# Instructions for Form 8985

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## Record

- **Collection:** Agency decision
- **Document type:** Agency decision

## Text

Instructions for Form 8985
and Form 8985-V
(Rev. December 2024)

Pass-Through Statement—Transmittal/Partnership Adjustment Tracking Report
(Required Under Sections 6226 and 6227)
Contents

Page

Reminders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Purpose of Form . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
General Instructions . . . . . . . . . . . . . . . . . . . . . . . . . 2
Who Should Prepare Form 8985 . . . . . . . . . . . . . 2
Who Must Sign Form 8985 . . . . . . . . . . . . . . . . . 2
Where To Submit Form 8985 . . . . . . . . . . . . . . . . 2
Due Dates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Pass-Through Partners That Make a Payment . . . . 3
Pass-Through Partners That Push Out
Adjustments to Their Partners . . . . . . . . . . . . . 4
Specific Instructions . . . . . . . . . . . . . . . . . . . . . . . . . 4
Part I—Information About Entity Submitting
This Form . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Part II—Information About the Audited
Partnership or the Partnership That Filed
an AAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Part III—Information About the Pass-Through
Partner Submitting This Form 8985 . . . . . . . . . 5
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Part IV—Partners’ Total Reviewed Year
Income, Gain, Loss, Deduction, Credits,
and Other Items . . . . . . . . . . . . . . . . . . . . . . . 5
Part IV—Applicable Penalties . . . . . . . . . . . . . . . 6
Part V—Statements . . . . . . . . . . . . . . . . . . . . . . 6
Instructions for Form 8985-V (Tax Payment by a
Pass-Through Partner) . . . . . . . . . . . . . . . . . . . . 8
Purpose of Form 8985-V . . . . . . . . . . . . . . . . . . . 8
Specific Instructions for Form 8985-V . . . . . . . . . . 8
Where To Submit Form 8985-V . . . . . . . . . . . . . . 8
Section references are to the Internal Revenue Code unless
otherwise noted.

Future Developments

For the latest information about developments related to Forms
8985 and 8985-V and their instructions, such as legislation
enacted after they were published, go to IRS.gov/Form8985.

What’s New

The column headings in Part IV have been changed, and an "as
corrected" column has been added. These columns require
different figures than the Part IV columns in the previous revision
of Form 8985. See Part IV; columns (f), (g), and (h).

Reminders

This revision of the Instructions for Form 8985 includes an
update on using the Part V statements section for making a
correction to the amounts reported in Part IV. See Part V
Statements.

Dec 11, 2024

Purpose of Form

Form 8985 is used to summarize and transmit Forms 8986,
Partner's Share of Adjustment(s) to Partnership-Related Item(s),
by an audited partnership, administrative adjustment request
(AAR) partnership, or pass-through partner. Form 8985 is also
used to report payment made and related calculations by a
pass-through partner.
Form 8985-V is used by a pass-through partner to submit a
tax payment related to a BBA exam or BBA AAR.

Definitions

AAR partnership is a BBA partnership (see below) which has
filed an AAR under section 6227.
AAR partnership’s adjustment year is the partnership tax year
that includes the date the AAR was filed with the IRS.
Affected partner is a partner that held an interest in the
pass-through partner entity at any time during the tax year of the
pass-through partner to which the adjustments in the statement
relate.
Audited partnership, for purposes of Form 8985, is a BBA
partnership that made the election under section 6226 to have its
partners report their share of adjustments to partnership-related
items.
Audited partnership’s adjustment year is the year that
includes the date the court decision became final, if the
partnership filed a petition under section 6234. Otherwise, it is
the year that includes the date the final partnership adjustment
(FPA) letter was mailed, or the FPA waiver was executed by the
IRS.This revision of the Instructions for Form 8985 includes an
update on using the Part V statements section for making a
correction to the amounts reported in Part IV. See Part V
Statements.
Adjustments that do not result in an IU. A partnership
adjustment does not result in an imputed underpayment (IU) if
the result of netting with respect to any grouping or subgrouping
that includes the particular partnership adjustment is zero or less
than zero. Adjustments do not result in an IU if the calculation of
the IU on those adjustments results in an amount that is zero or
less than zero. Any adjustment to an item which is not a
monetary item (for example, an election made by the
partnership) is an adjustment that does not result in an IU.
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). The
BBA is generally effective for tax years beginning on or after
January 1, 2018.
Designated individual (DI) is the individual through whom an
entity partnership representative acts.
Extended due date of the partnership’s adjustment year
return is, for purposes of Form 8985, the extended due date of
the AAR or audited partnership’s adjustment year return
regardless of whether the partnership is required to file a return
for the adjustment year or timely filed a request for an extension.

Instructions for Form 8985 (Rev. 12-2024) Catalog Number 69666K
Department of the Treasury Internal Revenue Service www.irs.gov

Finally determined. The partnership adjustment(s) become
finally determined upon the expiration of the time to file a petition
under section 6234 or, if a petition is filed under section 6234,
the date when the court’s decision becomes final or the date the
closing agreement is entered into between the IRS and the
partnership. The court decision becomes final at the date the
opportunity to appeal has passed as determined under section
7481.
First affected year is the partner’s tax year that includes the
end of the audited or AAR partnership’s reviewed year(s). Each
reviewed year of an audited partnership should have a
corresponding first affected year for each partner.
Imputed underpayment (IU) is the amount determined under
sections 6225, 6226, and 6227, and the regulations thereunder.
Partnership representative (PR) is the person designated by
the partnership or by the IRS under section 6223 and the
regulations thereunder to act on behalf of a BBA partnership.
Pass-through partner is a pass-through entity that holds an
interest, either directly or indirectly, in a partnership.
Pass-through entities include partnerships, S corporations,
trusts, and decedents’ estates. For purposes of Form 8985, a
pass-through entity is not a wholly owned entity disregarded as
separate from its owner for federal tax purposes or a trust that is
wholly owned by only one person.
Pass-through partner’s tax year end to which the
adjustments relate is the end of the pass-through partner's tax
year which includes the audited or AAR partnership’s reviewed
year end date.
Note. An entity partner can be both a non-pass-through partner
and a pass-through partner. To the extent the adjustments an
entity partner received on a Form 8986 relate to items that are
taxable at the entity level, it is considered a non-pass-through
partner. 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 AAR or audited partnership furnished the Forms 8986,
Partner’s Share of Adjustment(s) to Partnership-Related Item(s),
to its partners.
Reviewed year is the AAR or audited partnership’s tax year to
which the partnership adjustment(s) relates.
Reviewed year adjustments are adjustments originating from
the AAR or audited partnership’s reviewed year(s).
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.

General Instructions
Who Should Prepare Form 8985

The following persons or entities should prepare Form 8985.
• Audited partnerships that have made an election under
section 6226.
• Direct or indirect pass-through partners that receive a Form
8986 related to an AAR or audited partnership, regardless of
whether they furnish statements to their partners or choose to
pay in lieu of furnishing statements to their partners.
• Partnerships that file an AAR under section 6227 and either
elect to push out the resulting adjustments to their partners or
have adjustments that do not result in an IU.

Who Must Sign Form 8985

If prepared by an audited partnership or an AAR partnership,
Form 8985 should be signed by the authorized PR or DI for the
reviewed tax year. If prepared by a pass-through partner, Form
8985 should be signed by an individual who has the authority to
sign the partner’s information return. If the pass-through partner
is a BBA partnership, this should be signed by the pass-through
partner’s PR or DI for the first affected year.

2

Special instructions for pass-through partners. If the PR or
DI shown on the pass-through partner's first affected year tax
return has changed or you would like to make a change, submit a
Form 8979 authorizing the change. If the Form 8985 you are
submitting is related to an AAR filing, the Form 8979 should be
included with the Form 8985. However, if the Form 8985 is
related to a BBA audit, fax the Form 8979 separately to
888-981-6982, and in Part V of the Form 8985 (which must be
submitted electronically) include a statement indicating that the
PR or DI has changed and the date the Form 8979 was faxed.
Special instructions for a BBA partnership making a push
out election as a result of an examination. If a BBA
partnership makes a push out election, and the PR or DI for the
reviewed year has changed or you would like to make a change,
submit Form 8979 by attaching it to the push out election, Form
8988 (which must be submitted electronically). If the PR or DI for
the reviewed year changes between the time the push out
election is made and when the Form 8985 is submitted, fax the
Form 8979 separately to 888-981-6982, and in Part V of the
Form 8985 (which must be submitted electronically) include a
statement indicating that the PR or DI has changed and the date
the Form 8979 was faxed.

Where To Submit Form 8985
Audited partnerships and pass-through partners of audited partnerships. Section 6241(10) gives the IRS authority to
require electronic submission of anything required to be filed or
submitted under section 6226(a). Audited BBA partnerships and
their pass-through partners are required to submit Forms 8985
and 8986 electronically. See IRS.gov/BBAeSubmit for steps
required to register and submit electronically.
AAR partnerships. AAR partnerships that are electing to push
out adjustments to their partners or have adjustments that do not
result in an IU must include Form 8985 with their AAR along with
Forms 8986. The Forms 8985 and 8986 must be filed with, and
in the same manner as, the AAR.
Pass-through partners of an AAR partnership. Pass-through
partners of an AAR partnership must submit Form 8985 to the
IRS by fax at 888-981-6982, with or without Forms 8986, as
applicable. This fax number is not for general use. Taxpayers
should not use this for anything besides Forms 8985 and 8986.
Illegible or other submissions received at this fax number will not
be processed. If the 8985/8986 package is over 100 pages, it
must be printed and mailed. For more information, see the
submission chart at File an administrative adjustment request
under Bipartisan Budget Act of 2015 (BBA)

Due Dates
Audited partnerships. An audited partnership that has made
an election under section 6226 must submit Form 8985 and the
related Forms 8986 to the IRS no later than 60 days after the
date on which the partnership adjustments are finally
determined. Failure to submit Forms 8986 by the due date may
result in the audited partnership being liable for the IU.
An audited partnership can submit corrected Forms 8985 and
the related corrected Forms 8986 within 60 days of the due date
for the initially submitted forms without IRS permission. If
corrected statements need to be submitted after the 60-day
correction period, the audited partnership must contact the IRS
for permission to submit.
AAR partnerships. An AAR partnership that either elects to
push out the resulting adjustments to its partners or has
adjustments that do not result in an IU must include Forms 8985
and the related Forms 8986 with its AAR.

Instructions for Form 8985 (December 2024)

Pass-through partners. Direct and indirect pass-through
partners must submit Form 8985 by the extended due date of the
audited partnership’s adjustment year return (or the extended
due date of the AAR partnership’s adjustment year return). This
date can be found in Part II, item F, of the Form 8986 that was
received by the pass-through partner. Failure to submit by the
due date may result in a penalty. A pass-through partner who
receives a Form 8986 related to an audited partnership can
submit a corrected Form 8985 and the related Forms 8986, if
applicable, within 60 days of the due date for the initially
submitted forms without IRS permission. If corrected Forms
8985 need to be submitted after the 60-day correction period,
the pass-through partner must contact the IRS for permission to
submit.

Pass-Through Partners That Make a Payment

If a pass-through partner receives a Form 8986 as a result of an
audited partnership, it can take into account the adjustments
reflected in the Form 8986 by paying the IU, including all
applicable penalties and interest, and submitting Form 8985 by
the extended due date of the audited partnership’s adjustment
year return. A pass-through partner that chooses to pay an IU
should not issue related Forms 8986 to its partners, with one
exception noted in the next paragraph, but should still complete
Part IV of Form 8985.
If a pass-through partner receives a Form 8986 as a result of
an AAR partnership, it can take into account the adjustments
reflected in the Form 8986 by paying the IU, including all
applicable penalties and interest, and submitting Form 8985 by
the extended due date of the AAR partnership’s adjustment year
return. However, adjustments that do not result in an IU shown
on the Form 8986 that are related to an AAR must be pushed
out.
In Part III, item F, the appropriate box must be checked and
payment information must be reflected. In Part V, include a
statement or statements showing how the IU, penalties, and
interest were figured. See below for how to figure these amounts.
Pass-through partner’s calculation of the IU. If a
pass-through partner chooses to make a payment rather than
push out the adjustments to its partners, payment is figured in
the same manner as an IU is figured under Regulations section
301.6225-1 by treating all the adjustments reflected on the Form
8986 received by the pass-through partner as partnership
adjustments for the first affected year of the pass-through
partner. Any modifications approved by the IRS with respect to
an audited partnership involving partners of the pass-through
partner (which are indirect partners of the audited partnership)
should be taken into account in this calculation. Adjustments that
do not result in an IU are taken into account by the pass-through
partner in the tax year that includes the date of payment.
However, adjustments that do not result in an IU shown on the
Form 8986 that are related to an AAR must be pushed out. A
detailed calculation must be included in Part V of the Form 8985
filed with the IRS. Pass-through partners of an AAR partnership
cannot include modifications in the calculation.
Pass-through partner’s calculation of penalties and interest. Pass-through partners that make a payment must figure
and pay applicable penalties on the amounts due, treating such
amounts as IUs for the pass-through partner’s first affected year.
To find out which penalties apply, pass-through partners should
refer to the penalty sections of Part V of the Form 8986 that they
received.
Pass-through partners that make a payment must pay interest
on the IU (including all applicable penalties) as if the IU was due
on the due date of the return for first affected year. Interest is
figured from the due date of the pass-through partner’s return for
the first affected tax year and is compounded daily until it is paid.
Instructions for Form 8985 (December 2024)

The interest on the penalties is also figured from the same due
date unless the pass-through partner filed for an extension in the
first affected year, in which case it should be figured from that
date. The interest is figured at the underpayment rate under
section 6621(a)(2), but substituting “five percentage points” for
“three percentage points.” Pass-through partners that are making
a payment as part of an AAR should use the rate under section
6621(a)(2) without making this substitution.
Example calculation of amount due, penalty, and interest
by pass-through partner. On October 12, 2027, MJ, an
audited partnership, timely furnishes Forms 8986 to its partners
and submits them to the IRS. The Forms 8986 reflect the
partners’ share of partnership adjustments as finally determined
in the FPA it received from the IRS for reviewed year ending
December 31, 2024. The Forms 8986 sent to partners M (an
individual) and J (a partnership) each reflect a partnership
adjustment of $100,000 to ordinary income. The statements also
indicate that the substantial understatement penalty under
section 6662(d) applies and no modifications were approved.
The extended due date of MJ’s 2027 return is September 15,
2028.
M takes into account her share of the adjustments reflected
on the Form 8986 furnished by MJ on her reporting year 2027
individual tax return by completing and attaching Forms 8978
and 8978 Sch A.
J’s first affected year return was due on March 15, 2025. J did
not file for an extension. Assume the short-term federal interest
rate from March 15, 2025, to April 1, 2028, is 2.5%. J adds 5%
(3% from section 6621; 2% from section 6226) to this rate to
obtain 7.5% as its applicable interest rate which is compounded
daily. Also assume that the highest income tax rate for a U.S.
person as of December 31, 2024, is 37%. On April 1, 2028, J
decides to account for the adjustments by paying an IU and
submitting the Form 8985 to the IRS. J determines that because
the IU exceeds the threshold amount in section 6662(d), the
penalty must be included in its payment. On Form 8985, J
checks box 1 in Part III, item F, figures an IU, and includes a
statement with the calculation details in Part V. J figures the IU,
related penalty, and interest from March 15, 2025, as shown in
the following table.

Example Calculation of Amount Due, Penalty, and
Interest by Pass-Through Partner
Total reviewed year adjustments net
of approved modifications

$100,000

Multiplied by highest income tax rate
in effect on 12/31/2024

37%

Equals IU (additional tax)
Multiplied by penalty rate under
section 6662

$37,000
20%

Equals penalty on IU

$7,400

Total IU and penalty

$44,400

Interest at 7.5% from 03/15/2025 to
04/1/2028 on total IU and penalty

$11,408

Total amount due

$55,808

J makes a payment of $55,808 electronically at IRS.gov and
obtains a confirmation number which it enters in the space
provided in Part III, item F, of Form 8985, along with the amount
of additional tax, penalties, and interest. Since J has accounted
for its share of the audit adjustments by making a payment and
submitting Form 8985, it does not have to issue Forms 8986 to
its partners.
Payments by pass-through partners. Go to IRS.gov/
Payments for payment options. If submitting a check or money
order, use Form 8985-V. See the instructions for Form 8985-V at
the end of these instructions.
3

However you choose to pay, identify your payment by
checking the appropriate box on Form 8985-V.
• Payment submitted by a pass-through partner due to an
audited partnership should be identified as “BBA exam push
out.”
• Payment submitted by a pass-through partner due to an AAR
partnership should be identified as “BBA AAR push out.”

Pass-Through Partners That Push Out
Adjustments to Their Partners

If a pass-through partner pushes out the adjustment(s) to its
partners, it must push out all of the adjustment(s). The
appropriate box must be checked in Part III, item F, of Form
8985. It must also provide Forms 8986 to its partners and to the
IRS by the extended due date of the audited partnership’s (or
AAR partnership’s) adjustment year return. The push out
package submitted to the IRS should include the summary Form
8985 and all related Forms 8986 that were provided to the
partners. See the Instructions for Form 8986.
Note. The audit control number does not apply to partnerships
and pass-through partners submitting Form 8985 as part of an
AAR.

Specific Instructions
Original or corrected (This is a required field). At the top of
Form 8985, check the appropriate box to indicate if it’s an
original or corrected form. A corrected Form 8985 is required in
all situations. If Form 8985 is corrected, it must be submitted with
all of the Forms 8986 originally submitted, including forms that
did not change.
Withholding for foreign partners. A BBA partnership may
have withholding and reporting obligations if it furnishes a Form
8986 to a reviewed year partner that includes an adjustment
subject to withholding under chapter 3 (Withholding of Tax on
Nonresident Aliens and Foreign Corporations) or chapter 4
(Taxes to Enforce Reporting on Certain Foreign Accounts). See
the Instructions for Form 8986 for more information.
Incoming tracking number and outgoing tracking number.
These fields are to be filled out by a BBA partnership or a
pass-through partner of a BBA partnership. The incoming
tracking number is completed by a pass-through partner and is
the tracking number shown on the Form 8986 received by the
pass-through partner. The outgoing tracking number needs to be
completed by a BBA partnership or a pass-through partner of a
BBA partnership that is issuing Forms 8986 to its partners/
owners. A unique outgoing tracking number must be obtained for
each push out package submitted by an audited BBA
partnership or pass-through partner of an audited BBA
partnership. See IRS.gov/BBAeSubmit website for steps
required to register and submit electronically. AAR filers and
related pass-through partners should compute and enter unique
tracking numbers by following the instructions below.
AAR filers and pass-through partners (direct and indirect) of
AAR partnership filers that are electing to push out adjustments
to their partners should compute and complete the tracking
number field as follows:
• For an AAR partnership, the incoming tracking number field
should remain blank. The outgoing tracking number field should
contain eight numbers, and a dash, followed by another six
numbers in the format YYMM1234-0000XX. In the first four digits
enter the year and month the AAR partnership is reporting that
Forms 8986 were sent to its partners (use the same date used in
Form 8985/8986 Part II, G), and in next four digits enter the last
four digits of its EIN (that is, Part II, C). In the final six digits enter
000001 (or 000002 or 000003 and so forth if this is the second or
third AAR filed for the reviewed year).
4

Note. This outgoing tracking number will also be used as the
tracking number on Forms 8986 issued by the AAR partnership
filer to its reviewed year partners.
• For a pass-through partner (direct and indirect) of an AAR
partnership, the tracking number from the Form 8986 it received
is used as the incoming tracking number on Form 8985 in all
cases (whether the pass-through partner elects to pay or push
out). If the pass-through partner is required to push out
adjustments that do not result in an imputed underpayment or if
the pass-through partner elects to push out further to its affected
partners, it should determine and report the outgoing tracking
number using the same numbers before the dash as the tracking
number on the Form 8986 it received (date in 8986 Part II, G and
last four of the EIN Part II, C), and then after the dash, enter the
last four digits of its EIN (EIN in Part III, B), followed by 01 (or 02,
03 and so forth if the pass-through partner received more than
one Form 8986 originating from the same AAR partnership or
same pass-through partner, for example, YYMM1234-0000XX.
Audit control number. Enter the audit control number that is
provided on correspondence with the IRS. Pass-through
partners can locate this number at the top of the Form 8986 they
received.
Note. The audit control number doesn’t apply to partnerships
and pass-through partners submitting Form 8985 as part of an
AAR.

Part I—Information About Entity Submitting This
Form

Item A (This is a required field)—Indicate which entity is
issuing this form by checking the appropriate box.
Item B (This is a required field)—Check the box that
corresponds to the type of return normally filed by the entity
issuing this form. If Other, also indicate the type of return filed on
the line provided.
Item C (This is a required field)—Enter the number of Forms
8986 that are associated with only this Form 8985. Pass-through
partners of an audited BBA partnership that choose to make a
payment instead of issuing Forms 8986 must enter a zero in this
box.
Items D and E (This is a required field)—These fields are to
be filled out only by an audited BBA partnership or a
pass-through partner of an audited BBA partnership. Generally,
box D should be checked, and you should enter 1 of 1 in box E.

Note. Pass-through partners of an audited BBA partnership that
make a payment instead of issuing Forms 8986 will not need to
include any Forms 8986. They should also check box D and
enter 1 of 1 in box E.
Special instructions for audited BBA partnerships or
pass-through partners of audited BBA partnerships with
more than 500 partners submitting push out Forms 8985
and 8986 (batched submission). There is a limitation
regarding the size of files that can be filed electronically in a
single submission. If the submission exceeds that size, the
submission must be split into multiple batches. In this situation,
each batch of Forms 8986 must have an associated Form 8985.
The Form 8985 included in the first batch will be considered the
summary Form 8985, and for this Form 8985, box D should be
checked. In box E, enter 1 of X, with X being the total number of
batches submitted for the outgoing tracking number shown at
the top of the form. In the second batch submitted, do not check
box D; enter 2 of X in box E, and so forth for all subsequent
batches. Each batch must have the same outgoing tracking
number (and incoming tracking number, if applicable).

Instructions for Form 8985 (December 2024)

Part II—Information About the Audited
Partnership or the Partnership That Filed an
AAR

Item A (This is a required field)—On lines 1–6, enter the
name and address of the partnership. In the state field, enter the
two-letter abbreviation for the U.S. state or the full name of the
foreign province. U.S. partnerships leave the country code field
blank. Foreign partnerships enter the country code found at
Foreign Country Codes.
Item B (This is a required field)—On lines 1–7, enter the
name, address, city, in the state field, enter the two-letter
abbreviation for the U.S. state, ZIP code, and phone number of
the PR. If the PR is an entity, provide the name, address, city,
state, ZIP code, and phone number of the DI instead of the
information about the PR.
Item C (This is a required field)—Enter the partnership’s tax
identification number.
Item D (This is a required field)—Enter the tax year end date
of the reviewed year of the partnership. Each reviewed year
should have a separate Form 8985. This form must be
completed for reviewed years that have adjustments related to
an audit or an AAR.
Item E (This is a required field)—Enter the partnership’s
adjustment year ending date.
Item F (This is a required field)—Enter the extended due date
of the partnership’s adjustment year tax return, regardless of
whether the partnership has filed for an extension. For AAR
partnerships, this will be the extended due date of the tax year
the AAR was filed.
Item G (This is a required field)—Enter the date the audited or
AAR partnership furnished the Forms 8986 to its partners.

Part III—Information About the Pass-Through
Partner Submitting This Form 8985

Item A—On lines 1–6, enter the pass-through partner’s name
and address. In the state field, enter the two-letter abbreviation
for the U.S. state or the full name of the foreign province. U.S.
partnerships leave the country code field blank. Foreign
partnerships enter the country code found at Foreign Country
Codes.
Item B—Enter the pass-through partner’s tax identification
number.
Item C—Enter the pass-through partner’s tax year end to which
the adjustments relate.
Item D—Enter the name of the entity that issued the Form 8986
to the pass-through partner, if different from the audited
partnership or AAR partnership in Part II.
Item E—Enter the tax identification number of the entity that
issued the Form 8986 to the pass-through partner, if different
from the audited partnership or AAR partnership in Part II.
Item F—Indicate if the pass-through partner is making a
payment or issuing Forms 8986 to its partners by checking the
appropriate box 1 or 2. If the pass-through partner is making a
payment, a statement must be included in Part V with a detailed
calculation of the IU plus any applicable penalties and interest.
An IU calculation is not needed if pushing out all the
adjustments. If paying electronically, check box 3 and enter the
electronic payment confirmation number in the space provided. If
paying by check or money order, check box 4 and enter the
check number in the space provided.

Signature
Non-electronically submitted forms. If the form is prepared
by an audited partnership or an AAR partnership, the authorized
PR or DI for the reviewed year should sign and date Form 8985.
If the form is prepared by a pass-through partner, it should be
signed and dated by an individual who has the authority to sign
the pass-through partner’s tax return. If the pass-through partner
Instructions for Form 8985 (December 2024)

is a BBA partnership, it should be signed by its PR or DI for the
first affected year.
Electronically submitted forms. For audited BBA
partnerships and pass-through partners of audited BBA
partnerships that electronically submit forms, the PR or DI for the
first affected year e-sign the form by entering their five-digit PIN
in the signature block. The five-digit PIN is the number that is
self-selected during the PBBA Transmitter Control Code (PBBA
TCC) application step as described in the multi-step process for
electronic submission as described on the BBA website,
IRS.gov/BBAeSubmit. The five-digit PIN is a required field.
Name of person signing form (This is a required field).
The typed name of the person signing the form must exactly
match the name entered during the TCC application step for
electronic submission. For example, if the name entered during
the TCC application step is John T. Smith, the typed name on the
form must be John T. Smith, not John Smith, JT Smith, John T
Smith, etc.
Title & Date (This is a required field). Enter your title and
the date the form is being signed.
Telephone number. Enter a daytime telephone number.
Name of entity partnership representative (if applicable).
If the PR is an entity, enter the entity name.

Part IV—Partners’ Total Reviewed Year Income,
Gain, Loss, Deduction, Credits, and Other Items

Note. Adjustments that increase a Schedule K-1/K-3 (Form
1065) item as originally reported, or as corrected, must be
shown as positive numbers. Adjustments that decrease
Schedule K-1 (Form 1065) items should be shown as negative
numbers.
Part IV should include summary figures of the total amounts
of the Forms 8986 that are related to this Form 8985. For audited
partnerships and AAR partnerships, this part should include the
sum of all adjustments included in the Forms 8986 sent to the
partners. For pass-through partners, the amounts in this part
should equal the amounts shown on the Form 8986 that was
received by the pass-through partner. For columns (a)–(c), refer
to the relevant Schedule K-1/K-3 and instructions. See below for
special instructions for changes to Schedule K-2. For each item
that was adjusted, enter the following.
Column (a), Line number (This is a required field)—The
Schedule K-1 line number that was adjusted. If you have
changes to Schedule K-3, enter “K3” (no dash).
Column (b), Line title (This is a required field)—The title of
the Schedule K-1 item that was adjusted. For adjustments to
Schedule K-3 (Form 1065), enter the part, section (if applicable),
line, and column reference.
Column (c), Code (This is a required field)—Enter the code
letters listed in the Schedule K-1 instructions that correspond to
the line number shown in column (a). For adjustments to
Schedule K-3, if applicable, enter the country code. See the
Schedule K-3 instructions. If no specific code applies, enter
“NA.”
Column (d), As reported (This is a required field)—Enter the
original aggregate amount reported to the partners on their
Schedules K-1 or as previously corrected by the partnership.
Column (e), Check if statement in Part V—Check the box in
this column if the item shown in column (a) has a corresponding
statement in Part V. For adjustments to Schedule K-3, enter an
explanation of the adjustment on Part V of Form 8985 with
reference to the entry on Part IV, column (b).
Column (f), Approved modifications (if applicable)—Enter
the total modifications approved by the IRS corresponding to the
line item in column (a). Enter the totals at the bottom of Part IV.
Column (g), Reviewed year adjustments net of approved
modifications (This is a required field)—Enter the total
reviewed year adjustments net of approved modifications (from
5

column (f)). Modifications related to the filing of an AAR should
not be shown in this column. Enter the totals at the bottom of
Part IV.
Column (h), As corrected (This is a required field)—Enter
the amount in column (d) plus the amount in column (g). This is
the total corrected amount. Enter the totals at the bottom of Part
IV.
Loans and other items recharacterized as distributions to
partners. If a reviewed year adjustment has been made to
change a partner loan or other item to a partner distribution, this
adjustment should be reported with the column (a) line number
that corresponds to the Schedule K-1 “Distributions” category
and with column (c) code A for cash distributions if the partner
received money and as a code C if the partner received property
other than money.
Disguised sale adjustments. Distributions to a partner that
were changed as part of an audit proceeding to disguised sale
proceeds under section 707 should be reported with the column
(a) line number that corresponds to the Schedule K-1, Other
category, and with column (c) code DS. The partnership should
also include a statement in Part V describing the asset that was
sold, the proceeds, and the tax basis of the asset at the time of
the contribution.
Special instructions for changes to Schedules K-2 and K-3.
The Form 8985 is a summary of all adjustments on the related
Forms 8986. This is similar to Schedule K-2 with respect to the
related Schedules K-3. Adjustments to the Schedule K-2 should
be reflected on Form 8985 and to the Schedule K-3 on Form
8986.
See the Instructions for the Form 8986 for examples of how
Schedule K-3 adjustments should be reported. The related
Schedule K-2 (summary of Schedule K-3) adjustments should
be reported in the same manner on the Form 8985.

Part IV—Applicable Penalties

The applicability of penalties is determined at the audited
partnership or AAR partnership level. In the penalties section of
Part IV, enter the penalty code sections, descriptions, rates,
adjustment line numbers, and total adjustment amount to which
the penalty applies.

Part V—Statements

The purpose of this part is to provide additional space to add
statements where needed. In general, if a statement was
included to support the original Schedule K, the same statement
should be shown here if any item on that statement changed as
a result of the audit or the AAR filing. This part can also be used
by pass-through partners that choose to calculate and pay an IU,
and for adjustments that do not have a corresponding
Schedule K-1 line number.
Column (a), Line no./code—List the corresponding
Schedule K-1, Part IV, column (a), line number and column (c)
code (if applicable) for each item for which a statement is
included.
Column (b), Statement—Include a detailed explanation of the
amount(s) or calculation(s) that corresponds to the item in
column (a).
Supporting schedules and statements should be in a format
that shows the original amount, the net change, and the correct
amount for each item listed in the statement. If any column (b)

6

statements exceed the space allowable in one box, continue in
the next box with the same information in column (a).
This Part V should also be used if a pass-through partner is
choosing to figure and pay an IU. Pass-through partners that are
choosing to pay an IU should enter “Part III F” in column (a) and
a detailed calculation in column (b). For a change to liabilities or
other balance sheet items, enter "Part IV F" in the line number
field of Part V of the Form 8985 (statements section) and attach
a statement describing the original amounts reported,
adjustments, and corrected aggregate balance sheet items. For
a change to capital accounts, enter "Part IV G" in Part V and
attach a statement describing the aggregate original amounts
reported, adjustments, and corrected amounts.
Statements related to section 199A information.
Adjustments that increase or decrease section 199A information
reported to the partners must be shown in a separate statement
for each trade or business or each aggregated trade or business.
Partnerships may aggregate trades or businesses for purposes
of computing QBI, UBIA, and W-2 wages. The choice to
aggregate must be made on an originally filed tax return. See
below for an example of the information that should be included
in Part V of the Form 8985. These figures should reflect the
aggregate amount of section 199A items reported separately to
the partners on Forms 8986.
Note. Section 199A dividends are reported as a cumulative
amount and not per qualified trade or business. These should
only be included once in the first section 199A statement
attached to Form 8985, regardless of how many statements may
be necessary.
Each trade or business should indicate if it is a publicly traded
partnership (PTP), aggregated, or specified service trade or
business (SSTB). See the Instructions for Schedule K-1 (Form
1065) or the Instructions for Schedule K-1 (Form 1120-S).
If the partnership is a patron of a specified agricultural or
horticultural cooperative, the partnership must also include a
statement for each trade or business identifying the
adjustment(s) to qualified items of income, gain, deduction, and
loss and W-2 wages allocable to qualified payments. Section
199A(g) deductions are reported as a cumulative amount and
not per qualified trade or business. These should only be
included once in the first statement of adjustments to items
allocable to qualified payments attached to Form 8985,
regardless of how many statements may be necessary.
Balance sheet adjustments. Any adjustments to balance
sheet items (including changes to the type of a liability between
recourse and nonrecourse) made as a result of a BBA audit
should be shown in a separate statement in Part V using a
per-return, adjustment, and corrected amount format.

Examples
Example 1—Push out of section 199A-related audit
adjustments. Assume partnership ABC has one trade or
business that is an SSTB and is not a patron in a specified
agricultural or horticultural cooperative. On its filed return,
partnership ABC reported the items shown in Example 1.
Section 199A Related Amounts Generated by the Partnership as
a summary of all the section 199A related amounts generated by
the partnership.

Instructions for Form 8985 (December 2024)

Example 1. Section 199A Related Amounts Generated by the Partnership
EIN:

PTP
Aggregated
■ SSTB

Summary of section 199A items before audit adjustments:
QBI or qualified PTP items subject to partner-specific determinations:
Ordinary business income (loss)

$400,000

Rental income (loss)

$20,000

Royalty income (loss)
Section 1231 gain (loss)

$100,000

Other deductions

$160,000

W-2 wages

$100,000

UBIA of qualified property

$120,000

Section 199A dividends

$10,000

Assume the adjustments per audit increased ordinary income
by $20,000 and royalty income by $10,000, and decreased other
deductions by $40,000. Assume that all of the adjustments are
determined to be qualified items of income, gain, deduction, and

loss at the partnership level. Partnership ABC should include in
Part V of the Form 8985 the information shown in Example 1,
Part V of Form 8985.

Example 1. Part V of Form 8985
EIN:

As Reported

Summary of section 199A items before
audit adjustments:

Net Adjustments

As Corrected

PTP

PTP

Aggregated
■ SSTB

Aggregated
■ SSTB

QBI or qualified PTP items subject to
partner-specific determinations:
Ordinary business income (loss)

$400,000

Rental income (loss)

$20,000

Royalty income (loss)

$20,000

$20,000
$10,000

Section 1231 gain (loss)

$100,000

Other deductions

$160,000

$420,000
$10,000
$100,000

($40,000)

$120,000

W-2 wages

$100,000

$100,000

UBIA of qualified property

$120,000

$120,000

Section 199A dividends

$10,000

$10,000

Example 2—Pass-through partner’s calculation of IU
from Form 8986 received. Assume a pass-through partner
received the adjustments shown in Example 2, Part V of Form

8986 on a Form 8986 that showed its share of adjustments from
an audit.

Example 2. Part V of Form 8986
(a)
Line
number

(b)
Line title

(c)
Code*

(d)
As reported

(e)
Check If
statement
in Part VI

(g)
Reviewed year adjustments net of
approved modifications

1

Ordinary Income—Increase

$ 50,000

$100,000

13

Other Deductions—Decrease

$100,000

–$50,000

9a

Long-Term Capital
Gains—Decrease

$25,000

–$20,000

15

Line 15a, LIH Credit—Decrease

$3,000

–$2,000

15

Line 15e, Rental
Credits—Increase

$0

$1,000

The pass-through partner should figure an IU for these
adjustments as shown in Example 2. Worksheet for
Pass-Through Partner IU Calculation.
Instructions for Form 8985 (December 2024)

7

Example 2. Worksheet for Pass-Through Partner IU Calculation
Adjustments by Subgroup

Description

Ordinary Income, Schedule K-1, Line 1

Increase to Income

$100,000

Other Deductions, Line 13

Decrease to Other Deductions

$50,000

Long-Term Capital Gains,
Schedule K-1, Line 9a

Decrease to Long-Term Capital Gains

Adjustments Before Credits

Adjustments
that did not
result in an IU

–$20,000
$150,000

Applicable Tax Rate

37%

IU amount before credits

$55,500

Low Inc. Housing Credit, Schedule K-1,
Line 15a

Decrease to LIH Credits

Other Rental Credits, Schedule K-1,
Line 15e

Increase to Other Rental Credits

Total Adjustments to Credits
Adjustments to Creditable Expenditures
IU

Note. For the purposes of the Forms 8985 and 8986, increases
and (decreases) to the item as reported are reflected as
increases or (decreases) on the form. However, for the purposes
of the IU calculation, an adjustment is shown as a positive
amount if it would increase the income tax of any taxpayer, and
as a negative or an amount that not did not result in an IU if it
decreases tax. Any adjustment to a balance sheet item is treated
as a positive adjustment. Also note that separate Schedule K-1
line items are in separate subgroups that should not be netted
for the purposes of the calculation. See above for how
pass-through partners should report amounts that did not result
in an IU.

Special Instructions for Changes to
Schedule K-2 or Schedule K-3 (Form 1065)

Form 8985 is a summary of all adjustments on the related Forms
8986. This is similar to Schedule K-2 with respect to the related
Schedules K-3. Adjustments to Schedule K-2 should be
reflected on Form 8985 and adjustments to Schedule K-3 should
be reflected on Form 8986.
See the Instructions for the Form 8986 for examples of how
Schedule K-3 adjustments should be reported. The related
Schedule K-2 (summary of Schedules K-3) adjustments should
be reported in the same manner on Form 8985.

Instructions for Form 8985-V (Tax
Payment by a Pass-Through Partner)
Purpose of Form 8985-V

When paying an imputed underpayment as discussed in
Pass-Through Partners That Make a Payment, above, Form
8985-V should be included with a check or money order
submitted as payment made by a direct or indirect pass-through
partner of an audited partnership or an AAR partnership.

Specific Instructions for Form 8985-V

Type of payment—Check the appropriate box in the upper left
of Form 8985-V to indicate the type of payment being made. This
information can be found in Part I, item A, of Form 8985. If box 2
of Form 8985, Part I, item A, is checked, select “BBA exam push
out.” If box 4 is checked, select “BBA AAR push out.”
8

Positive
Adjustments

$2,000
–$1,000
$2,000
$0
$57,500

Payment due date—Enter the date shown in the corresponding
Form 8985, Part II, item F.
Imputed underpayment, penalties, and interest—Enter the
amounts shown on the Form 8985, Part III, item F, for additional
tax, penalties, and interest.
Amount you are paying—Enter the total that you are paying of
the additional tax, penalties, and interest from Form 8985, Part
III, item F.
Name of pass-through partner—Enter the name shown on
Form 8985, Part III, item A.
Pass-through partner’s applicable tax year ending date—
Enter the date shown on Form 8985, Part III, item C.
Audit control number—Enter the number, if any, shown at the
top of Form 8985. If this payment is related to an AAR, enter the
incoming tracking number from the Form 8985.
Partner’s TIN—Enter the partner’s tax identification number
from Form 8985, Part III, item B.
Type of return filed—Check the box that corresponds to the
box that is checked in Part I, item B, of Form 8985.
Address, city, state, ZIP code, and foreign country—Enter
the information shown on Form 8985, Part III, item A.
Partner’s representative—Enter the name and phone number
of the individual who signed Form 8985.

Where To Submit Form 8985-V

Mail Form 8985-V along with your check or money order to:
Department of the Treasury
Internal Revenue Service
Ogden, UT 84201-0011
Checks and money orders should be made payable to
“United States Treasury.”
Paperwork Reduction Act Notice. We ask for the information
on this form to carry out the Internal Revenue laws of the United
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
Instructions for Form 8985 (December 2024)

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.

Instructions for Form 8985 (December 2024)

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.

9

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Airs%3A95b69240ebbe5669. Public record. Not legal advice.