1040 or 1040-SR. If she subsequently

receives a Form 8986 for affected tax year 2023, with an audit

adjustment reflecting a $50 increase to the Schedule K-1, line 1,

Ordinary business income amount, she would have two amounts

5

to enter on Schedule A (Form 8978). First, Mary would enter on

line 1a “Schedule K-1, line 1, Ordinary business income” in the

adjustments column and $50 in column (a), which would be

labelled “12/31/2023.” Second, Mary would enter on line 1b

“Inconsistent position previously taken on line 1a item” in the

adjustments column and $30 in column (a). Because she

received a Form 8986 from an audit, Mary must now resolve the

inconsistency with the original Schedule K-1. If she had no other

adjustments, the amount of her total adjustments to income on

line 2 of Schedule A, column (a), would be $80. She would carry

this amount to Form 8978, line 1b, column (a).

Note. A partner’s requirement to treat partnership-related items

consistently applies to adjustments that result from an audited

partnership or an AAR partnership regardless of whether the

partner previously treated the item inconsistently. However,

partners that properly and timely file a subsequent Form 8082,

Notice of Inconsistent Treatment or Administrative Adjustment

Request (AAR), for items that are adjusted as part of an AAR

filing are not required to treat the items on Schedule A (Form

8978) consistent with the partnership’s treatment.

States. You are required to give us the information. We need it to

ensure that you are complying with these laws and to allow us to

figure and collect the right amount of tax.

You are not required to provide the information requested on

a form that is subject to the Paperwork Reduction Act unless the

form displays a valid OMB control number. Books or records

relating to a form or its instructions must be retained as long as

their contents may become material in the administration of any

Internal Revenue law. Generally, tax returns and return

information are confidential, as required by section 6103.

The time needed to complete and file this form will vary

depending on individual circumstances. The estimated burden

for business taxpayers filing this form is approved under OMB

control number 1545-0123 and is included in the estimates

shown in the instructions for their business income tax return.

If you have comments concerning the accuracy of these time

estimates or suggestions for making this form simpler, we would

be happy to hear from you. See the instructions for the tax return

with which this form is filed.

Paperwork Reduction Act Notice. We ask for the information

on this form to carry out the Internal Revenue laws of the United

6

Instructions for Form 8978 (Dec. 2024)