IRS Form 8978 – Partner’s Additional Reporting Year Tax

IRS Form 8978 – IRS Form 8978, officially titled Partner’s Additional Reporting Year Tax, helps non-pass-through partners report and pay additional tax (or claim a reduction) when a partnership pushes out audit or administrative adjustment request (AAR) adjustments under the Bipartisan Budget Act (BBA) centralized partnership audit regime.

Partners who receive Form 8986 (Partner’s Share of Adjustment(s) to Partnership-Related Item(s)) from a BBA partnership must use Form 8978 to refigure their tax liabilities for the affected years and any intervening years, with the net change reported on their reporting year tax return.

This guide draws directly from the latest official IRS sources (Instructions for Form 8978 revised December 2024 and Form 8978 revised January 2023) to provide accurate, up-to-date information as of February 2026.

Download the official form here: IRS Form 8978 PDF

Download the full instructions here: Instructions for Form 8978 (including Schedule A)

Why Form 8978 Exists: Quick BBA Context

Under the BBA (enacted 2015, effective for partnership tax years beginning after 2017), partnerships handle most audit adjustments at the entity level. However, a partnership can elect (via Form 8988) or be required to “push out” the adjustments to its partners using Form 8986. Partners then report their share of those adjustments on Form 8978 rather than amending prior-year returns.

This streamlined process shifts the tax burden (and any interest/penalties) to the partners’ reporting year.

Who Must File IRS Form 8978?

You must file Form 8978 if you are a non-pass-through partner and receive one or more Forms 8986 from a BBA partnership (whether from a BBA audit or AAR filing).

Non-pass-through partners include:

  • Individuals
  • C corporations
  • Estates or trusts where the adjustments are taxable at the entity level
  • Foreign partners (with special rules)

You do NOT file Form 8978 if you are a pass-through partner (partnership, S corporation, trust, or estate that passes adjustments through to its own owners/beneficiaries). Pass-through partners use Form 8985 and issue their own Forms 8986 instead.

Special cases:

  • Foreign corporate partners must file separate Forms 8978 for effectively connected income (ECI) vs. FDAP income.
  • Adjustments from AAR and BBA audits must be reported on separate Forms 8978.
  • Multiple Forms 8986 from the same source (all AAR or all audit) can be combined on one Schedule A.

When and Where to File Form 8978?

File Form 8978 with your timely filed federal income tax return for the reporting year (including extensions does not change the requirement to file timely for this purpose).

Reporting year = Your tax year that includes the date the partnership furnished Form 8986 to you (found in Form 8986, Part II, Item G).

Example: A calendar-year individual receives Form 8986 on June 15, 2025 → Reporting year is 2025. File Form 8978 with your 2025 Form 1040 by April 15, 2026 (or extended due date).

Attach:

  • Completed Form 8978
  • Schedule A (Form 8978)
  • Required statements (tax computations, interest, penalties, etc.)

Report the total from Form 8978, line 14 on the appropriate line of your reporting-year return (e.g., Schedule 2, line 17 for Form 1040 “Additional tax from Form 8978”).

Pay any additional tax + interest + penalties with the return.

How to Complete Form 8978 Step by Step (2026 Instructions)?

1. Gather Documents

  • All Forms 8986 received
  • Your original (or previously adjusted) returns for affected years and intervening years
  • Any related tax attribute schedules (at-risk, passive activity, basis, etc.)

2. Complete Schedule A (Form 8978) – Schedule of Adjustments

This is the heart of the form. For each applicable tax year (columns a–d):

  • Line 1 (Income): List every adjustment from Form 8986 Part V + partner-level tax attribute changes (e.g., at-risk, basis, passive loss limitations). Include description, amount, and tracking number from Form 8986.
  • Line 2: Total income adjustments → carries to Form 8978 line 1b.
  • Line 3 (Deductions): Similar for deduction adjustments.
  • Line 4: Total → carries to Form 8978 line 3b.
  • Line 5 (Credits): Credit adjustments.
  • Line 6: Total → carries to Form 8978 line 9b.

Important: Check the box at the top for “BBA Audit” or “AAR Filing.” Use separate Schedules A (and Forms 8978) for different sources.

3. Complete Form 8978 Part I – Computation of Additional Reporting Year Tax

Use up to 4 columns for the first affected year and intervening years (years between the affected year and your reporting year).

Key lines (per column):

  • 1a: Original/previously adjusted total income
  • 1b: + Schedule A line 2 adjustments
  • 2: Corrected income
  • 3a/3b/4: Same for deductions
  • 5: Corrected taxable income
  • 6: Income tax on line 5 (attach computation statement using current-year rates)
  • 7: AMT (if applicable)
  • 8: Total tax (6+7)
  • 9a/9b/10: Credits
  • 11: Corrected tax liability
  • 12: Original/prior tax
  • 13: Increase or decrease
  • 14: Total additional reporting year tax (sum of all columns) → report on your current return

Penalties (line 15): From Form 8986 Part V + any additional partner-level penalties. Attach statement. Interest (line 17): Calculated on tax increases only, from the original due date of the affected-year return. Use underpayment rate (short-term federal rate + 5% for audits; +3% for AARs). No interest on decreases. Attach computation.

Line 14 total goes on your reporting-year return; penalties and interest are paid with the return but not included in line 14.

4. Attach Required Statements

  • Detailed tax computations for lines 6, 7, and 11
  • Interest and penalty calculations
  • Adjusted passive activity, at-risk, or section 199A worksheets if affected
  • For foreign partners: ECI/FDAP separation statements

Common Mistakes to Avoid

  • Mixing AAR and audit adjustments on one form
  • Forgetting to file separate Forms 8978 when >4 years or different sources apply
  • Reporting credit adjustments on Form 3800 instead of Form 8978 (attach Form 3800 only as a supporting worksheet labeled “Form 3800 for Form 8978 Calculation Only”)
  • Failing to adjust tax attributes (basis, at-risk, passive losses) on Schedule A
  • Not paying interest from the original affected-year due date

Special Rules for Different Taxpayers

  • Corporations: Report line 14 on Schedule J and follow additional Form 3800 line 10b rules if applicable.
  • Estates & Trusts: File Form 8978 only for entity-level taxable adjustments.
  • Foreign Partners: Separate ECI and FDAP; claim withholding credits properly.
  • Inconsistent Treatment: If you previously filed Form 8082, you must still account for the full adjustment on Schedule A.

Do You Owe Money or Get a Refund?

  • Positive line 14 = additional tax due with your reporting-year return.
  • Negative line 14 = reduction in reporting-year tax (no refund claim on prior years).

Where to Get Help?

  • Official IRS page: About Form 8978
  • Latest instructions always at IRS.gov/Form8978
  • Consult a tax professional familiar with BBA procedures, especially if you received multiple Forms 8986 or have complex tax attributes.

Bottom line: IRS Form 8978 ensures partners properly report pushed-out partnership adjustments without filing multiple amended returns. Filing it correctly with your reporting-year return (along with Schedule A and supporting statements) keeps you compliant and avoids unnecessary penalties or interest.

For the most current information, always verify at IRS.gov, as tax rules can change. If you received a Form 8986 in 2025 or 2026, download the form and instructions today and consult your tax advisor to ensure accurate reporting.