Form 8978, Partner’s Audit Liability Under Section 6226
Form 8978, Schedule A, Partner’s Imputed Underpayment (Supplemental)
The IRS has released a draft of new Form 8978, Partner’s Audit Liability Under Section 6226, and Schedule A, Partner’s Imputed Underpayment (Supplemental), which will be used by partnerships making a push-out election under Code Sec. 6226(a)(1) to notify partners and the IRS of each partner’s share of the partnership’s audit adjustments.
Background. Generally, a partnership is required to account for IRS audit adjustments at the partnership level. (Code Sec. 6225(a)(1)) This means that the partnership is subject to tax on any underpayment resulting from an audit. (Code Sec. 6225(a)(1)) However, Code Sec. 6226(a)(1), which was added by the 2015 Bipartisan Budget Act, provides an alternative to the general rule in Code Sec. 6225(a)(1) that a partnership must pay any underpayment resulting from an audit.
Under Code Sec. 6226(a)(1), a partnership may elect to “push out” any audit adjustments made by the IRS to the persons who were its partners during the reviewed year. When a partnership makes this election, the partners, not the partnership, must account for any adjustments made by the IRS and pay any tax due resulting from those adjustments.
The term “reviewed year” means the partnership tax year to which the item being adjusted relates. (Code Sec. 6225(d)(1))
A partnership making an election under Code Sec. 6226(a)(1) must furnish a statement of each partner’s share of any adjustment to income, gain, loss, deduction, or credit as determined in the Final Partnership Administrative Adjustment (FPAA), to each person who was a partner of the partnership during the reviewed year and to the IRS. (Code Sec. 6226(a)(1))
New Form 8978 and Schedule A. The IRS has released a draft of new Form 8978. Partnerships making a push-out election under Code Sec. 6226(a)(1) will use Form 8978 to provide the statement of audit adjustments required by Code Sec. 6226(a) to the persons who were its partners during the reviewed year and to the IRS.
The IRS has also released a draft of Schedule A (Form 8978). Partnerships will use Schedule A to report each partner’s name, tax identification number, and share of the partnership’s adjustments, to the IRS.
References. For election to account for partnership adjustments at the partner level, see FTC 2d/FIN ¶T-2424; United States Tax Reporter ¶62,264.
