What modification does and does not do
IRC 6225(c) directs the IRS to establish procedures to modify the imputed underpayment, and IRC 6225(c)(9) extends modification to adjustments that do not result in an IU. Treas. Reg. 301.6225-2(b)(1) is precise about the effect: “A modification under this section has no effect on the amount of any partnership adjustment determined under subchapter C of chapter 63”. Modification changes how adjustments factor into the IU, the rate applied, and the number and composition of IUs. It does not reopen the merits. The IRS's audit page makes the same point for Appeals: examination adjustments cannot be disputed at the modification stage.
Only the PR may request modification, and only after a NOPPA. The IRS approves modifications; nothing is automatic (IRC 6225(c)(8)). When several types are approved, they apply in order: adjustments excluded from the IU first, then number and composition, then rate (Treas. Reg. 301.6225-2(b)(1)).
Types of modification
BBA Operations' list in IRM 4.31.13.8 tracks the regulation:
| Type | Authority | Effect | Related form |
|---|---|---|---|
| Partner modification amended returns (PMAR) | IRC 6225(c)(2)(A) | Adjustments taken into account by the partner come out of the IU | Form 8982 affidavit |
| Partner alternative procedure (PAP, pull-in) | IRC 6225(c)(2)(B) | Same, without amended returns | Form 8982 |
| Tax-exempt partners | IRC 6225(c)(3) | Portion allocable to a tax-exempt entity under IRC 168(h)(2) excluded | Form 8983 |
| Rate modification | IRC 6225(c)(4) | Lower rate for C corporation partners, and for individuals on capital gain or qualified dividends | None required |
| Specified passive activity losses of PTPs | IRC 6225(c)(5) | Portion offset by a specified partner's suspended passive loss excluded | Form 15028 (pre-approval) |
| Number and composition of IUs | Treas. Reg. 301.6225-2(d)(6) | Changes groupings, subgroupings, or creates specific IUs | None required |
| Qualified investment entity partners | Treas. Reg. 301.6225-2(d)(7) | Approved adjustments excluded from the IU | See Pub. 5346 |
| Closing agreements | Treas. Reg. 301.6225-2(d)(8) | Adjustments taken into account under a section 7121 closing agreement, with required payment, are excluded | Closing agreement |
| Tax treaty modifications | Treas. Reg. 301.6225-2(d)(9) | Share of a partner that qualified for a treaty reduction or exemption in the reviewed year; may exclude the adjustment or lower the rate | See Pub. 5346 |
| Other modifications | IRC 6225(c)(6); Treas. Reg. 301.6225-2(d)(10) | As the IRS determines accurate and appropriate | See Pub. 5346 |
Partner amended returns and the alternative procedure
The most common modification has relevant partners (reviewed-year partners or indirect partners) take their share of every adjustment onto their own returns. Treas. Reg. 301.6225-2(d)(2) requires:
- All adjustments. The partner must take into account all partnership adjustments properly allocable to it, not just the favorable ones, plus the effect on tax attributes.
- All years. Amended returns for the first affected year (the partner's year that includes the end of the reviewed year) and every modification year whose attributes change.
- Full payment. The request will not be approved unless the partner “has paid all tax, penalties, additions to tax, additional amounts, and interest due as a result of taking into account all partnership adjustments in the first affected year” and the modification years at the time the return is filed.
- Reallocations. If an adjustment reallocates an item between partners, all affected partners generally must participate (IRC 6225(c)(2)(C)), although the IRS can accept other approved modifications for those who do not.
The partner signs Form 8982, which the PR submits with Form 8980. Under the alternative procedure the partner pays and provides the information without filing amended returns. IRC 6225(c)(2)(D) provides that sections 6501 and 6511 do not apply to these returns and payments, so a closed partner year is not a bar, and IRC 6225(c)(2)(E) makes the resulting attribute adjustments binding in later years. Partner payments are designated “Partner Payment for BBA Modification” (IRM 5.19.27.2).
Tiered structures can participate. IRC 6225(c)(2)(F) lets a relevant partner up the chain use amended returns if the required information is furnished and, to the extent the IRS requires, each partnership in the chain also complies. Partnership-partners file their modification amended returns on Form 1065-X (Form 1065-X instructions).
The PR must give each relevant partner its share of every proposed adjustment from the NOPPA, including adjustments that did not produce an IU, with grouping and subgrouping information (Pub. 5346). A partner who cannot see the full picture cannot file a compliant PMAR, and an incomplete PMAR is grounds for denial.
Tax-exempt, rate and other modifications
Tax-exempt partners. The IU excludes the portion the partnership shows is allocable to a partner that would not owe tax because it is a tax-exempt entity under IRC 168(h)(2) (IRC 6225(c)(3)). The partner certifies its status on Form 8983. Unrelated business income questions for that partner remain the partner's own issue.
Rate modification. IRC 6225(c)(4) allows a lower rate for the portion allocable to a C corporation or, for capital gain or qualified dividends, to an individual (an S corporation is treated as an individual). The lower rate cannot be less than the highest rate for that income and taxpayer type. Where partners' shares differ across adjusted items, the share is determined by a hypothetical sale of all assets at fair market value at the end of the reviewed year (IRC 6225(c)(4)(B)(ii)).
Number and composition. A request to subgroup or net differently, or to isolate adjustments in a specific IU, is made as a modification. The IRM notes that requests must be backed by facts, such as partner-level information showing a negative adjustment is not actually limited for any partner.
Timing, forms and electronic submission
The statute sets the window: everything must be submitted “not later than the close of the 270-day period beginning on the date on which the notice of a proposed partnership adjustment is mailed under section 6231 unless such period is extended with the consent of the Secretary.” The NOPPA letters show the expiration date. Pub. 5346 and IRM 4.31.13 describe the forms:
| Form | Use |
|---|---|
| Form 8980 | The modification request; one per reviewed year; signed by the PR |
| Form 8982 | Partner affidavit for PMAR or the alternative procedure |
| Form 8983 | Certification of tax-exempt status |
| Form 8984 | Extension of the 270-day period; must be submitted and countersigned before it expires |
| Form 8981 | Waiver of the rest of the 270-day period so the IRS can act and issue the FPA sooner |
| Form 15028 | PTP certification for passive loss modification; requires IRS pre-approval |
IRC 6241(10) lets the IRS require electronic filing, and Pub. 5346 directs that Form 8980 and related forms be submitted through the BBA online form submission service as completed fillable PDFs, not printed and scanned. IRM 4.31.13.2 says items sent by fax are rejected back for portal submission if time allows. Use the current form revisions; earlier versions are rejected.
Be careful with Form 8981. BBA Operations reviews any pending Form 8980 before countersigning a waiver because, per IRM 4.31.13.8, “Once the Form 8981 is accepted there can be no further modifications filed for AP tax year.” A countersigned Form 8981 also resets the IRC 6235(a)(2) date to the countersignature date plus 270 days (IRM 4.31.13.5.1).
The adjustment period stays open while the IRS evaluates a request: IRC 6235(a)(2) runs to 270 days after everything required is submitted, plus any extension. See the BBA adjustment period.
How the IRS decides
A revenue agent in BBA Operations reviews the request, solicits corrections, and enters approvals and disallowances in the IUA calculator, which produces a modified IU on Form 15027 (IRM 4.31.13.8.1 and 4.31.13.8.2). The burden is on the partnership. The regulation states “The IRS will deny a request for modification if a partnership fails to provide information the IRS determines is necessary to substantiate a request for modification”, and the same applies if any person fails to make a required payment in time. Notice of approval comes only after all information and payments are received within the period.
The determination package is Letter 5975, Form 15027 and Form 14726 (waiver of the FPA). “The PR has 10 days from the issuance date of Letter 5975 to respond.” If the PR signs both Form 15027 and Form 14726, the IRS countersigns and the case closes as agreed, with no FPA. If the PR does not respond, BBA Operations prepares the FPA (IRM 4.31.13.8.2).
Disagreeing with the determination
A PR who disagrees can ask for a pre-Appeals conference with the BBA team manager and revenue agent, limited to the requested modifications and Form 15027. “The adjustment to PRIs cannot be appealed at this stage.” If the dispute continues, the case goes to Appeals only if at least one year remains on the IRC 6235(a)(2) date; otherwise the PR must sign Form 872-M or the IRS issues the FPA (IRM 4.31.13.9.3.1). Appeals hears the modification dispute once and does not revisit substantive issues it already considered (IRM 8.19.14.2.6). See BBA cases in Appeals and Tax Court. A modification the IRS did not approve can also be raised in a Tax Court petition; Tax Court Rule 255.2(b) requires the petition to state each proposed modification to which the Commissioner did not consent.
Modification on an AAR
A partnership that pays an IU on an administrative adjustment request can apply some modifications by attaching Form 8980 to the AAR. Pub. 5346 lists what is allowed (tax-exempt partners, rate, PTP passive losses, grouping limitations, qualified investment entities, treaty exemptions, other) and what is not: “Modifications for partner amended returns, partner alternative procedure, and closing agreements are not permitted in an AAR.” If the AAR elects push-out, modifications are disregarded. See administrative adjustment requests.
Questions practitioners ask
When does the 270-day modification window start?
On the date the NOPPA is mailed under IRC 6231. The NOPPA letter shows the expiration date. The period can be extended on Form 8984, but the extension must be requested and countersigned before the 270 days run out.
Can a partner file a modification amended return for a closed year?
Yes. IRC 6225(c)(2)(D) says sections 6501 and 6511 do not apply to returns filed and amounts paid for modification. The partner must take into account all allocable adjustments and pay all tax, penalties and interest with the return.
Can we use modification to argue the adjustments are wrong?
No. A modification has no effect on the amount of any partnership adjustment. The merits are argued at Appeals before the NOPPA or in court after the FPA; at the modification stage, Appeals considers only the modification determination.
Do we have to file Form 8980 on paper?
No. Pub. 5346 directs electronic submission of Form 8980 and related forms through the BBA online portal using the fillable PDFs. AARs with Form 8980 attached are filed with the AAR instead.
What if the IRS approves only part of the request?
Form 15027 shows the approved modifications and modified IU. The PR can agree within 10 days of Letter 5975, request a pre-Appeals conference, or let the FPA issue and then elect push-out or petition.