What the election does
If the partnership elects under IRC 6226 and furnishes the required statements, “section 6225 shall not apply with respect to such underpayment (and no assessment of tax, levy, or proceeding in any court for the collection of such underpayment shall be made against such partnership)”. Each reviewed-year partner takes its share of the adjustments into account in its own tax year that includes the date the statement is furnished. Treas. Reg. 301.6226-1(b)(2) confirms the partnership is no longer liable for the IU to which the election applies.
The economic effect is to move the tax from the partnership, and indirectly from adjustment-year partners, to the people who were partners in the reviewed year. Appeals guidance describes push-out as an election that “effectively moves the payment of tax from the partnership (and indirectly from the adjustment-year partners) to the reviewed-year partners.”
If an FPA contains more than one IU, the partnership can elect for one or more of them (Treas. Reg. 301.6226-1(a)). Adjustments that do not result in an IU but are associated with a pushed-out IU must also be pushed out, rather than reported on the partnership's adjustment-year return (IRM 4.31.9.9.2.10).
When it is available
Push-out follows an FPA. The IRS's audit page states that a push-out election “may only be made if there is an IU on the FPA. The election can only be made after the FPA has been issued.” If the exam produces only adjustments that do not result in an IU, push-out cannot be elected and the partnership reports them in the adjustment year.
The election does not require agreement. Letters 5933 and 5933-A tell the partnership it can elect regardless of whether it agrees with the adjustments, and “A petition may be filed even if an alternative payment election under IRC 6226 has been made.” (IRM 8.19.14.7.2). Partnerships filing an AAR have a parallel election under IRC 6227(b)(2), covered on administrative adjustment requests.
Making the election on Form 8988
The deadline is fixed: “An election under this section must be filed within 45 days of the date the FPA is mailed by the IRS. The time for filing such an election may not be extended.” (Treas. Reg. 301.6226-1(c)(2)). The FPA letters show the last day. The PR signs Form 8988 and submits it electronically through the BBA online portal. Under Treas. Reg. 301.6226-1(c)(3)(ii) the election must include:
- the partnership's name, address and TIN, and the taxable year;
- a copy of the FPA;
- which IU the election covers, if the FPA has more than one;
- the name and TIN of each reviewed-year partner; and
- each reviewed-year partner's current or last known address.
A reviewed-year partner is anyone who held an interest at any time during the reviewed year, so partners who sold out years ago must be listed. BBA Operations reviews the election within 5 business days, matches partner names to TINs on IDRS, verifies the signature, and countersigns, then sends Letter 5931 (IRM 4.31.13.11.1). If the PR changed, a Form 8979 can be attached to the Form 8988.
The IRS's audit page instructs: “You must wait to receive the countersigned Form 8988 before you can submit the push out forms (Forms 8985 and 8986).” If the countersigned form has not arrived within 20 days, the page points to the electronic submission instructions for contact information.
Furnishing and filing Forms 8986 and 8985
Treas. Reg. 301.6226-2(b) requires the statements to be furnished to reviewed-year partners no later than 60 days after the adjustments are finally determined: the end of the 90-day petition period if no petition is filed, or the date a court decision becomes final. The same 60-day deadline applies to electronically filing the statements with the IRS with a Form 8985 transmittal (Treas. Reg. 301.6226-2(c)). The IRS's page is direct: “The 60-day submission period cannot be extended. If the statements to partners are not submitted within the 60-day period, BBA Operations will invalidate the push out election, and the partnership will be liable for the IU amount.”
Use the December 2024 revisions of Forms 8985 and 8986, whose Part IV and Part V columns changed. Each partner's share follows how the item was originally allocated on the reviewed-year return; an item not reported is allocated under the rules that apply to partnership allocations, including the partnership agreement; and a reallocation follows the adjustment as finally determined. Approved modifications are disregarded in figuring each partner's share (Treas. Reg. 301.6226-2(f)). Statements mailed to a partner go to the current or last address known to the partnership; if one comes back undeliverable, the partnership must use reasonable diligence to find a correct address. Furnishing and filing details, corrections and pass-through partner duties are on Forms 8985 and 8986.
Corrections: an error found within 60 days of the statement due date can be corrected without IRS consent; after that, only with IRS consent (Treas. Reg. 301.6226-2(d)). The statements are information returns for penalty purposes: “A failure to furnish a correct statement in accordance with this section is subject to penalty under section 6722.”
What reviewed-year partners owe
A partner that is not a pass-through entity reports the push-out on Form 8978, Partner's Additional Reporting Year Tax, attached to the return for its reporting year: the year that includes the date the audited partnership furnished the Form 8986. Under IRC 6226(b) and Treas. Reg. 301.6226-3, the partner's chapter 1 tax for the reporting year is increased (or decreased) by the aggregate of correction amounts:
- the change in tax for the first affected year (the partner's year that includes the end of the reviewed year), computed by taking its share of the adjustments into account; plus
- the change in tax for each intervening year caused by adjusted tax attributes such as carryovers and basis.
Interest runs at the partner level from the due date of the return for each year to which an increase is attributable, at the IRC 6621(a)(2) underpayment rate computed with 5 percentage points instead of 3 (IRC 6226(c)(2)). That higher rate is the main cost of pushing out. Partners can stop interest by prepaying under the payment type “Prepayment on BBA AAR/Exam Push Out”, and partners of a partnership still in dispute can make an IRC 6603 deposit with a statement identifying the partnership, reviewed year and audit control number (IRM 4.31.13.13.8).
Partners that are partnerships, S corporations or trusts do not file Form 8978 for amounts that pass through. They either furnish their own Forms 8986 and file Form 8985, or compute and pay an IU, by the extended due date of the audited partnership's adjustment-year return. See tiered partnerships and pass-through partners.
Penalties and partner defenses
Penalties are still determined at the partnership level under IRC 6221, but the reviewed-year partners become liable for them (IRC 6226(c)(1)). Each partner computes them on its own facts: if the partner has no understatement after the adjustments, or its understatement falls below the threshold, no penalty is due (Treas. Reg. 301.6226-3(d)(2)). IRM 20.1.5.22.4 notes “The reviewed year partners calculate the penalty using their own personal thresholds.” Partner-level defenses such as the partner's own reasonable cause cannot be raised in the partnership proceeding; the partner must pay and file a refund claim for the reporting year. See penalties in a BBA examination.
Invalid elections and revocation
The IRS can invalidate an election that does not meet every requirement of Treas. Reg. 301.6226-1 and 301.6226-2, and “The IRS may determine an election to be invalid without first notifying the partnership or providing the partnership an opportunity to correct any failure”. It then notifies the partnership and PR within 30 days, IRC 6225 applies as if no election had been made, and the IRS may assess the IU against the partnership without waiting for the usual restrictions (Treas. Reg. 301.6226-1(d)). In practice, BBA Operations first contacts the PR to try to perfect an incomplete Form 8988, and revokes the election by Letter 5940 if a timely package has discrepancies the partnership does not correct (IRM 4.31.13.11.1 and 4.31.13.11.2). Errors the partnership timely corrects under the regulation cannot be the basis for invalidity.
The partnership itself can revoke only with IRS consent, on Form 8989 filed within 60 days of the final determination date and before statements go to partners. A separate Form 8989 is needed for each specific IU (IRM 4.31.13.13.4).
Withholding, deposits and other details
- Foreign partners. If a Form 8986 to a reviewed-year partner includes an adjustment subject to chapter 3 or 4 withholding, the audited partnership must pay the withholding before the due date of its adjustment-year return (without extension) and file Forms 1042 and 1042-S or 8804 and 8805 for the year that includes the date the Form 8986 was furnished (Form 8986 instructions; IRM 4.31.9.6.9).
- Chapter 2 and 2A. Self-employment tax and net investment income tax tied to pushed-out adjustments are handled outside the BBA computation under IRC 6241(9) and 6501(c)(12).
- Consistency. Partners must report consistently with push-out statements from an audit, and the Form 8082 notice exception does not apply; inconsistent reporting is assessed as a math error (IRM 4.31.9.8.2.2).
- Collection. If the partnership neither pushes out validly nor pays, the IRS collects from the partnership and can assess adjustment-year partners under IRC 6232(f). See collecting a BBA imputed underpayment.
Form-level details are on Form 8988.
Questions practitioners ask
Can the 45-day push-out deadline be extended?
No. Treas. Reg. 301.6226-1(c)(2) says the time for filing the election may not be extended, and the IRS's audit page repeats it. The clock runs from the date the FPA is mailed.
Do we have to agree with the FPA to push out?
No. The election is available whether or not the partnership agrees, and a petition may be filed even after the election is made. The statements are due 60 days after the adjustments are finally determined, which accounts for any court case.
Which partners get the Forms 8986?
Every reviewed-year partner: anyone who held an interest at any time during the year adjusted. Former partners are included, and the partnership must use their current or last known address and reasonable diligence if mail comes back.
Why is interest higher on a push-out?
IRC 6226(c)(2) computes partner interest from the reviewed-year due date at the underpayment rate with 5 percentage points substituted for 3. Partners can prepay or make a section 6603 deposit to limit it.
What happens if we miss the 60-day statement deadline?
The IRS's page says BBA Operations will invalidate the election and the partnership will be liable for the IU. The regulation allows the IRS to assess the IU against the partnership as if no election had been made.
Can the partnership change its mind after electing?
Only with IRS consent, by filing Form 8989 within 60 days of the final determination date and before push-out statements are issued to partners.