IRS Form 8988 – In the complex world of partnership taxation, navigating IRS audits can be challenging. One key tool for audited partnerships under the Bipartisan Budget Act of 2015 (BBA) is IRS Form 8988, which allows partnerships to elect an alternative to paying an imputed underpayment directly. This election, often called the “push out” election, shifts the responsibility for tax adjustments to the partners themselves. Whether you’re a partnership representative, tax professional, or business owner, understanding Form 8988 is essential for managing audit outcomes effectively. In this article, we’ll break down everything you need to know about IRS Form 8988, including its purpose, filing requirements, and step-by-step process.
What Is the Centralized Partnership Audit Regime (BBA)?
The BBA, enacted in 2015, revolutionized how the IRS audits partnerships. Under this regime, the IRS assesses and collects taxes at the partnership level rather than pursuing individual partners. This centralized approach simplifies audits but can result in the partnership being liable for an “imputed underpayment” (IU)—an estimated tax deficiency based on audit adjustments. Partnerships subject to BBA rules include most entities taxed as partnerships, unless they opt out (available only to certain small partnerships).
The regime applies to tax years beginning after December 31, 2017, and involves key steps like the Notice of Proposed Partnership Adjustment (NOPPA), modification requests, and the Final Partnership Adjustment (FPA). If an IU is determined, the partnership typically pays it, but alternatives like the push out election provide relief.
Understanding Imputed Underpayment
An imputed underpayment is the IRS’s calculation of additional tax owed by the partnership based on audit findings. It’s computed by netting adjustments and applying the highest applicable tax rate (currently 37% for individuals or 21% for corporations, adjusted for credits and other factors). Partnerships can request modifications to reduce the IU, such as through amended returns or partner-specific adjustments, using forms like Form 8980.
If modifications don’t eliminate the IU, the partnership faces payment unless it elects to push out the adjustments. This is where Form 8988 comes in, offering a way to avoid entity-level payment.
What Is the Push Out Election Under IRC Section 6226?
The push out election allows an audited partnership to pass through audit adjustments to its “reviewed year partners”—those who held interests during the audited tax year. Instead of the partnership paying the IU, each partner reports and pays their share on their own tax returns, potentially at lower rates or with personal offsets.
This election is irrevocable unless revoked with IRS approval using Form 8989. It’s beneficial for partnerships with partners in lower tax brackets or those eligible for credits, but it shifts administrative burdens to partners. Pass-through partners receiving adjustments can further push them out or pay an IU themselves.
Who Can File IRS Form 8988?
Only the partnership representative (PR) or designated individual (DI) can file Form 8988 on behalf of the audited BBA partnership. The PR is designated on the partnership’s tax return and has sole authority to act in audits, including making this election.
If the PR changes, Form 8979 can be submitted with Form 8988 to update the designation. Power of attorney (POA) holders for the PR may also sign using a PIN.
When to File Form 8988?
Timing is critical: The election must be made within 45 days of the mailing date of the FPA. This period cannot be extended, and the election is only available if the FPA includes an IU.
After acceptance, the PR has 60 days from when the adjustments become final (e.g., after the 90-day petition period expires or court resolution) to furnish statements to partners and the IRS. Failure to do so invalidates the election, making the partnership liable for the IU.
How to File IRS Form 8988: Step-by-Step Process?
Filing Form 8988 is electronic-only and requires preparation and compliance with IRS guidelines. Here’s the process:
- Prepare the Form: Download the latest version (revised October 2020) from IRS.gov. Complete it with details like the partnership’s EIN, audited year, IU amount, and PR information. Include a listing of all reviewed year partners as per the form’s instructions.
- Obtain a PBBA TCC: If not already obtained, apply for a Partnership Bipartisan Budget Act Transmitter Control Code via the IRS e-Services portal. This 5-character code authorizes electronic submissions and requires an ID.me account.
- Sign the Form: Use a 5-digit e-Services PIN for electronic signature. The PIN must match the PR’s name exactly.
- Submit Electronically: Use the BBA Online Form Submission Service (OFSS). Upload the form and any attachments (e.g., partner list). Avoid special characters in names or files. Receive a Receipt ID upon submission.
- Wait for IRS Response: The IRS will mail a countersigned Form 8988 via Letter 5931 within 20 days. If not received, contact the PBBA eSubmission Helpdesk.
- Furnish Statements: After acceptance, submit Form 8985 (transmittal) and Form 8986 (partner statements) electronically to the IRS, and provide Form 8986 to each partner. Use the latest revisions (December 2024 for these forms).
For large partnerships (over 350 partners), email for special instructions if submission errors occur.
Required Attachments and Related Forms
- Partner Listing: Mandatory attachment detailing all reviewed year partners.
- Form 8979: If changing the PR.
- Post-Election Forms: Form 8985 and multiple Form 8986s.
- Attachments must be in PDF, Word, Excel, or Zip format, under 100MB, and descriptively named.
Consequences of Not Filing or an Invalid Election
If no valid election is made, the partnership must pay the IU plus interest and penalties. Invalidations can occur due to untimely filing, incomplete forms, or failure to furnish statements within 60 days. Partners may face individual audits if adjustments aren’t properly pushed out.
Revoking the Push Out Election
Use Form 8989 to request revocation, which requires IRS approval and must be filed electronically. Revocation is per IU if multiple exist, and the PR must ensure the signature matches records.
Conclusion
IRS Form 8988 provides a valuable option for partnerships facing imputed underpayments under IRC Section 6226, allowing them to push adjustments to partners and potentially reduce overall tax liability. However, strict deadlines and electronic filing requirements make professional guidance advisable. Always use the latest forms from IRS.gov and consult a tax advisor for your specific situation. By understanding and utilizing this election, partnerships can better manage BBA audit outcomes and maintain compliance.