IRS Instruction 8986 – IRS Form, Instructions, Pubs 2026)

IRS Instruction 8986  – The Bipartisan Budget Act of 2015 (BBA) transformed how the IRS audits partnerships. Under the centralized partnership audit regime, partnerships often face adjustments to partnership-related items. When a partnership elects to “push out” these adjustments to its partners (under IRC Sections 6226 and 6227), it uses IRS Form 8986.

This comprehensive guide explains IRS Instruction 8986 (revised December 2024), who must file it, how to complete it step by step, deadlines, and what partners should do upon receipt. Whether you’re a partnership representative, pass-through partner, or individual investor, this resource covers everything you need for compliance.

What Is IRS Form 8986?

Form 8986, Partner’s Share of Adjustment(s) to Partnership-Related Item(s), reports each partner’s allocable share of adjustments from a BBA audit or an Administrative Adjustment Request (AAR) filed by the partnership.

  • Audited partnerships use it to push out imputed underpayments (IUs) to partners via a Section 6226 election.
  • Partnerships filing an AAR under Section 6227 use it to push out adjustments or handle non-IU items.
  • Pass-through partners (e.g., upper-tier partnerships, S corporations, trusts, or estates) receiving a Form 8986 can further push adjustments downstream.

The form tracks the flow of adjustments from the reviewed year through the reporting year, ensuring partners report changes correctly on their returns.

Key Purpose: It replaces traditional amended K-1s for BBA adjustments and works alongside Form 8985 (Pass-Through Statement – Transmittal/Partnership Adjustment Tracking Report).

Who Must File Form 8986?

Prepare and furnish Form 8986 in these situations:

  • Audited partnerships that elect push-out under Section 6226.
  • AAR partnerships that push out adjustments or have items not resulting in an IU.
  • Direct or indirect pass-through partners that receive a Form 8986 and choose to push adjustments further (or must do so for non-IU items).

Note: Only the entity issuing the form (partnership or pass-through partner) files it. Individual partners or non-pass-through entities do not file Form 8986—they report adjustments using Form 8978.

Deadlines and Filing Requirements for Form 8986

Timely filing prevents the issuing entity from owing the imputed underpayment itself, plus penalties and interest.

Scenario Due Date for Furnishing to Partners & Submitting to IRS Submission Method
Audited Partnership (Section 6226) 60 days after adjustments are finally determined Electronic via IRS.gov/BBAeSubmit (with Form 8985)
AAR Partnership (Section 6227) With the AAR filing Included with AAR (same manner)
Pass-Through Partner (Audited) Extended due date of audited partnership’s adjustment year return (see Part II, Item F) Electronic (with Form 8985)
Pass-Through Partner (AAR) Extended due date of AAR partnership’s adjustment year return Fax Form 8985 to 888-981-6982 (or mail if >100 pages)
  • Corrections: Submit within 60 days of original due date without permission. After that, contact the IRS.
  • Foreign partners: Withholding and reporting (Forms 1042/8804 series) may apply if adjustments trigger Chapter 3 or 4 obligations.

Pro Tip: Always check the Form 8986 you receive for the exact deadline in Part II, Item F.

How to Complete Form 8986: Step-by-Step Instructions?

Follow these instructions from the official IRS guidance (Rev. December 2024). Use the latest form at IRS.gov/Form8986.

General Instructions

  • Check Original or Corrected at the top.
  • Enter the outgoing tracking number from the related Form 8985 (required).
  • Audit control number: Include if provided (blank for AARs).
  • For TIN corrections: Submit two corrected Forms 8986 (one with correct TIN, one with incorrect TIN and zeros in adjustment sections).

Part I: Information About the Entity Submitting This Form

  • Check the box for the issuing entity (e.g., Audited Partnership, AAR Partnership, Pass-Through Partner).
  • Indicate the type of return normally filed.

Part II: Information About the Audited Partnership or AAR Partnership

  • Enter exact name, address, and TIN from the associated Form 8985.
  • Item D: Reviewed year tax year end (separate form per year).
  • Item E: Adjustment year end.
  • Item F: Extended due date of adjustment year return.
  • Item G: Date Forms 8986 furnished to partners.

Part III: Information About the Pass-Through Partner (If Applicable)

  • Complete only if a pass-through partner issues the form.
  • Include issuer details and the original Form 8986 provider.

Part IV: Information About the Partner Receiving This Form 8986

  • Enter partner’s name, address, TIN, and partner type (general/limited, domestic/foreign).
  • Indicate entity type (individual, S corp, etc.).
  • Report profit/loss/capital percentages and liabilities/capital account changes (original, change, corrected).
  • Disregarded entities: Use beneficial owner’s info; list DE in Part VI.

Part V: Partner’s Total Reviewed Year Income, Gain, Loss, Deductions, Credits, and Other Items

This is the core of the form—detail all adjustments.

  • Columns:
    • (a) Line number (from K-1/K-3; “K3” for Schedule K-3 changes).
    • (b) Line title.
    • (c) Code (from K-1 instructions; country code for K-3).
    • (d) As originally reported.
    • (e) Check if statement in Part VI.
    • (f) Approved modifications (IRS-approved only).
    • (g) Reviewed year adjustments net of modifications (required).
    • (h) As corrected (d + g).
  • Special Rules:
    • Positive for increases, negative for decreases.
    • Recharacterized loans/distributions: Use Distributions line + code A/C.
    • Disguised sales: Use “Other” line + code DS; explain in Part VI.
    • Penalties: Detail code sections, rates, and amounts at partnership level.

Totals: Enter at bottom of Part V.

Part VI: Other Information / Statements

  • Provide detailed explanations for any checked items in Part V.
  • Include supporting schedules showing original → change → corrected.
  • Section 199A adjustments: Use separate statements per trade/business; note PTP, aggregated, SSTB status.
  • Attach additional pages as needed.

What Partners Should Do Upon Receiving Form 8986?

  • Non-pass-through partners (individuals, C corps, etc.): Report on Form 8978 (Partner’s Additional Reporting Year Tax) attached to your reporting-year return. Use Schedule A for year-by-year breakdown.
  • Pass-through partners: Push out via your own Forms 8986 + 8985, or compute/pay the IU on Form 8985.
  • Pay in advance: Use EFTPS, Direct Pay, or card to stop interest (select “Prepayment on BBA AAR/Exam Push Out”).

Failure to act timely can make the pass-through partner liable for the IU.

Recent Updates: December 2024 Revision

The IRS updated Form 8986 and its instructions in December 2024. Key changes include:

  • Enhanced electronic submission guidance.
  • Clarified Schedule K-3 handling.
  • Updated examples for foreign source income and Section 199A.
  • New warnings on special characters in names/addresses.

Always download the latest version from IRS.gov.

Common Mistakes to Avoid

  • Using old (pre-2024) forms.
  • Mismatching names/TINs between Form 8985 and 8986.
  • Forgetting Part VI statements for complex adjustments.
  • Missing foreign withholding obligations.
  • Download Instructions: IRS.gov/pub/irs-pdf/i8986.pdf (provided link).
  • Form 8986: IRS.gov/pub/irs-pdf/f8986.pdf.
  • Related: Form 8985, Form 8978, Form 8804/1042 (withholding).
  • BBA Resources: IRS.gov/BBA, IRS.gov/BBAAAR.
  • Electronic Submission: IRS.gov/BBAeSubmit.

For personalized advice, consult a tax professional familiar with BBA rules. The IRS instructions are the authoritative source—always verify with the latest PDF.

This article is for informational purposes only and is not tax or legal advice. Tax laws change; refer to official IRS guidance.