IRS Instruction 8985 – IRS Form, Instructions, Pubs 2026)

IRS Instruction 8985 – In the complex world of partnership taxation, understanding IRS Form 8985 and its related Form 8985-V is crucial for pass-through entities navigating audits and adjustments. These forms play a vital role in the centralized partnership audit regime established under the Bipartisan Budget Act of 2015 (BBA). Whether you’re a partnership representative, tax professional, or business owner dealing with imputed underpayments (IUs), this SEO-optimized guide breaks down the essentials of IRS Instruction 8985, including filing requirements, step-by-step completion tips, and recent updates. With tax laws evolving, staying compliant under Sections 6226 and 6227 can prevent penalties and streamline reporting.

What Is IRS Form 8985 and Form 8985-V?

IRS Form 8985, officially titled “Pass-Through Statement – Transmittal/Partnership Adjustment Tracking Report,” serves as a transmittal document and summary tool for partnerships handling adjustments from BBA audits or administrative adjustment requests (AARs). It summarizes and transmits Forms 8986 (which detail each partner’s share of adjustments) and tracks payments or push-outs of IUs to partners.

Form 8985-V, “Tax Payment by a Pass-Through Partner,” is a companion form used exclusively for submitting payments related to IUs from BBA exams or AARs. It’s attached to checks or money orders when a pass-through partner elects to pay the IU instead of passing adjustments downstream.

These forms ensure transparency and proper allocation of tax adjustments in multi-tiered partnership structures, helping the IRS track underpayments efficiently.

Purpose of Form 8985 Under Sections 6226 and 6227

The primary purpose of Form 8985 is to facilitate the “push-out” election under Section 6226, where audited partnerships can shift adjustment liabilities to their partners rather than paying at the entity level. For AARs under Section 6227, it handles adjustments that may or may not result in an IU, ensuring all changes are reported correctly.

Key functions include:

  • Summarizing net adjustments across partners.
  • Tracking incoming and outgoing adjustment statements.
  • Reporting payments of IUs, penalties, and interest.
  • Handling non-IU adjustments, such as elections or items netting to zero.

Form 8985-V specifically supports payments by pass-through partners, indicating whether the payment stems from a BBA exam or AAR push-out.

Who Must File IRS Form 8985 and Form 8985-V?

Filing obligations depend on your role in the partnership chain:

  • Audited Partnerships: Must file if electing under Section 6226 to push adjustments to partners.
  • AAR Partnerships: Required when pushing out adjustments or reporting non-IU changes.
  • Pass-Through Partners: Any entity (e.g., partnerships, S corporations, trusts, estates) receiving a Form 8986 must file Form 8985, whether they pay the IU or push it further. Excludes disregarded entities like single-member LLCs.

The form must be signed by the partnership representative (PR) or designated individual (DI) for the reviewed year. If the PR changes, submit Form 8979 to update.

Non-pass-through partners (e.g., individuals) report adjustments on Form 8978 but aren’t required to file Form 8985.

When and How to File Form 8985: Deadlines and Submission Methods?

Timing is critical to avoid penalties:

  • Audited Partnerships: File within 60 days after adjustments are finalized (e.g., via court decision or IRS letter).
  • AAR Partnerships: Submit with the AAR filing.
  • Pass-Through Partners: By the extended due date of the adjustment year return (noted on Form 8986). Corrections are allowed within 60 days; later ones need IRS approval.

Submission options:

  • Electronic Filing: Mandatory for audited BBA partnerships and their pass-through partners via IRS.gov/BBAeSubmit.
  • Fax for AAR Pass-Through Partners: Use 888-981-6982 for packages under 100 pages; mail larger ones.
  • Form 8985-V: Mail with payment to the IRS Ogden Service Center.

Use unique tracking numbers for all submissions to link incoming and outgoing statements.

Step-by-Step Guide to Completing IRS Form 8985

Follow these steps based on the latest December 2024 revision:

  1. Header: Mark as “Original” or “Corrected.” Enter tracking numbers and audit control number if applicable.
  2. Part I – Submitting Entity: Select entity type, return type, and count of Forms 8986 (zero if paying without issuing).
  3. Part II – Audited/AAR Partnership: Provide name, address, PR/DI info, EIN, year ends, and furnishing date.
  4. Part III – Pass-Through Partner: Detail name, TIN, tax year, and indicate if paying or pushing out (check box F).
  5. Part IV – Partners’ Items: List adjustments by line/code, including as-reported amounts, modifications, net changes, and corrected totals. Include penalties.
  6. Part V – Statements: Explain calculations, IU details (if paying), Section 199A aggregates, and any corrections.
  7. Signature: Use a 5-digit PIN for electronic filings; include contact info.

For Form 8985-V:

  • Check payment type.
  • Enter amounts for IU, penalties, interest, and total.
  • Provide partner and representative details.

Key Definitions in IRS Instruction 8985

Understanding terminology is key:

  • Imputed Underpayment (IU): Calculated tax liability from adjustments.
  • Reviewed Year: The tax year under audit or AAR.
  • Adjustment Year: When adjustments become final.
  • Pass-Through Partner: Entities like partnerships or S corps that can push adjustments further.

Recent Updates to Form 8985 Instructions (December 2024)

The latest revision includes:

  • Updated Part IV column headings with an “as corrected” column.
  • Expanded Part V for corrections and IU calculations.
  • New tracking number formats for AARs.
  • Stricter electronic submission rules and page limits for AAR packages.

Check IRS.gov/Form8985 for future developments.

Important Notes and Cautions for Compliance

  • Push-Out vs. Pay: You must either push all adjustments or pay the full IU— no partial options.
  • Penalties and Interest: Calculated at underpayment rates plus 5% for exams; include in payments.
  • Foreign Partners: Withhold under Chapters 3/4 if applicable.
  • Recordkeeping: Retain all documents; failure to file can lead to entity-level liability.
  • Section 199A: Report qualified business income adjustments cumulatively.

For personalized advice, consult a tax professional. This guide is based on official IRS resources as of early 2026, ensuring accuracy for your partnership adjustment tracking needs.