Definitions

AAR partnership. An AAR partnership is a BBA partnership that has filed, or is filing, an AAR under section 6227.

Adjustment year. For BBA partnerships, the adjustment year is the partnership tax year in which:

• An adjustment pursuant to the decision of a court in a proceeding brought under section 6234, such decision becomes final;

• An AAR is filed under section 6227; or

• A notice of final partnership adjustment is mailed under section 6231 or, if the partnership waives the limitations on assessments under section 6232(b), the waiver is executed by the IRS.

Audited partnership. For purposes of these instructions, an audited partnership is a BBA partnership that made an election under 6226 and issued Forms 8986 to its partners. The partners of an audited BBA partnership are bound by the adjustments and cannot file a Form 8082 to treat the adjustments inconsistent with the results of the audit.

BBA partnership. A partnership subject to the centralized partnership audit regime is referred to as a “BBA partnership.” All partnerships with tax years beginning after 2017 are BBA partnerships unless, under section 6221, they make a valid election out of the centralized partnership audit regime. A partner in a BBA partnership is referred to as a “BBA partner.” REMICs subject to the centralized partnership audit regime are also considered BBA partnerships for purposes of these instructions. An AAR filed by a BBA partnership is referred to as a “BBA AAR” and, if one is filed, it must be filed by the PR or the DI if the PR is an entity. Go to IRS.gov/ BBAAAR for additional information.

Designated individual (DI). Where the PR is an entity, the DI is the sole individual appointed by the partnership at the time of the designation of the PR through whom the entity PR acts.

Form 8985, Pass-Through Statement—Transmittal/ Partnership Adjustment Tracking Report. Form 8985 is used by a BBA partnership to summarize and transmit Forms 8986 (by an audited partnership, a partnership filing an AAR, or a pass-through partner) in situations where the partners are taking into account the adjustments. Form 8985 is also used to report payments made and related calculations by a pass-through partner of a BBA partnership, if applicable. See the instructions for these forms for further information.

Form 8986, Partner’s Share of Adjustment(s) to Part- nership-Related Item(s). Form 8986 was created for BBA partnerships and pass-through partners of BBA partnerships to show each partner’s share of adjustments to a PRI as a result of a BBA audit or BBA AAR for situations where the partners are taking into account the adjustments.

Imputed underpayment (IU). An IU is the amount a partnership is potentially liable for as a result of an adjustment to a partnership-related item (PRI). Whether an adjustment results in an IU is determined in accordance with the rules under Regulations section 301.6225-1, with that amount subject to possible modification under Regulations section 301.6227-2.

Non-BBA partnership. Under BBA, certain partnerships with 100 or fewer eligible partners for the tax year can elect out of the centralized partnership audit regime. For additional information, see the Instructions for Form 1065. A partnership that elects out of the centralized partnership audit regime is referred to as a “non-BBA partnership.”

Partnership-related item (PRI). For BBA partnerships, under section 6241(2)(B), a PRI is any item or amount with respect to the partnership that is relevant in determining the income tax liability of any person without regard to whether the item or amount appears on the partnership’s return. An item or amount is with respect to the partnership if it is shown or reflected, or required to be shown or reflected, on the partnership return or the forms and instructions prescribed by the IRS for the partnership’s tax year or is required under the Internal Revenue laws and related regulations to be maintained in the partnership’s books or records. This includes an IU and an item or amount relating to any transaction with, basis in, or liability of the partnership.

Partnership representative (PR). Under section 6223, BBA partnerships must designate a partner or other person with a substantial presence in the United States as the PR who shall have the sole authority to act on behalf of the partnership. If the designated PR is an entity, the partnership must also appoint a DI to act on behalf of the entity PR. The appointed DI must be an individual and may not be an entity. The partnership and all partners are bound by the actions of the PR in dealings with the IRS under BBA. Go to IRS.gov/BBAAAR for additional information. A REMIC that’s a BBA partnership (hasn’t elected out of BBA) would need to designate a PR.

Pass-through entity. A partnership, S corporation, estate, trust, or REMIC.

Reporting year. Reporting year is applicable to partners of BBA partnerships. It’s the partner’s tax year(s) that includes the date the AAR partnership furnished Forms 8986 to its partners.

Reviewed year. For BBA partnerships, the reviewed year is the partnership’s tax year to which a partnership adjustment relates. For example, if the BBA AAR is filed to make an adjustment to income for the 2023 tax year, 2023 is the reviewed year.

Reviewed year pass-through partner. For purposes of these instructions, under BBA, a reviewed year pass-through partner is a pass-through entity that held an

Instructions for Form 1065-X (Rev. 10-2025) 3

interest in a BBA partnership at any time during the reviewed year, which is the partnership tax year to which the partnership adjustment relates.

Schedule K-1. Schedule K-1 is an annual schedule reporting the partner’s, shareholder’s, or beneficiary’s share of income, deductions, credits, etc., from a partnership, S corporation, estate, or domestic trust.

Schedule K-2. Schedule K-2 is an extension of Form 1065, Schedule K, used to report items of international tax relevance from the operation of a partnership.

Schedule K-3. Schedule K-3 is an extension of Schedule K-1 (Form 1065) generally used to report to partners their shares of the items reported on Schedule K-2.

Schedule Q. Schedule Q is a quarterly schedule reporting the residual interest holder’s share of taxable income or net loss from the REMIC.