4.31.9. Centralized Partnership Audit Regime (BBA) Field Examination Procedures

(1) This IRM sets forth field exam procedures implementing the BBA regime include the scope and election out of the BBA, partnership representative, consistency principle, imputed underpayment with respect to any partnership adjustment, administrative adjustment request, statute of limitations on making adjustments, communication, report writing, and case disposition guidelines.

(1) Section 1101 of the Bipartisan Budget Act of 2015 (BBA) as amended by the Protecting Americans from Tax Hikes Act of 2015 (PATH Act) and sections 201 through 207 of the Tax Technical Corrections Act of 2018 (TTCA) repealed the TEFRA partnership procedures and the electing large partnership provisions and replaced them with a new centralized partnership audit regime.

(2) Delegation Order 4-52 (Rev. 2), Partnership Matters Under the Centralized Partnership Audit Regime. See IRM 1.2.2.5.40, Servicewide Delegations of Authority.

(1) All of the practice areas in LB&I share an equal responsibility in conducting a thorough examination. The practice area director is responsible for ensuring their employees follow the procedures outlined in the IRM.

(2) The director, examination headquarters, is the executive responsible for providing policy and guidance for SB/SE examination employees and ensuring consistent application of policy, procedures and tax law administration.

(3) The director, LB&I PTE practice area provides management oversight of the PTE specialty groups.

(4) All IRS personnel have the responsibility to ensure that taxpayer rights are protected and observed.

(1) Program Reports: Each year an exam plan is created for partnership examinations.

(2) Program Effectiveness: the exam plan is monitored to ensure the partnership examination objectives are met. Open examinations are monitored to ensure a BBA determination is made and that the BBA Notice of Administrative Proceeding (NAP) date is entered on the Examination Returns Control System (ERCS).

(1) Technical Services monitors a report to ensure BBA returns are identified in a timely manner. A report is generated in ERCS that shows all BBA cases in a field examination status. This report is generated monthly.

(1) The following tables list commonly used terms and acronyms:Terms

(1) See the BBA Centralized Partnership Audit Regime website at https://www.irs.gov/businesses/partnerships/bba-centralized-partnership-audit-regime.

(2) See the BBA landing page in the partnerships knowledge base on the virtual library at https://irsgov.sharepoint.com/sites/ETD-KMT-KB038/SitePages/AuditProcedures/BBA/BBALandingPg.aspx.

(3) See Pub 5388, Bipartisan Budget Act (BBA) Roadmap for Taxpayers.

(4) See Rev. Proc. 2020-23, Revenue Examiner Guidance for Amended BBA Partnership Returns Under Revenue Procedure 2020-23.

(5) See Rev. Proc. 2021-29, Revenue Examiner Guidance for Amended BBA Partnership Returns Under Revenue Procedure 2021-29.

(1) If a return is received after an SFR TC 150 has posted, see IRM 4.4.9.6, Delinquent return received after SFR TC 150 Posted at Master File.

• The BBA, unlike other pass-through regimes, does not allow for linking and the related campus consistency checks of linked partner returns with filed K-1’s. With a BBA SFR, all amounts should, by default, be included in a BBA report. However, agents have the discretion to not include the amounts if the partners included their K-1’s in their respective tax returns.

  Example: A Form 1065 was prepared, K-1’s were distributed, and the partners included the K-1’s on their respective Form 1040s. However, that Form 1065 was, for whatever reason, not E-filed with the IRS. In this example, it would be appropriate for the IRS to not include the SFR amounts in a BBA report.

• Do not forward the delinquent return to submission processing or CCP for posting of a TC 150.

• Request the input of a TC 971 AC 282 using the return received date in the trans date field. This updates the master file to show that examination secured a delinquent return. When exam controls are requested on an unfiled return using Push Code 036, this automatically generates an SFR and inputs a TC150 on the module.

(2) For delinquent return statute concerns see IRM 4.4.9.6.2, Statute Concerns.

• Update the IRC 6235(a)(1) date to 3 years from the date that the delinquent return was received.

(3) Prepare BBA Reports and Form 5344, Examination Closing Record. See IRM 4.4.9.6.3.1, Prepare Examination Report and Form 5344, Examination Closing Record.

(1) Issue Letter 2205-D, Initial Contact to Schedule Appointment - Partnership Returns, with paragraph 5 selected for BBA. In the field that lists the PR, the examiner should write "OUR RECORDS DO NOT REFLECT A PARTNERSHIP REPRESENTATIVE FOR THE PARTNERSHIP TAXABLE YEAR".

(2) Allow 30 days for the partnership to submit aForm 8979, Partnership Representative Revocation/Resignation and Designation, that properly designates a PR. Utilize Form 15416, Form 8979 Validation Check Sheet to determine if the Form 8979 is valid.

• If a valid Form 8979 is received, proceed to paragraph 4 below, in this section.

• If a valid Form 8979 is not received, proceed to paragraph 3 below, in this section.

(3) The examiner and manager should proceed in accordance with IRM 4.31.9.7.6.6(4)(b), Providing an Opportunity to the Partnership to Make a PR Designation.

(4) When it is time to send the NAP letters, mail certified Letter 5893 to the last known address of the partnership, mail certified Letter 5893-A to the last known address of the partnership representative, and separately mail certified a generic Letter 5893-A to "PARTNERSHIP REPRESENTATIVE" at the last known address of the partnership.

(1) The BBA regime applies to Subtitle A, Chapter 1 Income Tax only and will not apply to the other taxes as shown below.

1. Chapter 2 (Tax on Self-Employment Income – “SECA”)

2. Chapter 2A (Unearned Income Medicare Contribution – “NIIT”)

3. Chapter 3 (Withholding of Tax on Nonresident Aliens and Foreign Corporations)

4. Chapter 4 (Taxes to Enforce Reporting on Certain Foreign Accounts)

(2) If the IRS makes adjustments to PRIs or determinations about PRIs in a BBA audit, those adjustments or determinations must be taken into account when determining a tax under Chapters 2, 2A, 3 & 4.

(3) IRC 6501(c)(12) provides in the case of any partnership adjustment determined under the BBA regime, the period for assessment of any tax imposed on a partner under Ch 2 or 2A which is attributable to such adjustment shall not expire before the conclusion of the BBA audit which is the date that is one year after one of two events.

1. In the case of an adjustment pursuant to the decision of a court in a proceeding brought under IRC 6234, the period for assessment shall not expire before the date that is one year after the decision becomes final.

2. In any other case, the period for assessment shall not expire before the date that is one year after 90 days after the date on which the FPA is mailed under IRC 6231.

(4) If a partnership adjustment subjects the partnership to withholding requirements under Chapter 3 or 4, the partnership can either pay the Chapter 1 tax (imputed underpayment under IRC 6225) allocable to the foreign partner’s distributive share of the adjustment or, if electing to push out the adjustments, remit Chapter 3 or 4 withholding tax on the foreign partner’s distributive share of the adjustment and file all applicable withholding tax returns.

(1) All partnerships are required to determine a partner’s distributive share of Net Earnings from Self-Employment on Sch K/K-1 Line 14. Partnerships are also required to classify partners who are individuals as active or passive on the Analysis of Net Income/Loss. Partnerships do not determine whether their partners are subject to NIIT. However, partnerships are required to give partners information to allow partners to correctly figure their NIIT. Partnerships report information about NIIT by giving information directly to partners or on Schedules K and K-1, line 20, code Y (Line references 2018 through the 2021 version).

• SECA and/or NIIT may be collected through a process that is outside the BBA. For BBA audits with relevant partners, additional partner level SECA and/or NIIT may be adjusted/assessed at the conclusion of the BBA audit.

• IRC 6501(c)(12) holds open the partners’ IRC 6501(a) statutes for one year after adjustments made under the BBA become final for the purpose of adjusting/assessing any partner level SECA and/or NIIT related to a BBA partnership adjustment.

• Examiners are required to make a relevant partner determination by completing Form 15263 for the purpose of adjusting/assessing additional partner level SECA and/or NIIT at the conclusion of the BBA audit.

(2) If there are relevant partners, PCS Linkage is required. See IRM 4.31.9.6.4, BBA Linkage Procedures. If there are no relevant partners, no linkage is required.

(3) The partners’ returns can be controlled in the field or in Ogden PTE BBA Ch 2/2A Team but must still be PCS linked.

(4) Examiners must control and link partners’ returns when working an NIIT-SECA Coverage issue. For partners who claim they are not subject to either SECA nor NIIT on their distributive share of partnership trade or business income, examiners should prepare a partner-specific Form 886-A detailing why the partner is subject to either SECA or NIIT.

(1) Assessments of Ch 2/2A taxes are made at the partner (direct and indirect) level in proceedings outside of the BBA regime.

(2) For examiners auditing a BBA partnership but are not auditing its partners, the procedure for assessing Ch 2/2A taxes resulting from partnership adjustments is to link the relevant partners of the BBA partnership and allow the BBA Ch 2/2A Team to assess the additional Ch 2/2A taxes, at the partner level, at the conclusion of the BBA examination in the one-year period under IRC 6501(c)(12). See IRM 4.31.9.6.5, Processing Partner Non-Pass-Through Adjustments.

(3) For examiners auditing both a BBA Partnership and its partners, the examiner is required to link the key Form 1065 and relevant partners. The examiner may allow the BBA Ch 2/2A Team to assess the additional Ch 2/2A taxes, at the partner level, at the conclusion of the BBA examination; or, under Treas. Reg. 301.6241-6, the examiner may adjust PRIs at the partner-level and assess any additional Ch 2/2A tax related to those adjustments to PRIs. See IRM 4.31.9.6.5, Processing Partner Non-Pass-Through Adjustments.

(4) When the examiner has secured the investor return and is examining only the issue of Ch 2/2A related to a BBA partnership, the examiner should use Letter 3458, Notice of Potential Adjustment Affecting Taxes under Chapters 2 and 2A, to inform the investor’s of the examination instead of a Letter 2205, Initial Contact. This assures the investor’s first contact is not a request for a statute extension, a 30-day letter, or a notice of deficiency. Separate notice requirements should be considered for taxpayers filing joint returns.

(1) PCS linkage is required when auditing a BBA partnership that is a key case and the agent has determined there are additional assessments of Ch 2/2A taxes to be made at the partner level; this is because partners are subject to general deficiency proceedings for assessment of SECA or NIIT related to BBA Partnership adjustments. Linkage is required if there is a possibility that the IRS will be relying on the IRC 6501(c)(12) statute exception to make assessments of Ch 2/2A taxes at the partner level at the conclusion of the BBA examination.

(2) The examiner and manager must determine who the relevant partners are (direct or indirect) prior to submitting the PCS linkage request. Form 15263, Bipartisan Budget Act (BBA) Partnership Chapter 2/2A Relevant Partner Determination, has been developed to assist the examiner in making relevant partner determinations. A relevant partner determination for BBA linkage purposes is based on IRM 25.6.23.4.5.1 for inconsistent application for investor returns. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

(3) Form 15264, Bipartisan Budget Act (BBA) Chapter 2/2A Linkage Check Sheet is used to submit linkages for BBA Partnerships with relevant partners that have Chapter 2/2A issues.

(4) The group manager must review the package and sign both Form 15263 and 15264 before submission to the linkage mailbox. The manager’s signature on Form 15263 signifies approval of the relevant partners or lack of relevant partners. The manager’s signature on Form 15264 indicates the linkage package has been reviewed, is accurate and complete. Incomplete packages can be returned to the group and will cause a delay in the linkage. If there are no relevant partners determined on Form 15263, then Form 15264 is not required.

(5) Where the examiner is controlling a partner’s return, the examiner is responsible for protecting the partner’s IRC 6501(a) statute. The examiner is responsible for securing partner statute extensions using the partners’ appropriate Form 872. Examiners are always responsible for statutes for partners under their control. In general, partner returns may be transferred to Technical Services when the audit of non-pass-through issues is complete; in situations where the examiner is auditing an NIIT-SECA Coverage issue, refer to IRM 4.31.9.6.2(4). In addition, refer to IRM 4.31.9.6.5, Processing Partner Non-Pass-Through Adjustments and IRM 4.31.5.11, Investor Level Statute Control (ILSC) Examinations - Field Office Procedures, Extension of Investor Statute for ILSC Items.

(6) Update ERCS (via 5348 - PBBA Section, BBA-Chapter-2-2A-CD) with the Ch 2/2A codes:

(1) The examiner may have AIMS control of a partner that is linked because either the examiner controls the BBA partnership as well as the partner or that the partner is linked by another BBA partnership with Ch 2/2A issues. Below are sample scenarios to help you correctly process a partner with non-pass-through adjustments.

(2) Scenario 1 - No-Change or Survey: You audit an individual for non-pass-through items and that individual is linked to a BBA partnership. If you do not propose any non-pass-through adjustments then you will close the individual to the TSPC due to the linkage. Before closing the case to the TSPC, you must update the partner’s statute to alpha code AF (or RR until AF is available) if the partner’s statute is within 210 days of expiration. The TSPC will send the individual to CCP to address the no-change or survey. Once CCP processes the no-change or survey, the individual will be transferred to the Ogden PTE BBA Ch 2/2A Team to suspend the return until the BBA audit is finalized and the Ch 2/2A issues stemming from the BBA audit can be finally determined and assessed.

1. For partners that are linked and are a full no-change (no-change for both non-flow through issues and no-change for BBA Ch 2/2A issues), you must include a Form 8339 to TSPC. The Form 8339 will resolve the linkage if the partnership is determined to be a no-change for the BBA Ch 2/2A issue or must revise their relevant partner determination if the no-change determination applies only to the specific partner. Also, you must ensure the 4605-A and 886-S in the BBA audit file consistently reflect any adjustment to this partner as ZERO.

2. For partners who 1) have the NIIT-SECA coverage issue, and 2) the examiner determines there is a related partnership adjustment to the BBA return Sch K/K-1 Line 14 NESE, then you must include the partner-specific Form 886-A in the partner case file for the BBA Ch 2/2A Team to use to assess the additional SECA at the conclusion of the BBA exam. You must update the partner’s statute to alpha code AF (or RR until AF is available) before closing the case to the TSPC. Ensure the Partnership’s BBA-Chapter-2-2A-CD reflects a "2" or a "3". If the partners want to agree to the determination and assessment of SECA before the BBA case is resolved, see scenario 2 below.

3. For all other partners, the BBA Ch 2/2A Team will use standard language to assess the additional SECA and/or NIIT at the conclusion of the BBA exam. Ensure the partnership’s BBA-Chapter-2-2A-CD reflects a "1".

(3) When issuing a Form 4549 to a BBA linked partner under this scenario and no Ch 2 and/or 2A tax is included in the report, the following statement should be added in the explanation of items: “The following BBA partnerships are subject to partnership level proceedings pursuant to the Centralized Partnership Audit Regime under Subchapter C of Chapter 63 of the IRC with respect to the taxable year(s) included in this report and accordingly, you may be notified of an additional deficiency under Chapters 2 and/or 2A, to the extent partnership adjustments are relevant to such determination: (LIST BBA PARTNERSHIP LINKAGES).”

(4) Scenario 2 - Agreed: You audit an individual for non-pass-through items and audit the related BBA partnership. The individual is linked to the BBA partnership for material IRC 6501(c)(12) Ch 2/2A issues. If the individual agrees with their individual non-pass-through adjustments, then you have two options with respect to the Ch 2/2A taxes related to the BBA Partnership Adjustment:

(5) Option 1: If the taxpayer agrees with the additional Ch 2/2A taxes related to the BBA Partnership Adjustment; then you may include the additional Ch 2/2A tax on the partner’s Form 4549. The report should specifically note: “The IRS is, under Treas. Reg. 301.6241-6, adjusting PRIs on this partner’s return solely for the purpose of adjusting and assessing additional Ch 2 and/or 2A tax related to the partner’s interest in the BBA partnership.” An examiner utilizing this option must include a Form 8339 to resolve the linkage when closing a linked partner to the TSPC.

(6) Option 2: If the taxpayer disagrees with the additional Ch 2/2A taxes related to the BBA partnership adjustment; then the next processing step is based on the number of days left on the partner’s ASED.

1. If the partner has less than 210 days on their ASED, then you must process a partial assessment (process a prompt assessment if there are less than 90 days) and update the partner’s statute to alpha code AF (or RR until AF is available) before closing the case to the TSPC. The individual will be transferred to the Ogden PTE BBA Ch 2/2A Team to suspend the return until the BBA audit is finalized and the Ch 2/2A issues stemming from the BBA audit can be finally determined and assessed.

2. If the partner has more than or exactly 210 days on their ASED, then you will close the individual to the TSPC due to the linkage. The field is responsible for preparing all the partial documents and including them in the case file. The TSPC will send the individual to CCP for a partial assessment of the individual’s non-pass-through adjustments. Once CCP inputs this partial assessment, the individual will be transferred to the Ogden PTE BBA Ch 2/2A Team to suspend the return until the BBA audit is finalized and the Ch 2/2A issues stemming from the BBA audit can be finally determined and assessed.

(7) When issuing a Form 4549 to a BBA linked partner under Scenario 2 and no Ch 2/2A tax is included on the report, add the following statement in the explanation of items: “The following BBA partnerships are subject to partnership level proceedings pursuant to the Centralized Partnership Audit Regime under Subchapter C of Chapter 63 of the IRC with respect to the taxable year(s) included in this report and accordingly, you may be notified of an additional deficiency under Chapters 2 and/or 2A, to the extent partnership adjustments are relevant to such determination: (LIST BBA PARTNERSHIP LINKAGES).”

(8) For partners who 1) have the NIIT-SECA Coverage issue, and 2) the examiner determines there is a related partnership adjustment to the BBA return Sch K/K-1 Line 14 NESE, you must include the partner-specific 886-A in the partner case file for the BBA Ch 2/2A Team to use to assess the additional SECA at the conclusion of the BBA exam. You must update the partner’s statute to alpha code AF (or RR until AF is available) before closing the case to the TSPC. Ensure the Partnership’s BBA-Chapter-2-2A-CD reflects a 2 or a 3.

(9) For all other partners, the BBA Ch 2/2A Team will use standard language to assess the additional SECA and/or NIIT at the conclusion of the BBA exam. Ensure the partnership’s BBA-Chapter-2-2A-CD reflects a 1.

(10) Scenario 3 - Unagreed to Appeals: You audit an individual for non-pass-through items and the individual is linked to a BBA partnership. If the individual does not agree with their individual non-pass-through adjustments and files a protest in response to the 30-day letter and requests to go to Appeals, then include the additional Ch 2/2A tax on the partner’s Form 4549. The report should specifically note “The IRS is, under Treas. Reg. 301.6241-6, adjusting PRIs on this partner’s return solely for the purpose of adjusting and assessing additional Ch 2 and/or 2A tax related to the partners interest in the BBA partnership.” Close the Form 1040 case to local Technical Services. Local Technical Services will send the Form 1040 case to Appeals. If an agreement between the individual and Appeals is reached, Appeals will send the case to Appeals and Processing Support (APS) for processing. If an agreement is reached regarding the individual non-pass-through items, but not the Ch 2/2A issue, the individual will be transferred to the Ogden PTE BBA Ch 2/2A team to suspend the return until the BBA audit is finalized and the Ch 2/2A issues stemming from the BBA audit can be finally determined and assessed.

(11) Scenario 4 - Unagreed SND: You audit an individual for non-pass-through items and the individual is linked to a BBA partnership. If the individual does not agree with their individual non-pass-through adjustments (requiring issuance of a SND), you will close the Form 1040 case to local Technical Services and a SND will need to be issued to the individual (by local Technical Services) that will include any potential Ch 2/2A adjustments. The Form 4549-A issued with the SND should specifically note “The IRS is, under Treas. Reg. 301.6241-6, adjusting PRIs on this partner’s return solely for the purpose of adjusting and assessing additional Ch 2 and/or 2A tax related to the partners interest in the BBA partnership.” Once the individual agrees to the SND, the SND defaults, or the individual petitions the SND and the Tax Court’s decision is becomes final, any necessary assessment will be made.

(12) Scenario 5 - BBA partnership audit finalized prior to investor audit: You are auditing an individual for non-pass-through items and the individual is linked to a BBA partnership. If the individual audit is being conducted (meaning the case is in ST12) and the BBA partnership audit has been finalized, then the BBA Ch 2/2A Team will send a closing package prepared for the Ch 2/2A adjustments stemming from the BBA partnership audit to you for you to solicit a partial agreement and complete a partial assessment. If a partial agreement cannot be secured, combine all adjustments on Form 4549. Follow the preceding scenarios in that event, but do not include any note regarding Treas. Reg. 301.6241-6. If the Ch 2/2A adjustment is the only unagreed issue, Close the individual to local Technical Services to issue a notice of deficiency.

(1) This requires a mandatory referral to a BBA POC. See instructions in IRM 4.31.9.7.2, Mandatory Referral to the BBA Point of Contact (POC).

(2) If after reviewing the Form 1065 filed by the partnership, it is determined that adjustments to non-PRIs should be made for purposes of tax under Ch 2/2A, then these adjustments are made outside of the BBA.

(3) Procedures for allocating or reporting non-PRI adjustments to the partners of a BBA partnership may require the agent to examine both the partnership and partner, even though linked, to adjust and assess any SECA and/or NIIT.

• One example is required on Sch K/K-1, Line 20, Code Y (Net Investment Income) line reference is from Form 1065 for tax years 2018-2021. Adjustments to items required to be disclosed by the partnership under this form instruction only affect partners’ Ch 2A liability. The examiner will need to examine both the partnership and partner and make the adjustments to both the partnership Sch K, Line 20, Code Y and the partner’s return to adjust and assess additional NIIT.

• Another example is a SECA disclosure to a partner who receives a disguised payment for services. The determination of a disguised payment for services is a PRI, however there is no line item on Form 1065 to report such an amount to the affected partner. As such examiners will be responsible for issuing Form 4549 to the affected partner to assess SECA related to an adjustment asserting the receipt of a disguised payment for services.

(4) A Form 4605-A adjusting and allocating or reporting adjustments to non-PRIs must be prepared and issued to the partnership, following general IRM 4.31.5 ILSC procedures, at the same time as the summary report is issued to the partnership representative.

(5) Forms 886-A and 886-S must be prepared for each partner receiving an allocable share of the non-PRI adjustments.

(1) An examiner is auditing the Form 1040 of an individual taxpayer. Taxpayer is a partner in a partnership that is subject to the BBA regime. The partnership issued a Schedule K-1 to the partner reporting $100,000 of ordinary income on line 1 and $100,000 of income subject to SECA on line 14 of Schedule K. The partner did not report the income as subject to SECA. The examiner determines, as part of the individual’s audit, a Chapter 2 deficiency of $3,800 ($100,000 X 3.8% maximum Medicare rate). BBA doesn’t apply to taxes under Chapter 2 and the inconsistent reporting rules under IRC 6222 can’t be used to assess non-chapter 1 taxes. The examiner is not required to open an audit of the BBA partnership because there are no adjustments to PRIs.

(2) An examiner is auditing the Form 1040 of an individual taxpayer. That taxpayer is a partner in a partnership that is subject to the BBA. The partnership issued a Schedule K-1 to the partner reporting $100,000 of IRC 1231 gain on line 10 of Schedule K from the sale of assets used in one of its trade or business activities. The partner did not report the income as subject to NIIT. The examiner determines, as part of the individual’s audit, that the partner was a passive investor in the BBA partnership and its activities. As such the examiner determines a Chapter 2A deficiency of $3,800. This adjustment and assessment is made in a proceeding outside of the BBA regime. The examiner is not required to open an audit of the partnership under the BBA regime, because the partner’s failure to include this income as NIIT is exclusively a partner level issue.

(3) An examiner is auditing the Form 1040 of an individual taxpayer. That taxpayer is a partner in a partnership that is subject to the BBA. The partnership issued a Schedule K-1 to the partner reporting $100,000 of ordinary income on line 1 and $0 of income subject to SECA on line 14 of Schedule K. The partner did not report the income as subject to SECA. Examiner reviews the partnership’s other partners and notes that all its partners took similar positions with respect to SECA that they, as partners, were not subject to SECA. The examiner may open the partnership for examination and follow procedures in IRM 4.31.9.6.2, Auditing Chapters 2 & 2A - BBA Partnership is the Key Case.

(1) See Exhibit 4.31.9-1, Example 1 - $1,000,000 Adjustment to Sch K line 1 Ordinary Income and $1,000,000 Adjustment to Sch K line 14 Net Earnings from Self-Employment (NESE)- IRC 6501(c)(12) Applies

(2) See Exhibit 4.31.9-2, Example 2 - $1,000,000 Adjustment to Sch K Portfolio Income Items - IRC 6501(c)(12) Applies

(1) A partnership (domestic or foreign) is subject to the U.S. withholding tax rules that apply to payments of U.S. source income to foreign partners. If the partnership has any foreign partner, the examiner should:

1. Refer to the International Knowledge Base and select Repatriation/Withholding Book from the Business Inbound shelf for more information. The International Knowledge Base is located at https://irsgov.sharepoint.com/sites/ETD-KMT-KB008.

2. Coordinate with the Withholding Practice Network.

(2) Assessing Chapters 3 and 4 taxes are generally in proceedings outside of the BBA regime. If foreign withholding is the only issue, the examination is not subject to the BBA regime and the examiner does not have to follow these procedures.

(3) Rate adjustments and failure to file or withhold are determinations that must be made under a Chapter 3 or 4 audit; such as:

1. Applying an incorrect withholding rate on Form 8804 or 1042 on partner level income.

2. A partnership’s failure to withhold any tax on FDAP income to third parties.

3. A partnership’s failure to withhold on a disposition of U.S. real property interests (FIRPTA withholding).

4. A failure to file Forms 1042 and/or 8804 but no disagreement of amount of FDAP or ECI.

(4) Base adjustments may be made under either a Chapter 1 BBA audit or a Chapter 3 or 4 audit which include items identified by Form 1042 or Form 8804 audit; such as:

1. Income omissions by the partnership.

2. Determination that partnership is engaged (or treated as engaged) in a U.S. trade or business and has effectively connected income.

3. Determination that a partnership has U.S. or foreign source income.

4. Any other changes to the character or source of the partnership’s income.

(5) A base adjustment to increase the partnership's income is an adjustment to a PRI and will likely result in an IU. The tax imposed on the partnership for its failure to withhold on that income, however, is not a tax imposed by Chapter 1; rather, it is a tax imposed by Chapter 3.

1. A partnership paying the IU will satisfy its Chapters 3 and 4 withholding obligations.

2. For partnerships that elect to push out the Chapter 1 adjustments, the partnership must pay the amount of tax required to be withheld under Chapters 3 and 4 on any adjustment. If the Chapter 3 or 4 audit is completed first, then any partnership adjustments for which Chapter 3 or 4 withholding has been paid are removed from the calculation of the IU.

3. An audited partnership may have withholding and reporting obligations if it furnishes a Form 8986 to a reviewed year partner that includes an adjustment subject to withholding under Chapter 3 or Chapter 4. In those cases, the audited partnership must withhold the amount required under Chapter 3 or Chapter 4 and deposit the amount with the IRS before the due date for furnishing the Form 8986. See Instructions for Form 1042 or Form 8804 for deposit procedures. The audited partnership must also file an applicable withholding tax return, Form 1042 or Form 8804, and the associated information returns, Forms 1042-S, or Forms 8805, for the calendar year (if filing Forms 1042/1042-S) or tax year (if filing Forms 8804/8805) that includes the date on which the Form 8986 was furnished.

(6) Examples of Chapter 3 or 4 audits:

1. An examiner is auditing Form 1042 filed by a partnership subject to the BBA regime. The partnership has 2 equal partners, one is a U.S. citizen and one is a non-resident alien who is a resident of another country. The partnership earned $200 of U.S. source royalty income and reported $100 on each partner’s Schedule K-1. The partnership withheld $15 from the foreign partner. The examiner proposes a rate adjustment and determines that the partnership should have withheld $30 from the foreign partner. As such the examiner determines a Chapter 3 deficiency of $15. This adjustment and assessment is made in a proceeding outside of the BBA because the tax imposed on the partnership for its failure to withhold on that income, however, is not a tax imposed by Chapter 1. Rather, it is a tax imposed by Chapter 3, which is not covered by the BBA. Even though the examiner is auditing the partnership’s Form 1042, the examiner is not required to open an audit of the BBA partnership’s Form 1065.

2. An examiner is auditing Form 1065 filed by a partnership subject to the BBA. The partnership has 2 equal partners, one is a U.S. citizen and one is a nonresident alien who is a resident of another country. The partnership earned $200,000 of U.S. source royalty income and reported $100,000 on each partner’s Schedule K-1. The examiner notes that the partnership properly withheld $30,000 from the foreign partner. The examiner determines, as part of the Form 1065 audit, the partnership should have reported $400,000 of U.S. source royalty income and proposes a base adjustment. The imputed underpayment is $74,000, calculated as the $200,000 adjustment to royalty income subject to Chapter 1 income tax times the maximum individual rate of 37%. The examiner notes that the partnership should have withheld an additional $30,000 from the foreign partner. In this instance, the $37,000 imputed underpayment attributable to the foreign partner’s $100,000 allocable share of the adjustment satisfies the partnership’s requirement to withhold Chapter 3 tax. If the partnership elects to push out the partnership adjustment, the partnership must remit $30,000 of Chapter 3 withholding on behalf of the foreign partner’s $100,000 allocable share of the adjustment. The audited partnership must also file an applicable withholding tax return, Form 1042, and the associated information returns, Forms 1042-S, Foreign Person's U.S. Source Income Subject to Withholding.

3. Similar facts as example (b) except that the examiner is auditing Form 1042 (instead of Form 1065) and discovers the under-reported royalty. The examiner may determine, assess, and collect Chapter 3 tax attributable to an adjustment to a partnership-related item (increase the partnership’s royalty income) without conducting a BBA examination. The examiner’s assessment will be limited to $30,000 (not the $74,000 imputed underpayment), the Chapter 3 withholding attributable to the foreign partner. This adjustment and assessment is made in a proceeding outside of the BBA because the tax imposed on the partnership for its failure to withhold on that income, however, is not a tax imposed by Chapter 1. Rather, it is a tax imposed by Chapter 3, which is not covered by the BBA. Even though the examiner is auditing the partnership’s Form 1042, the examiner is not required to open an audit of the BBA partnership’s Form 1065.

(1) Subsequent filings: To establish a correct starting point of examination, obtain IDRS prints to determine whether:

1. There are subsequently filed returns for the tax year under examination. If so, secure a copy of the subsequent filings unless already provided. Any subsequent filing would constitute the starting point for any risk analysis and issue consideration, despite that all filings will be considered during the risk analysis.

2. Secure BMFOLT and check for TC 976.

3. Generally, BBA partnerships are required to file administrative adjustment requests (AAR) to amend filed returns for the tax year. When there is a subsequent filing, the examiner must make a mandatory referral to a BBA POC in accordance with IRM 4.31.9.7.2, Mandatory Referral to the BBA Point of Contact (POC). The BBA POC will help determine whether the subsequent filing meets the requirements to be treated as an AAR.

4. Only AARs have special statute update procedures. If the subsequent filing is an AAR, work with the BBA POC to ensure the IRC 6235(a)(1) date is updated properly. See IRM 4.31.9.8.4, Statute of Limitations (SOL) on Making Adjustments. The examiner should consider all adjustments reported on the subsequent filings in addition to Form 1065.

(2) Previous audit adjustments

1. If the partnership return being risk assessed includes payments of an IU, penalties and interest that resulted from a prior year BBA audit (meaning that the reviewed year partnership return is also an adjustment year return) Then the payments for IU and related penalties and interest are nondeductible expenses. Determine if there were any payments of IU, penalties and interest that resulted from a prior year BBA audit that should have been reported in the adjustment year (the current year under examination). If any such payments were deducted, an adjustment should be made.

2. Research IDRS to determine if an IU was actually made by securing a BMFOLT. Upon reviewing the BMFOLT, the recording of an IU is as follows:

   Example:

   Module	Description
   Adjustment Year module (the current year under exam)	TC 971 with AC 813 – Identifies the reviewed year: “BBA: REVIEWED-YR:YYYYMM” and dollar amount of the IU: “SEC TRANS AMOUNT: N,NNN.NN”. This is the cross reference indicating the original reviewed year which is posted to the “adjustment year” when a previous BBA Exam is closed.
   Reviewed Year module (previous BBA Exam year)	TC 300 with RC 187 with the amount of the IU. TC 971 with AC 817 – Records the adjustment year MISC>IU-ADJ-YR:YYYYMM, no amount listed separately as it’s listed under TC 300/RC 187. The adjustment year is the year in which the BBA adjustments and IU amount are considered final.

(3) Negative adjustments (see IRM 4.31.9.9.2.1(2)(b) for definition: If it is determined that the year currently under examination is also an adjustment year for a previous audit with negative adjustments, the examiner should determine if negative adjustments flowing from the previous audit were reported correctly in the adjustment year. To check if negative adjustments were reported in the review year:

1. The negative adjustments related to a prior year BBA examination reported in the adjustment year (the current year under examination) should be consistent in the amount, character, category and timing with amounts reported on Form 15027 or Form 14792 (and corresponding Form 886-As) from the reviewed year or Final court decision if an FPA was petitioned.

2. If the negative adjustments reported in the adjustment year are not consistent with how those adjustments were reflected on Form 14792 or Form 15027, the examiner should consider proposing an adjustment in order to reflect the correct reporting.

3. To determine if there are any negative adjustments to be reported in the audit year, run BMFOLZ for the audit year. For the year for which the negative adjustment was reported, run BMFOLA to determine the adjustment year in which the negative adjustment must be reported. If the adjustment year for a prior examination is also the audit year for the current examination, make sure the partnership filed the tax return for the current examination year consistently with the negative adjustments reflected on Form 14792 or Form 15027 for the prior examination year. If not, propose adjustments for the current examination year to have the partnership be consistent.

(4) Consider any potential non-chapter 1 tax issues; such as, Chapter 2, 2A, 3, and 4 issues.

(1) The examiner must contact the appropriate BBA POC if the partnership exam year involves any of the following:

1. An election into the centralized partnership audit regime for tax years beginning after November 2, 2015 and before January 1, 2018

2. An invalid election out under IRC 6221(b) for reasons other than 1) late filed return, 2) invalid partners, and/or 3) over 100 K-1’s were required to be issued (including by any S corporation partners) for the tax year. These three reasons are automatic denials.

3. Adjustments impacting Chapters 2, 2A, 3, and 4

4. Notice to partner of inconsistent treatment under IRC 6222

5. Netting any of the groupings or subgroupings with negative adjustments that are considered in computing the imputed underpayment

6. Determining one or more specific imputed underpayments, in addition to the general imputed underpayment

7. Penalties, especially when there are negative adjustments

8. Where any subsequent return filing has been filed for a tax year under examination (make the referral to the BBA POC prior to updating the IRC 6235(a)(1) date to ensure such an update is appropriate)

(2) A referral should be made as soon as the need is identified.

1. For LB&I, submit an inquiry into the Request Tracker and request for a BBA POC. The Request Tracker can be found at https://organization.ds.irsnet.gov/sites/LbiEaPaRequestTracker/layouts/15/start.aspx#/SitePages/Homepage.aspx.

2. For SB/SE, submit the request through the SRS system at https://srs.web.irs.gov/.

(1) The centralized partnership audit regime applies to all partnerships required to file information returns under IRC 6031(a) whose tax years begin on or after January 1, 2018, except:

1. Partnerships electing out of the BBA; and

2. Partnerships electing out of partnership status pursuant to IRC 761(a). Refer to IRM 4.31.5, Investor Level Statute Control (ILSC) Examinations - Field Office Procedures.

(2) The examiner must determine, for each tax year, whether the partnership return is subject to the BBA regime by completing Form 15260, Determination of Pass-through Audit Regime check sheet. This is necessary for each tax year since a partnership may have elected out of the BBA for one year under examination but not another. Once Form 15260 is completed by the examiner, it must be signed by the manager and filed in the case file under SAIN 724 for LB&I or Section 600 for SB/SE.

(3) Section 1101(g)(4) of the BBA also provides that partnerships may “elect” to have the centralized partnership audit regime apply to partnership returns filed for tax periods beginning after November 2, 2015 and before January 1, 2018. This election may only be made within 30 days of the date the IRS first notifies a partnership in writing that its return has been selected for examination (via Letter 2205-D) or by filing an Administrative Adjustment Request under IRC 6227.

(4) If the partnership is not subject to the BBA regime, the examination is subject to deficiency procedures at the partner level. Follow IRM 4.31.5, Investor Level Statute Control (ILSC) Field Office Procedures.

(5) Record the determination whether it’s a BBA partnership or not on the activity record.

(1) If there is an election out, determine if the election is valid. An election out is deemed valid until the IRS says it’s invalid.

(2) Eligible partnerships may make the election under IRC 6221(b) to elect out of the centralized partnership audit regime on their timely filed Form 1065/1066, Schedule B, question 25 (including extensions). AMDISA in the BBA PARTNERSHIP section will display “ELECT-OUT-OF-BBA-CD>1” if there’s an election out.

(3) In addition, eligible partnerships must attach Schedule B-2 to provide information concerning their partners as required by IRC 6221(b)(1)(D) to include each partner’s name, correct TIN, and federal tax classification.

(4) The goal is to have a complete list of the terminal partners for linkage and assessment purposes. The examiner and his/her manager have the discretion to approve the election out even if the information reflected on Schedule B-2 was transposed incorrectly, and the IRS has information that would remedy the incorrect information. Always consult the BBA POC if there are any concerns.

(1) Once an election is made by the partnership to elect out of the BBA regime, it cannot be revoked without the consent of the IRS.

(2) A request to revoke the election out of the BBA regime can be made within the first 30 days after the partnership has received notification from the IRS that an examination will take place (via Letter 2205-D). An election to revoke an election out must be done on a year-by-year basis.

(3) Partnership must mail or submit Form 15288, Request to Revoke Partnership Election under IRC 6221(b) or Request to Revoke Election under 1101(g)(4), to the person whose name appears on Letter 2205-D:

1. Form 15288 must be prepared on a year-by-year basis. Form 15288 cannot be prepared for multiple years.

2. Form 15288 should be signed and dated by any person who is authorized to sign the Form 1065. Any partner or LLC member is considered an authorized person to sign Form 1065.

3. The partnership must also designate a partnership representative and submit Form 8979, Partnership Representative Revocation/Resignation and Designation.

(4) If IRS accepts the Revocation of the Election Out of the BBA, the partnership should be given 30 days to file a BBA AAR before the NAPs are issued.

(1) The partnership must designate a PR on each return filed for tax years beginning after December 31, 2017. The designation is effective on the date the return is filed.

1. Form 1065, page 3 should reflect the designation of the PR. Generally, this is the initial designation of record.

2. There may only be one designated partnership representative for a partnership’s tax year at any time.

(2) A PR has a key role in a BBA proceeding. Under IRC 6223, the PR that has the sole authority to act on behalf of the partnership. All partners and the partnership are bound by the PR’s actions and the PR’s final decision in a BBA proceeding.

(3) A PR can be any person, including the partnership itself. The PR is not required to be a partner, an employee, or have any other relation to the partnership. This allows the partnership to select the person best situated to represent the partnership. The PR must have a substantial presence in the United States. See IRM 4.31.9.7.6.1 for Substantial Presence Test.

(4) A partnership representative can be either an entity or an individual person.

1. Typically, both are referred to as the "partnership representative" or "PR"; a partnership representative that is itself an entity may alternatively be referred to as an "entity partnership representative" or "EPR". If an EPR is designated, a designated individual (DI) must also be appointed at the same time. The DI acts on behalf of the entity PR. The DI must also have substantial presence in the United States.

2. A partnership representative that is an individual may alternatively be referred to as an "individual partnership representative" or "IPR".

Note: For simplicity, throughout this IRM, the term PR will be used (unless discussing subject matter that requires more specificity).

(5) The IRS is not bound by any limitations, restrictions or agreements placed upon the PR by the partnership in the partnership agreement, any side agreements or any other document to which it is not a party.

(6) The designation of a PR remains in effect until the designation is terminated by a valid revocation, a valid resignation, or a determination by the IRS that the designation is not in effect (no PR designation in effect). If there is a change to the PR or DI, any valid actions of the former PR or DI prior to the change will remain valid and in effect.

(7) A partnership, through an authorized person, may designate or change the PR or DI by submitting Form 8979 to an IRS point of contact (i.e., examiner, Appeals Officer, or Counsel Attorney). An authorized person is a person who was a partner at any time during the partnership tax year to which the designation or change relates. For more information on Form 8979, see the Form 8979 instructions at https://www.irs.gov/forms-pubs/about-form-8979.

(8) Form 8979 may also be submitted in conjunction with the partnership’s filing of an administrative adjustment request. The change in designation (or appointment) is treated as occurring just prior to the filing of the administrative adjustment request. It is the new PR that signs the AAR.

(9) Document all actions concerning the identification of the PR in the case file under Section 600 for SB/SE or SAIN 724 for LB&I cases. Examiners may use the Partnership Representative of Record Job Aid to keep track of all the designations. The Partnership Representative of Record Job Aid can be found at https://irsgov.sharepoint.com//:x:/r/sites/ETD-KMT-KB038/_layouts/15/.

(1) The examiner is required to make a mandatory referral for a BBA POC when an AAR or other subsequent filing is part of the exam year filings.

(2) A partnership may file an AAR under IRC 6227 with respect to any PRI and correct errors on a previously filed partnership return. However, a partnership may not file an AAR solely for the purpose of changing the designation of a PR. Under certain Rev. Proc. guidance, partnerships were permitted to file subsequent returns that are not AARs.

1. The filing of an AAR will extend the IRC 6235(a)(1) statute date which is 3 years from the date the AAR was filed.

2. A subsequent filing other than an AAR may not extend the IRC 6235(a)(1) statute date.

(3) Upon assignment of the case, the examiner should check to see if a subsequent filing has been made. To do this, check IDRS prints (TXMODA or BMFOLT) for the presence of a TC 976. This TC may or may not be preceded by a TC 971 with action codes 010 or 013. If a TC 290 exists, it means that the Campus has processed the subsequent filing. If a TC 290 is not present, that is an indication that the Campus has not yet made a disposition with regard to the subsequent filing.

(4) If a subsequent filing is indicated on IDRS or the examiner encounters subsequent filings during a BBA examination, the examiner should immediately notify the IRS “BBA Point(s) of Contact (BBA POC)”. The BBA POC will assist the examiner on how to:

1. Determine if the subsequent filing includes all of the information required by the statute and applicable regulations to be accepted as a valid BBA AAR.

2. Confirm that the subsequent filing was timely filed.

3. Determine if the subsequent filing was made prior to issuance of the NAP when the tax year is under examination.

4. Discuss if an update to the statute of limitations (SOL) on making adjustments under IRC 6235(a)(1)(C) is appropriate and if so, how to update that SOL.

5. Proceed with the examination.

   Note: If the subsequent filing was filed for a tax year beginning prior to January 1, 2018; it is possible that it is an AAR that also provided an early election into BBA. It is important to make a BBA POC referral for assistance. Please see IRM 4.31.9.12.3, Early Elections Made With Administrative Adjustment Requests (AARs).

   Note: A partnership with a short period partnership tax year that begins after December 31, 2017 may file a BBA AAR as long as the partnership did not make an election out of the centralized partnership audit regime under IRC 6221(b) on its tax return for the short year filing.

(5) If the partnership directly provides the examiner a subsequent filing upon exam the examiner should immediately notify the BBA POC. The BBA POC will assist the examiner on how to do the following and determine next steps:

1. Confirm whether the subsequent filing was filed with the service center and if so, assist the examiner with requesting a copy from the service center for reconciliation purposes.

2. Determine if the subsequent filing includes all the information required by the statute and applicable regulations to be considered a BBA AAR.

3. If a BBA AAR, confirm that the BBA AAR was timely filed. Ensure that the BBA AAR was filed before the issuance of the NAP when the tax year is under examination.

4. Whether a BBA AAR or another subsequent filing, discuss if an update to the statute of limitations (SOL) on making adjustments under IRC 6235(a)(1)(C) is appropriate and if so, how to update that SOL.

(6) The table in Exhibit 4.31.9-4 describes the various scenarios for which an AAR may be filed and the applicable audit regime to be applied.

(1) All initial taxpayer contacts must be made by mail. Prepare and mail Letter 2205-D, Initial Contact to Schedule Appointment - Partnership Returns, to all partnerships regardless of the tax year.

(2) Letter 2205-D is used to:

1. Provide notice of selection for examination to any partnership, whether subject to the unified rules under TEFRA (Tax Equity and Fiscal Responsibility Act of 1982), the centralized partnership audit regime (Bipartisan Budget Act of 2015), or separate deficiency proceedings;

2. Confirm certain information of record; and

3. Request that the taxpayer call-back to schedule an initial appointment for the examination of partnership income tax returns.

(3) Letter 2205-D has selectable paragraphs.

1. Select the appropriate paragraph 1 or 2 based on whether SB/SE or LB&I:

Paragraph number	Division
1	SB/SE taxpayers
2	LB&I taxpayers

2. Select the applicable paragraphs 3 through 6 for the appropriate regime:

Paragraph number	Audit Regime
3	TEFRA Partnerships
4	Non-TEFRA Partnerships
5	BBA Partnerships (tax periods beginning 1/1/2018 or after). See Note below for additional information.
6	Partnerships that elected out of BBA for tax years beginning 1/1/2018 and after

Note: If paragraph 5 is used, ensure that the name and address of the PR is inserted where indicated. If an IPR, insert the IPR’s name and address. If an EPR, insert both the EPR’s name and address and the DI’s name and address. See IRM 4.31.9.7.6, Partnership Representative for details about EPR vs. IPR. See IRM 4.31.9.7.6.5 if IRS records do not reflect a Partnership Representative for the partnership.

(4) The letter also alerts the partnerships to the time sensitive election for partnerships whose tax periods begin after November 2, 2015 and before January 1, 2018 to elect into the centralized partnership audit regime (BBA). The election must be made within 30 days from the date on Letter 2205-D.

(5) Mail Letter 2205-D to the partnership’s last known address (which is either the address on the return or on IDRS Master File Entity if more current).

1. Review INOLES for the last known address for the partnership.

2. Include a response due date that is 30 days from the date the letter is mailed.

3. The partnership has 30 days to respond to Letter 2205-D, but you may contact the partnership after 14 days of mailing the letter to help ensure the partnership understands all of the information so it can take any allowable action it deems appropriate prior to issuance of the NAP letters, which will be mailed 30 days after the mailing of Letter 2205-D.

   Note: Do not send Form 7036, Election under Section 1101(g)(4) of the Bipartisan Budget Act of 2015, with Letter 2205-D. Do not include or attach any IDRs to Letter 2205-D.

(6) A copy of Letter 2205-D should be filed under Section 600 for SB/SE and under SAIN 724-BBA for LB&I.

(7) Letter 2205-D should be re-issued and another 30 days allowed to respond, if one of the following occurs.

1. The letter is returned undeliverable. If this happens, you must review INOLES to confirm the last known address. Any and all undeliverable notices of selection for examination are addressed under IRM 4.10.2.8.4, Undeliverable Initial Contact Letters.

2. You issued Letter 2205-L or any other Letter 2205 to the partnership instead of Letter 2205-D. Letter 2205-D must be used for partnership audits.

3. You issued Letter 2205-D with the wrong selectable paragraph or no selectable paragraphs. See IRM 4.31.9.7.8(3), Initiate Taxpayer Contact (Letter 2205-D).

4. You did not properly include the IPR and/or EPR/DI information (Name or Address) correctly on Letter 2205-D.

5. The letter was issued with a response date that was less than 30 days from the date the letter is mailed.

   Note: Letter 2205-D can be reissued only if the NAP letters have not yet been issued. If the examiner has already issued the NAP letters, Letter 2205-D cannot be re-issued.

(8) If the taxpayer fails to respond to the initial contact letter, and it was not returned as undeliverable, follow the procedures in IRM 4.31.9.7.6.9, Irresponsive Partnership.

(9) If Letter 2205-D was issued, but the NAP letters (Letter 5893 and Letter 5893-A) have not been issued, records have not been inspected and there is a decision to withdraw from the exam and survey the return:

1. Issue Letter 1024, Return Accepted as Filed.

2. Follow the survey after assignment closing procedures in IRM 4.10.2.5.2, Procedures for Surveying Returns After Assignment.

(1) The BBA partnership check sheets are designed to assist examiners in completing the required BBA procedures as well as the BBA elect out (BEO) Investor Level Statute Control (ILSC) procedures. Managerial involvement and signatures are required on all the mandatory forms.

(2) It is critical for the IRS to follow BBA / ILSC rules and procedures during examinations, since procedural errors can affect the validity of adjustments, assessments, infringe on taxpayer rights, and result in improper disclosures of tax information.

(3) The check sheets in paragraph (4) will be used when examining a partnership or a limited liability company filing as a partnership subject to the BBA regime or alternatively an entity that is subject to the ILSC provisions. Additionally, some of the check sheets will be used while considering the applicability of Ch 2/2A tax (SECA and NIIT) and any resulting PCS linkage controls. The check sheets will serve as documentation to confirm the actions taken or decisions made in following the BBA/ILSC and Ch 2/2A procedures.

(4) The following check sheets are mandatory and must be completed for each tax period of the BBA entity / ILSC entity (fka non-TEFRA entity) being examined.

• Form 15260, Determination of Pass-Through Audit Regime Check Sheet is mandatory. The completed check sheet will be included in the audit file to document whether the partnership is or is not subject to the centralized partnership audit regime (BBA procedures). The examiner’s manager must review this check sheet and work papers. The manager’s signature is mandatory on the Determination of Pass-through Audit Regime check sheet.

• Form 15262, Bipartisan Budget Act (BBA) Partnership Procedures Check Sheet is mandatory once you determine that the partnership is to be examined using the centralized partnership audit regime (BBA procedures). The completed check sheet will be included in the audit file. This check sheet provides the specific procedural elements necessary to conduct a quality BBA field examination. The examiner’s manager must review the BBA Partnership Procedures Check Sheet and work papers to ensure all appropriate procedures have been completed. The manager’s signature on the BBA Partnership Procedures Check Sheet is mandatory and indicates the appropriate procedures have been reviewed and have been correctly completed.

• Form 15271, Bipartisan Budget Act (BBA) Partnership Adjustment Statute Extension Check Sheet is used for BBA partnerships in lieu of Form 10949. Also see IRM 4.31.9.8.4 and IRM 4.31.9.8.4. Apply the basic logic contained in the general guidance provided in IRM 25.6.22 and IRM 25.6.23 as indicated throughout Form 15271. This check sheet guides field agents and their managers on securing Form 872-M to extend the statute of limitations on making adjustments per IRC 6235(b) and the procedural requirements involved.

• Form 15263, Bipartisan Budget Act (BBA) Partnership Chapter 2/2A Relevant Partner Determination is mandatory and the manager’s signature signifies that BBA Chapter 2/2A procedures are being adhered to. The BBA Chapter 2/2A Relevant Partner Determination check sheet includes the steps necessary to determine, among other things, whether the respective BBA partner(s) are subject to Chapter 2/2A taxes, the statute for the Chapter 2/2A taxes, and if a Chapter 2/2A linkage package is required. Further guidance on Chapter 2/2A tax and the 2/2A dual procedures is found in this IRM in the specified section on that topic.

• Form 15264, Bipartisan Budget Act (BBA) Chapter 2/2A Linkage Check Sheet is mandatory. It guides examiners in completing the required information when submitting a BBA Chapter 2/2A linkage package and must be completed with the specified attachments. The manager’s signature on the Chapter 2/2A Linkage Check Sheet is mandatory and indicates the linkage package has been reviewed, is accurate and complete.

• Form 15416, Form 8979 Validation Check Sheet (for Revocations, Designations, and Redesignations), is mandatory when you receive a Form 8979 for revocations, designations, or redesignations and helps determine whether the Form 8979 is valid. This form assists the examiner where the audited partnership has been identified as subject to the BBA regime and the IRS point of contact (i.e. appeals officer, or counsel attorney) has received a Form 8979 from the partnership to revoke a partnership representative or designated individual or to designate a partnership representative/designated individual where there is no designation in effect. The IRS point of contact may also receive Form 8979 to resign. This form is not applicable and should not be used for TEFRA partnerships, ILSC partnerships or BBA elect out (BEO) entities that are audited under ILSC procedures.

• Form 15261, Investor Level Statute Control (ILSC) Pass-through Procedures Check Sheet is mandatory and requires managerial involvement for an entity that has validly elected out of BBA, BBA Elect Out- (BEO), and for which the BBA audit regime does not otherwise apply. The manager’s signature on the ILSC Pass Sheet is mandatory and indicates the ILSC procedures have been reviewed and have been correctly completed.

(5) SB/SE examiners will file these check sheets and other BBA work papers under a separate line item in Section 600 on the Form 4318, Examination Workpaper Index. LB&I examiners will file the BBA check sheets and work papers under SAIN number 724.

(1) Form 2848, Power of Attorney and Declaration of Representative, is used to authorize an individual to represent a partnership representative (PR) who is acting on behalf of the partnership under the Centralized Partnership Audit Regime. Refer to IRM 4.11.55, for Power of Attorney rights and responsibilities.

(2) The Individual Partnership Representative (IPR) or Designated Individual (DI) (for an Entity Partnership Representative (EPR)) of record must sign the Form 2848.

(3) If the PR is changed (revoked, resigns, etc.) a new POA Form 2848 will be required. The new Form 2848 will have to be signed and dated by the newly appointed PR.

(4) There should be a separate Form 2848 for each year as the PR could be different and a POA is appointed by a specific PR for a specific tax return year.

(5) An individual authorized on Form 2848 must be eligible to practice before the IRS. Under IRM 4.11.55, you should verify the credentials and document the verification in the case file. To verify, you may use the following resources.

1. The Directory of Federal Tax Return Preparers with Credentials and Select Qualifications, which can be found at https://irs.treasury.gov/rpo/rpo.jsf.

   Note: Attorney and CPA credentials are self-reported to the IRS and the IRS verifies attorney and CPA credentials before including them in the directory, but a credential may become invalid after verification. You should rely on the source of the credential (e.g. state board of accountancy or state bar) and not on this directory for the most current status. Additionally, the IRS does not endorse any preparer or credential over another.

2. To check the license status of a power of attorney, you can perform an internet search for CPA license holders, state bar members, etc. Current license or bar membership information is available at CPA verify at https://cpaverify.organd Attorney Licensing Verification at https://www.justice.gov/eoir/attorney-licensing-verification. Not all states provide online information, therefore, a phone call to the appropriate state agency may be required.

3. A list of active enrolled agents is available at Active Enrolled Agents Listing at https://www.irs.gov/tax-professionals/enrolled-agents/active-enrolled-agents-and-the-freedom-of-information-act

4. The Office of Professional Responsibility provides search features on its website to indicate whether a practitioner has been suspended or disbarred from practice before the IRS or enjoined from representing taxpayers at https://www.irs.gov/tax-professionals/search-for-disciplined-tax-professionals.

(6) For matters unrelated to the centralized partnership audit regime, a separate Form 2848 must be signed by a partner that has authority to do so under state law. Please refer to IRM 4.31.9.7.10.2, Form 2848, Part I for Chapter 2, 2A, 3 and 4 Income Items Outside of the BBA Regime, below. For dissolved partnerships, see 26 CFR 601.503(c)(6).

4.31.9.7.10.1 (10-29-2021)

Form 2848, For Items Within the Scope of the BBA Regime

(1) Part I, Line 1, of Form 2848, Taxpayer Information should be completed to reflect the partnership representative name, the partnership name and TIN of the partnership:

(2) Part 1, Line 3, of Form 2848, Acts Authorized

(3) Part 1, Line 5, of Form 2848, Additional acts authorized

1. Though not required, under Part 1, Line 5a of Form 2848, it is a best practice to list each act the PR authorizes the POA to perform. These would be acts other than the normal authorization to work with the examiner and exchange confidential information.



2. Pay attention to Part 1, Line 5b to identify any restrictions to the POA’s authority. If there are to be any restrictions on the representative’s authority, those restrictions should be clearly stated in Part 1, Line 5b of Form 2848.

(4) Part 1, line 7, of Form 2848, Signature. The partnership representative signs. If the partnership representative is an IPR, the form is signed by IPR. If the partnership representative is an entity, the form is signed by the DI:

4.31.9.7.10.2 (01-24-2024)

Form 2848, for Chapter 2, 2A, 3 and 4 Items Outside the Scope of the BBA Regime

(1) A Form 2848 for Chapter 2, 2A, 3 and 4 items outside the scope of the BBA regime might be required:

1. If a Chapter 2 (SECA) issue is pursued on a direct or indirect partner and there is a related adjustment to Sch K/K-1 L14, Form 2848 will not be required as Sch K/K-1 L14 is a PRI, thus, the agent can discuss with the PR adjustments to NESE without a non-BBA Form 2848.

2. If a Chapter 2 (SECA) issue is pursued on a direct or indirect partner and there is no related adjustment to Sch K/K-1 L14, a Non-BBA Form 2848 will be required. A Non-BBA Form 2848 will always be required for Chapter 2A (NIIT) issues.

   Note: One example is Schedule K/K-1 Line 20 Code Y, any discussion about these disclosures on the Form 1065. Another example is the Analysis of Net Income section on the top of page 5, any discussion about the partnership’s classification of the partners for purposes of NIIT.

3. If Form 1065 is not under audit and the agent is auditing only Form 1042, a non-BBA Form 2848 will be required. Please refer to Form 2848 Instructions and IRM 4.10.21, U.S. Withholding Agent Examinations – Form 1042.

(2) Part 1 of Form 2848, Line 1 would include the name, address, and TIN of the partnership.

(3) Part 1 of Form 2848, Line 3 should show that the POA is being executed for matters dealing with income including pass-through items and foreign withholding. It should also list all applicable tax forms and tax years.

(4) For a discussion of who can sign Part 1 of Form 2848, Line 7 see IRM 4.31.5.12.1.2, Entity POA, since this Form 2848 is being executed for Chapter 2, 2A, 3 and 4.

(1) The IRS must mail the partnership and the PR a NAP when initiating an examination of the partnership for a tax year, including an examination following an AAR filed by the partnership. Issue the NAP no earlier than 30 days from the issuance of Letter 2205-D and no later than the earlier of the opening conference date or the date books and records are first inspected.

(2) Prepare and mail the NAP letter via certified mail. If there is a foreign address, then use registered mail. The letter date should match the mailing date.

1. Send Letter 5893, Notice of Administrative Proceeding - Partnership, via certified mail to the partnership’s last known address.

2. Send Letter 5893-A, Notice of Administrative Proceeding - Partnership Representative, to the PR’s last known address. If the PR is an EPR, send via certified mail to the EPR with the attention to the DI and use the EPR’s last known address. If the IRS has declared there is no PR designation in effect when issuing the NAP letters, send a generic NAP letter, via certified mail, addressed to "PARTNERSHIP REPRESENTATIVE" at the last known address of the partnership. Do not mail Letter 5893-A to the DI’s address. See below for an example of a generic NAP:

   Note: It is a best practice to print and save the INOLES and save the certified mail receipt (the receipt for mailing, not the green signature card) for both NAP letters and file them under Section 600 for SB/SE and SAIN 724 for LB&I.



3. The IRS return address information should be added to the upper left side of the NAP.

4. If the partnership or PR has terminated its existence, and a current mailing address can’t be found, contact a BBA Point of Contact for assistance.

5. Include the PR name in the "Partnership Representative on file" box. If the PR is an entity, you must include the names of both EPR and DI in the "Partnership Representative on file" box.

   Note: The Power of Attorney’s name never gets included in the "Partnership Representative on file" box on Letter 5893 and Letter 5893-A.

(3) If both NAP letters were mailed to the respective last known addresses, but either was returned as undeliverable, contact the Partnership Representative or POA and request an alternative address for the purposes of mailing copies of notices. If both letters were returned, request an alternative address for both the partnership and the PR. Ask the Partnership Representative or POA to make the alternative address request in writing so that it can be documented for the case file. Inform the PR or POA that statutory notices will still be mailed to the last known address per IRS records; however, copies will be mailed to an address of convenience if documented in the way described here. Therefore, upon receiving the written alternative address request, you can send copies of the NAP letters to such address.

(4) A partnership cannot file an AAR and its partners cannot amend their returns to file inconsistently from the partnership after the NAP letters have been mailed with respect to the tax year.

(5) A separate set of NAP letters are sent for each year under examination since each year stands on its own. Do not delay issuing the NAP. Letter 5893 and 5893-A need to be sent in separate envelopes.

(6) The case file should be documented to show that the partnership and PR NAP letters were issued in accordance with IRC 6223. Letter 5893 and Letter 5893-A should be filed within SAIN 724 (LB&I) or Section 600 (SB/SE).

(1) In general, under IRC 6222 a BBA partner’s return must be consistent with the partnership return in all respects, including:

1. Items reported on the partnership return filed with the IRS (including amendments or supplements thereto),

2. Any AAR filed by the partnership under IRC 6227 and the regulations thereunder, and

3. Any push out statement, schedule or list (including amendments or supplements thereto) filed by the partnership with the IRS pursuant to section 6226 and the regulations thereunder.

   Note: The BBA consistency principles do not apply to any Ch 2/2A tax issues and therefore SECA tax and NIIT cannot be assessed under the math error procedures as described under IRC 6222.

(2) Also, a partner is bound by any action taken by the partnership representative and any final decision in a proceeding with respect to the partnership under the BBA regime.

(3) If the treatment of an item on the partner’s return is consistent with how the item was treated on a schedule (e.g., Schedule K-1) or other information furnished to the partner by the partnership but inconsistent with the treatment of the item on the partnership return that is filed with the IRS, the partner’s reporting is considered inconsistent with the partnership return.

• Upon receipt of notice of such inconsistency, a partner may file an election under IRC 6222(c)(2)(B). A partner will be treated as being consistent if the partner makes an election under IRC 6222(c)(2)(B).

(4) A partner’s treatment of a PRI attributable to a partnership that did not file a return is always treated as being inconsistent.

(5) For a pass-through partner that is a partnership (PTPP), the consistency principle applies whether the PTPP is subject to the centralized partnership audit regime or has made an election out pursuant to IRC 6221(b). For a BEO PTPP, the examination math error procedures would apply to the BEO PTPP individual partner level inconsistencies.

(6) A carve out provision in the regulations does exist whereby a BBA PTPP or a BEO PPTP can resolve an inconsistency prior to math error assessment by filing an AAR or amended return, respectively. For details see IRM 4.31.9.8.2.3, Notify the Partner of an Assessment on Account of Mathematical Error (paragraph 3).

(1) As discussed above, after a NAP is issued, an AAR cannot be filed. However, for LB&I taxpayers, the partnership may submit informal claims within 30 days from the opening conference which is consistent with the LB&I Examination Process (LEP), see IRM 4.46.3.7.1.1, The 30-day Window Expectation. An informal claim is a request to change any PRI that may result in a negative adjustment.

(2) Informal claims timely submitted by a BBA partnership must meet the standards of Treas Reg 301.6402-2, which provides that a valid claim must:

1. Set forth in detail each ground upon which credit or refund is claimed;

2. Present facts sufficient to apprise the IRS of the exact basis for the claim; and

3. Contain a written declaration that it is made under penalties of perjury.

(3) A BBA partnership must submit or mail the informal claim to the person whose name appears on Letter 2205-D within 30 days from the initial conference.

(4) If the informal claim complies with the above requirements the informal claim issue(s) must be included in the audit plan. Develop the issue(s) and prepare Form 886-A accordingly.

1. For each adjustment allowed in full or in part, make a negative adjustment in the amount that’s allowed on Form 886-A. The adjustment will reflect on the applicable grouping and subgrouping per purposes of Forms 14791 and 14792.

2. For each adjustment disallowed in full, notate the adjustment as being disallowed in full and show a zero amount on Form 886-A. The adjustment will reflect in the “Other Information” section of Forms 14791 and 14792.

   Example: PR provides a claim with two adjustments; decrease gross receipts by $100 and increase supplies by $200. Examiner partially agrees that gross receipts should be decreased by $50 but that’s it. Adjustments would be shown as follows:

   Description	Amount
   SCH K, line 1, Supplies	$0
   SCH K, line 1, Gross Receipts	-$50 (negative amount)

   Form 886-A should provide detailed information about the adjustments, including but not limited to, what was reported on the return, the claim the PR is requesting, analysis of and why the adjustment is disallowed or allowed, etc.

(5) Do not accept any informal claim after the 30-day window has lapsed unless certain exceptions are met as provided under the LEP. LB&I examiners refer to the LEP and Pub 5125, LB&I Examination Process, for details.

(1) Statute control is usually the number one priority in all programs. Refer to IRM 25.6, Statute of Limitations Handbook.

(2) Under the centralized partnership audit regime, the statute is controlled at the partnership level. Ensure that cases transferred from the team/group to Technical Services will be received with the following periods of time remaining on the statute; otherwise, the examiner must follow IRM 4.31.9.11.5, BBA Imminent Statute Procedures:

(3) Utilize Form 15271, Bipartisan Budget Act (BBA) Partnership Adjustment Statute Extension Check Sheet, for BBA statute extensions.

(4) If a case has been referred to Criminal Investigation (CI) or is under joint investigation with CI, written agreement from CI must be obtained before a request is made to extend the statute. See IRM 25.6.22.2.1(6), Assessment Statute Extension.

(1) If the examination results in a no-change, discuss the examination results with the PR. Notate the discussion in the activity record.

(2) If the PR agrees with the no-change or if the PR is unresponsive, Technical Services will prepare and CCP will issue the no-change letters to the partnership (Letter 6099, BBA No Change - Partnership) and PR (Letter 6099-A, BBA No Change - Partnership Representative). The examiner will not prepare a summary report package or NOPPA package for an agreed no-change. Go to IRM 4.31.9.11, Case Disposition Procedures for next steps.

(3) If an LB&I case, and if the PR doesn’t agree with the no-change determination because the PR presented an informal claim, prepare a summary report and a 30-day letter package - IRM 4.31.9.8.3 - Informal Claims (LB&I Taxpayers). Issue a 30-day letter if there is sufficient time on the IRC 6235(a)(1) date.

(4) LB&I will not require a formal claim if an issue has been identified for examination, unless IRS published guidance specifically requires formal claims to be filed for an issue (e.g. Notice 2008-39 for research credit claims).

(1) A partnership does not compute and pay an income tax upon filing Form 1065 but instead passes through any profits and losses to its partners. However, when a partnership is examined under the BBA regime, any partnership adjustment resulting in an imputed underpayment and the applicability of any penalty, addition to tax, or additional amount (plus interest as provided by law) that relate to such an adjustment are determined, assessed and collected at the partnership level.

(2) Partnership adjustments are communicated to the partnership in accordance with the existing report writing procedures for SB/SE and LB&I. In general, Form 886-A, Explanation of Items, is used to convey each adjustment. In addition to preparing a Form 886-A for each substantive issue, prepare a Form 886-A for each applicable penalty, and for the imputed underpayment calculation.

(3) An imputed underpayment may reflect an amount that is larger than the cumulative amount of tax the partners would have paid as a result of the partnership adjustments. This is not an attempt to maximize tax revenue. The imputed underpayment is calculated under IRC 6225 which has its own specific computation. The partners’ individual tax circumstances are not taken into account when computing the imputed underpayment under IRC 6225. The imputed underpayment is a partnership-level tax that is unrelated to the partners’ tax.

(4) There are two types of imputed underpayments: a general imputed underpayment and a specific imputed underpayment. Each type of imputed underpayment is based solely on partnership adjustments with respect to a single tax year, and is separately calculated.

1. General imputed underpayment: Normally, only a general imputed underpayment will be calculated. There can only be one general imputed underpayment in any administrative proceeding which is determined at the field level. The general imputed underpayment is calculated based on all partnership adjustments (other than adjustments that do not result in an imputed underpayment, and any adjustments taken into account in a specific imputed underpayment calculation).

2. Specific imputed underpayment: Generally, at the field level, there is no specific imputed underpayment. However, per IRS discretion, it may be determined that partnership adjustments for the same partnership tax year result in more than one imputed underpayment (i.e., a specific imputed underpayment). One or more specific imputed underpayments may be determined to be appropriate at the field level (or could be requested by the taxpayer during the exam) based on the facts and circumstances and the nature of the partnership adjustments. For example, adjustments to a PRI or items that were allocated to one partner or a group of partners that had the same or similar characteristics, or that participated in the same or similar transaction, may be determined to be appropriate for a specific imputed underpayment. A specific imputed underpayment, if requested by the taxpayer, will generally be done in modification after the NOPPA has been issued. However, a specific imputed underpayment being considered at the field level due to a taxpayer request, is a mandatory BBA POC referral.

4.31.9.9.2.1 (01-24-2024)

Imputed underpayment (IU)

(1) The formula for computing the imputed underpayment (IU) is as follows:

(2) The process of taking the proposed audit adjustments and inputting those adjustments into the above formula requires an understanding of the unique BBA concepts of grouping, subgrouping and netting.

1. Grouping: Grouping involves placing each proposed audit adjustment into one of four groupings: reallocation, credit, creditable expenditure and residual. Each of these groupings will be explained in more detail below.

2. Subgrouping: After an adjustment is placed into a grouping, the adjustment’s subgrouping must be determined. Subgrouping is the process of further defining that adjustment into a subgrouping, generally in accordance with how that adjustment would be required to be taken into account separately under IRC 702(a) or any other provision of the Code, regulations, forms, instructions, or other guidance prescribed by the IRS applicable to the adjusted PRI. This is necessary to keep adjustments that are similar in nature together while keeping adjustments that are different apart. These subgroups generally follow the line items on Schedule K/K-1 or other separate and distinct line items on Form 1065 and schedules.

   Note: A negative adjustment is any adjustment that is a decrease in an item of gain or income, an increase in item of loss or deduction, or an increase in an item of credit or creditable expenditure, a decrease in an item of tax, penalty, addition to tax, or additional amount for which the partnership is liable under Chapter 1, or a decrease to an imputed underpayment calculated by the partnership for the taxable year. A positive adjustment is any adjustment that is not a negative adjustment.

3. Netting: Generally, netting is the process of summing all adjustments together within each grouping or subgrouping, as appropriate. The specific rules and limitations of netting will be discussed later.

(3) Once all adjustments have been grouped, subgrouped and netted, the total netted partnership adjustment (TNPA) can be determined and entered into the above formula. The TNPA is the sum of all net positive adjustments in the reallocation grouping and the residual grouping. If, after netting, either the reallocation or residual grouping summed total is less than or equal to zero, it is not taken into account in calculating the TNPA.

1. A net positive adjustment means an amount that is greater than zero which results from netting adjustments within a grouping or subgrouping. A net positive adjustment also includes a positive adjustment that was not netted with any other adjustment.

2. A net negative adjustment means any amount which results from netting adjustments within a grouping or subgrouping that is not a net positive adjustment. A net negative adjustment also includes a negative adjustment that was not netted with any other adjustment.

(4) Multiply the TNPA by the highest rate of Federal income tax in effect for the reviewed year under IRC 1 or 11 and increase or decrease the product by:

1. The net positive adjustments from the creditable expenditures. A net decrease to creditable expenditures is treated as a net positive adjustment to credits and increases the product of the TNPA times the highest tax rate in effect. A net increase to creditable expenditures is treated as a net negative adjustment that is excluded from the calculation of the TNPA and is an adjustment that does not result in an IU.

2. The net positive adjustments from the credit grouping. A net decrease to credits is treated as a net positive adjustment to credits. A net positive adjustment in the credit grouping includes a net decrease in an item of credit. A net positive adjustment in the credit grouping increases the product of the TNPA times the highest tax rate in effect for the reviewed year.

3. The net negative adjustment from the credit grouping may be included in the calculation of the IU at the discretion of the IRS, only if the IRS determines that it is appropriate to allow the net negative credit adjustments to be taken into account in calculating the IU. If the IRS determines that a net negative credit adjustment should be taken into account in calculating the IU, then the net negative adjustment decreases the product of the TNPA times the highest tax rate in effect for the reviewed year.

   Note: The Examiner should contact the BBA POC when considering taking into account the net negative adjustment to credits to reduce the product of the TNPA times the highest tax rate in effect.

4. A net negative adjustment to tax, penalty, addition to tax, or additional amount for which the partnership is liable under Chapter 1, or an adjustment to any imputed underpayment calculated by the partnership for the taxable year are not adjustments that do not result (ATDNR) in an imputed underpayment. The net negative adjustment to tax, penalty, addition to tax, or additional amount for which the partnership is liable under Chapter 1, or an adjustment to any imputed underpayment calculated by the partnership for the taxable year reduce the product of the TNPA times the highest tax rate.

(5) For purposes of determining the IU at the field level;

1. Only the net positive adjustment in each grouping will be used to compute the IU, unless the exam team and BBA POC determine that it is appropriate to allow a net negative adjustment in the credit grouping to be included in the IU computation.

2. A net negative adjustment does not result in an IU; thus, such adjustment must be taken into account by the partnership in the adjustment year. That is, the adjustment is included on the partnership’s tax return for the year in which such adjustment becomes final.

3. The adjustment year is the tax year in which: the notice of final partnership adjustment (FPA) is mailed or when a waiver of the FPA is executed by the IRS, OR if a petition under IRC 6234 is filed, the date when the court’s decision becomes final.

(1) The BBA requires some additional language to be added to substantive adjustment explanations as well as an explanation of how the imputed underpayment was computed. Specific language should be added to the Form 886-As issued for substantive issues and a Form 886-A dedicated to the computation of the IU should also be added.

4.31.9.9.3.3 (01-24-2024)

Form 886-A: Interest and Penalties

(1) Under the centralized partnership audit regime, the partnership is liable for any interest and penalties associated with any imputed underpayment (unless they elect the alternative to payment of imputed underpayment under IRC 6226).

(2) Under BBA, the partnership is liable for any penalties associated with any partnership adjustment with respect to the reviewed year. Penalties and interest are determined at the partnership level. Refer to IRM 20.1.5.19, Bipartisan Budget Act of 2015 -Penalties with Respect to Partnership Adjustments. The imposition of the accuracy related penalty and the fraud penalty will require special coordination. Therefore, special rules will apply when the following penalties are imposed and computed for the partnerships reviewed year:

• IRC 6662, Imposition of Accuracy-Related Penalty on Underpayments

• IRC 6663, Imposition of Fraud Penalty

• IRC 6662A, Imposition of Accuracy-Related Penalty on Understatements with Respect to Reportable Transactions

(3) Compute the applicable penalties and consider reasonable cause and good faith defenses only with respect to the partnership:

1. For purposes of computing the penalty, the partnership is treated as an individual subject to tax under Chapter 1 of subtitle A of the Code.

2. A partner-level defense may not be raised at the partnership level.

(4) Computing the penalties may require coordination with the Office of Servicewide Penalties (OSP) and/or Penalties Practice Network.

1. Refer to the penalties knowledge base homepage and IRM 20.1.5.19, Bipartisan Budget Act of 2015 - Penalties with Respect to Partnership Adjustments, for penalty considerations and computations. See the penalties knowledge base homepage at https://irsgov.sharepoint.com/sites/ETD-KMT-KB015.

2. Managers (immediate supervisors; for LB&I examinations, the immediate supervisor or a designated higher-level official) must review and approve in writing whether any penalties should be imposed as part of the examination. See IRC 6751(b); IRM 20.1.1.2.3.

3. A Form 886-A must be prepared for each penalty proposed.

4. The calculation for each penalty must be included as part of the Summary Report Package and as part of the NOPPA Report Package.

(5) If the partnership fails to pay an imputed underpayment by the date prescribed for payment, the partnership is liable under IRC 6651(a)(2) for any penalty, addition to tax or additional amount. The penalty also applies to pass-through entities which elect to pay the IU (under Treas. Reg. 301.6226) and a partnership filing an AAR.

(6) The penalty under IRC 6698(a) is on the failure to file a PTP return or a partnership adjustment tracking report. The Failure to File (FTF) penalty under IRC 6698(a) provides for a penalty if any partnership is required to file a return under IRC 6031, or a partnership adjustment tracking report under IRC 6226(b)(4)(A), and fails to timely file such return or report, or files a return or an adjustment tracking report Form 8985 which fails to show all of the information required.

1. The IRC 6698(a) penalty is not on an adjustment to a PRI. Therefore, the IRC 6698(a) penalty is determined outside of BBA and would not be on the NOPPA, which contains adjustments to PRIs and any penalties on those adjustments.

2. The penalty shall be assessed against the partnership and deficiency procedures do not apply with respect to the assessment or collection of the penalty under IRC 6698(a), IRC 6698(c) & (d). The FTF penalty under IRC 6698 is not a penalty asserted under BBA and is not shown on Forms 14791/14792. Therefore, the failure to file penalty should be imposed where a partnership return has not been filed and an SFR package is prepared by Exam, or when Exam receives a delinquent return for processing.

   Example: The 2019 partnership return is under examination. However, the 2018 partnership return was not filed. The examiner is charged with preparing a substitute for return (SFR) package for the 2018 partnership return. The 2018 return was due 03/15/2019, and there was no automatic extension on the IDRS transcript. The examiner prepares the SFR package on 8/15/2020. The partnership return is 17 months late. Therefore, the examiner should assess the FTF penalty under IRC 6698 in the amount of $2,400 determined by taking $200 (at time of drafting) per month (or fraction thereof) x 12 months (but not to exceed 12 months). See IRM 20.1.2.4.4, Procedures for Assessment or Abatement of the penalty.

(7) Revenue Agents have two options for the computation of interest to be included on Form 14791:

1. Compute their own interest using IDRS command code (CC) COMPA and COMPD or,

2. Request an interest calculation from the Centralized Case Processing (CCP) campus.

4.31.9.9.3.3.1 (09-22-2022)

Computing Interest Using Command Codes (CC) COMPA and COMPD

(1) See IRM 2.3.29.5, Command Code COMPA and COMPD

Field	Field Title	Length	Description
1	Definer	1 character - v	D (Debit Interest)
2	Master File Tax (MFT) Code	2 characters - nn	N/A for BBA Form 14791 Interest Calculations
3	Tax Period	6 characters - yyyymm	N/A for BBA Form 14791 Interest Calculations
4	From Date	8 characters - mmddyyyy	Identifies the date to compute interest or penalty from
5	To Date	8 characters - mmddyyyy	Identifies the date to compute interest or penalty to
6	Amount	14 characters - nnn.nnn.nnn.nn	Amount - two decimal positions (cents) are required

Note: The BBA IU and penalties may be combined as a single input for the purpose of computing estimated interest.

Example: COMPA input for an audit of a 2018 BBA Partnership with an IU of $37,000 and an accuracy related penalty of $7,400 (combined BBA IU and penalty = $44,400) with BBA Form 14791 to be issued on January 1, 2021:

Field	Field Title	Length	Description
1	Definer	1 character - v	D
2	Master File Tax (MFT) Code	2 characters - nn	N/A
3	Tax Period	6 characters - yyyymm	N/A
4	From Date	8 characters - mmddyyyy	03162019
5	To Date	8 characters - mmddyyyy	03152022
6	Amount	14 characters - nnn.nnn.nnn.nn	44,400.00

Note: The COMPA report returns total interest of $5,593.38. The COMPD report returns the computation of interest as follows:

4.31.9.9.3.3.2 (01-24-2024)

Requesting an Interest Calculation from the Centralized Case Processing (CCP) Campus

(1) Contact the Centralized Case Processing (CCP) campus and request an interest computation after the TCS prepares Form 14791. In general:

• For LB&I, send the request to *CCP Ogden e-mail box.

• For SB/SE, send the request to the Memphis campus.

• CCP will respond within 2 weeks.

• IRS Employees may find contacts at the Interest Computations for Payoffs page at https://irsgov.sharepoint.com/sites/ETD-KMT-KB051/SitePages/SBSECampusExamProcedures/ExamCentralized/CaseProcessing(CCP)/InterestComputationforPayoff.aspx.

(2) Work with CCP and provide the following data:

1. A copy of the Form 14791,

2. Starting date, which is the due date of the reviewed year return (without extension),

3. Ending date (e.g., the date of issuance of the summary report package plus 75 days),

4. Penalties (see IRM 4.31.9.9.3.3(2) and (3)), and

5. Imputed underpayment amount

   Note: For Form 14792, Appeals or Technical Services will request the interest computation.

(1) Provide the TCS the following information for all proposed adjustments in sequential numbers with the following information:

1. Description of the adjustment.

2. Amount of the adjustment (positive, negative, or zero amount). For any zero amount adjustment, provide an explanation as to why the adjustment is zero/duplicative. This information will be input into the IUA Calculator by the TCS, and will display in a footnote in the “Other Information” section of the exam reports.

   Example: Notes for $0 Adjustment: This adjustment is an increase to Section 199A Qualified Business Income in the amount of $400,000, and is already reflected in the imputed underpayment as an adjustment to Net Rental Real Estate Income (Loss).

3. Grouping (reallocation, residual, creditable expenditure, or credit). For any reallocation adjustment, include the name and TIN of the impacted partner and whether the allocation is “to” or “from” such partner.

4. Subgrouping (schedule K/K-1 line item or other Form 1065 schedule line item).

   Note: If you use the IUA Workbook to compute the preliminary imputed underpayment then forward the completed workbook to the TCS, in lieu of the above listing. The IUA Workbook can be found at https://irsgov.sharepoint.com/sites/ETD-KMT-KB038/PSResources/IUA_CalculationJobAid.xlsx?Web=1so.

(1) If the PR clearly indicates a desire to go to Appeals, in the interest of time, you may skip issuance of the summary report package and issue only the 30-day letter package. Document this decision in the activity record.

(2) After all Forms 886-A are finalized and issued, proceed with the summary report package, which includes:

1. Letter 5895, Preliminary Partnership Examination Changes and Imputed Underpayment,

2. Form 14791, Preliminary Partnership Examination Changes, Imputed Underpayment Computation and Partnership Level Determinations as to Penalties, Additions to Tax and Additional Amounts, and

3. Form 886-A, Explanation of Adjustments, for each substantive issue, each penalty (if applicable), and the imputed underpayment amount.

(3) Request and work with the TCS to prepare Form 14791.

1. TCS will provide Form 14791 within 2 weeks from the date of the request.

2. After Form 14791 is received from the TCS, review the form to verify the presentation of all adjustments (positive, negative, and zero adjustments) and the resulting IU computation.

   Note: Each adjustment must be shown in the body of the exam report.

3. In addition to the presentation of all adjustments in the body of the report ensure that all adjustments not resulting in an IU are reflected in the “other information” section auto-populated footnote. The following is an example of the IUA Calculator auto-populated note regarding adjustments not resulting in an IU:

   Example: The following adjustments were considered in the calculation of the imputed underpayment but were determined to be adjustments that do not result in an imputed underpayment. These adjustments should be taken into account by the partnership in the adjustment year in accordance with IRC 6225(a)(2) and Treas. Reg. 301.6225-3, unless they are included in a request for modification and ultimately approved by the IRS under modification, or unless the partnership makes an election under IRC 6226 with respect to that imputed underpayment:
   Grouping: Residual
   Subgrouping: Sch K - Guaranteed Payments;
   Guaranteed payments $(20,000)

4. Ensure that any zero/duplicative adjustments are also properly presented in the “Other Information” section auto-populated footnote, inclusive of any explanation to be provided to the TCS for input. (See “Communicate Adjustments to the TCS” above). The following is an example of the IUA Calculator auto-populated note:

   Example: The following adjustments are considered zero adjustments because such adjustments are already reflected in one or more other partnership adjustments. Therefore, solely for purposes of calculating the imputed underpayment, such adjustments are treated as zero pursuant to Treas. Reg. 301.6225-1(b)(4):
   Grouping: Residual
   Subgrouping: Sch K - Qualified Business Income (QBI) Deduction - IRC 199A QBI (code Z); Schedule K, Line 20c
   This adjustment is an increase to IRC 199A Qualified Business Income in the amount of $100,000, and is already reflected in the imputed underpayment as an adjustment to Ordinary Business Income (Loss).

(4) Contact the appropriate CCP campus and request interest computation. See Interest and Penalties section above. Update Form 14791 and incorporate the following:

1. The date the interest is computed to “MMDDYYYY”, and

2. The interest amount on line 20.

3. See IRM 4.31.9.9.3.3.1 regarding using IDRS command code COMPA to obtain a similar computation of interest.

(5) Prepare Letter 5895 and remember to include the audit control number (ACN) in the header. The ACN is system generated and can be found on AIMS, BMF and IMS.

(6) Issue the summary report package to the PR no later than 14 months prior to the 6235(a)(1) date. A summary report (or a 30-day letter) should be issued on every case unless there is a case specific reason why it cannot be issued. If it is an imminent statute, the field agent can issue a summary report with Letter 5895, utilizing selectable paragraph B and give the partnership a minimum of 2 days to request a conference.

1. The package does not need to be sent by certified mail.

2. The PR may request a conference to discuss audit results no later than two weeks from the issuance of Letter 5895.

3. A separate summary report package is required for each year under examination since each year stands on its own unless it’s a no-change.

4. Use judgement in issuing the summary report when the PR has made it clear it would like to pursue Appeals. See IRM 4.31.9.10.1(1), Summary Report Package.

(1) A partnership may protest and want to go to Appeals for any unagreed partnership adjustment, including the substantive issues, imputed underpayment amount and penalty.

(2) If the partnership requests to go to Appeals, there must be at least 18 months remaining on the 6235(a)(1) date when the case is transferred to Technical Services. An extension via Form 872-M should be requested if necessary.

(3) If there’s at least 20 months left on the statute, prepare and issue the 30-day letter package to the PR. The package does not need to be sent by certified mail.

(4) The 30-day letter package includes the following:

1. Letter 5891, 30-Day Letter,

2. Form 14791, Preliminary Partnership Examination Changes, Imputed Underpayment Computation and Partnership Level Determinations as to Penalties, Additions to Tax and Additional Amounts, and

3. Form 886-A, Explanation of Adjustments, for substantive issues, penalties (if applicable), and the imputed underpayment.

(5) After the issuance of the 30-day letter package, update the case status to 13.

(6) Follow existing procedures for responding to the 30-day letter package, including the protest letter.

(1) The NOPPA package is required in any administrative proceeding (examination) under the BBA regime, including an administrative proceeding with respect to an administrative adjustment request (AAR) filed by a partnership under IRC 6227. A separate NOPPA package is prepared for each partnership tax year unless it’s a no-change.

(2) Prepare the NOPPA package no later than:

1. 13 months from the 6235(a)(1) date if the case is not going to Appeals, or

2. 19 months from the 6235(a)(1) date if unagreed and going to Appeals.

(3) The NOPPA package includes the following:

1. Form 14792, Partnership Examination Changes, Imputed Underpayment Computation and Partnership Level Determinations as to Penalties, Additions to Tax and Additional Amounts,

2. Letter 5892, Notice of Proposed Partnership Adjustments- Partnership

3. Letter 5892-A, Notice of Partnership Adjustments-Partnership Representative, and

4. Form 886-A, Explanation of Adjustments for both substantive issues and imputed underpayment amount.

(4) Contact and work with the TCS to prepare Form 14792.

1. TCS will provide the report within 2 weeks from the date of the request.

2. No need to request interest amount since Technical Services or Appeals will be issuing the NOPPA package.

(5) Prepare Letters 5892 and 5892-A without the following:

1. The IRS person point of contact (name, ID, contact info);

2. Date of issuance;

3. 270-day submission period expiration date; and

4. Response due date.

   Note: The field manager does not sign the Letters 5892 and 5892-A because they will be issued by Technical Services.

(6) The examiner does not issue the NOPPA package. Technical Services or Appeals will issue the NOPPA package to the partnership and PR.

(7) The manager must review and approve the NOPPA package. This managerial review and approval should be documented in the case file activity record.

(8) Include the NOPPA package and 30-day letter package (if applicable) in the case file.

(1) The examiner should transfer the case file to Technical Services within 30 days from the approval of the no-change determination.

(2) If applicable, the examiner must prepare and submit a closing package with the following documents for a Net Investment Income Tax (NIIT) or Self-Employment Contribution Act (SECA) case to resolve the PCS linkage for the partners:

• No-change Form 4605-A (Ch 2/2A issues only)

• Copy of POA for Chapter 2A issues (if applicable)

(3) Follow existing procedures to completing Form 5344, Examination Closing Record. See Exhibit 4.31.9-5 (No-change column) for line items required to be completed.

(4) Complete Form 3198, Special Handling Notice for Examination Case Processing, and follow existing procedures except as otherwise provided below:

1. In the "Forward to Technical Services" section of the form, check the "BBA P/S No Change" box. If applicable, also indicate that Ch 2/2A linkage must be addressed.

2. In the bottom section of page 1 of the form, separately check the box "Forward to Technical Services - Update to Status 21". The adjustment amount should be left blank and the disposal code should be 02.

(1) A no-change BBA case with adjustments is a case where no partnership adjustments (adjustments to PRIs) are being made, but partner returns are adjusted due to:

• Non-Chapter 1 adjustments made outside the scope of BBA, such as NIIT adjustments made at the partner level, or

• When no changes are made to the partnership’s ordinary income or loss or separately stated items reflected on the return of Schedule K-1 and a partner’s return is adjusted as a result of the flow-through examination. This would include: adjustments to basis, at-risk, or passive activity rules; taxable distributions or taxable loan repayments; or adjustments made to include the amount(s) reported on the investor’s Schedule K-1.

• A no-change BBA case with adjustments would not apply when adjustments to Schedule K/K-1, Line 14, Net Earnings from Self-Employment (NESE) are being made as adjustments to NESE have been deemed a partnership adjustment.

• If the examiner has AIMS control over both the BBA partnership and partners, reference the examples in IRM 4.31.9.6.5, Processing ILSC Pass-Through Adjustments, for procedures depending on whether the partners agree or disagree with their individual non-BBA adjustments.

(2) The examiner must prepare and submit a closing package to TS with the following documents for a Chapter 2A NIIT case to resolve the linkage for the linked partners:

• Form 4605-A (Chapter 2A issues only)

• Form 886-S (if Chapter 2A partner level adjustments are to be made)

• Copies of relevant workpapers that support the Chapter 2A issues (if applicable)

• Copy of POA for Chapter 2A issues (if applicable)

(3) The examiner should transfer the case file to Technical Services within 30 days from the approval of the no-change determination.

• The return should have at least 6 months remaining on the 6235(a)(1) date when received by Technical Services.

• Follow existing procedures to completing Form 5344, Examination Closing Record. See also Exhibit 4.31.9-5 (No-change with adjustments column) for line items required to be completed.

(4) Complete Form 3198, Special Handling Notice for Examination Case Processing, and follow existing procedures except as otherwise provided below:

1. In the "Forward to Technical Services" section of the form, check the "BBA P/S No Change" box. If applicable, also indicate that Ch 2/2A linkage needs to be addressed.

2. In the bottom section of page 1 of the form: separately check the box "Forward to Technical Services - Update to Status 21". The adjustment amount should be left blank and the disposal code should be 01.

(5) Campaigns, projects, initiatives or other workstream assignments may provide direction to use DC 01 in other scenarios consistent with expanded definitions in Document 6036.

(1) After the NOPPA package is prepared, transfer the case file to Technical Services within 30 days.

(2) Technical Services will review the case. If no corrections are warranted, Technical Services will mail the NOPPA package to the partnership and PR; otherwise, the case will be returned back to the examiner and manager for corrections.

(3) If applicable, the examiner must prepare and submit a closing package with the following documents for a SECA/NIIT case to resolve the linkage for the linked partners:

• Form 4605-A (for Ch 2/2A issues)

• Form 886-S (for Ch 2/2A issues)

• Copies of relevant workpapers that support the Ch 2/2A issue

• Copy of the POA for Ch 2/2A issues (if applicable)

(4) Follow existing procedures to completing Form 5344, Examination Closing Record. See Exhibit 4.31.9-5 (Adjustments no Appeals column) for line items required to be completed.

(5) Complete Form 3198, Special Handling Notice for Examination Case Processing, and follow existing procedures except as otherwise provided below:

1. In the "Forward to Technical Services" section of Form 3198 check the "BBA P/S w/Adjustment (No Appeal)". If applicable, also indicate that Ch 2/2A linkage must be addressed.

2. In the bottom section of page 1 of the form: separately check the box "Forward to Technical Services – Update to Status 21". Include the adjustment amount (same as item 34 on Form 5344). The disposal code should be 08.

(1) After the NOPPA package is prepared, transfer the case file to Technical Services within 30 days.

(2) Technical Services will review the case, the protest, and the examiner’s rebuttal (such as Letter 5072 or other transmittal method used.) If no corrections are warranted, Technical Services will forward the case to Appeals; otherwise, the case will be returned back to the examiner and manager for corrections. Appeals will mail the NOPPA package to the partnership and PR once the Appeals process has been completed.

(3) If applicable, the examiner must prepare and submit a closing package with the following documents for a SECA/NIIT case to resolve the linkage package:

• Form 4605-A (for Ch 2/2A issues)

• Form 886-S (for Ch 2/2A issues)

• Copies of relevant workpapers that support the Ch 2/2A issue

• Copy of POA for Ch 2/2A issues if applicable

(4) Follow existing procedures to completing Form 5344, Examination Closing Record. See Exhibit 4.31.9-5(Adjustments to Appeals column) for line items required to be completed.

(5) Complete form 3198, Special Handling Notice for Examination Case Processing and follow existing procedures except as otherwise provided below:

1. In the "Forward to Technical Services" section of Form 3198 check the box "Unagreed BBA P/S to Appeals". If applicable, also indicate that Ch 2/2A linkage needs to be addressed.

2. In the bottom section of page 1 of the form: separately check the box "Forward to Technical Services – Update to Status 21". Include the adjustment amount (same as item 34 on Form 5344). The disposal code should be 08.

(1) A BBA partnership case no-change (no adjustment) with less than 6 months remaining on the IRC 6235(a)(1) statute of limitations at the time the case is received by Technical Services is considered imminent. The imminent statute procedures must be followed:

1. Discussion between the Field Examiner and Field Exam Group Manager concerning the circumstances surrounding the imminent statute.

2. Document the discussion in the case activity record.

3. If there are less than 6 months remaining on the IRC 6235(a)(1) statute of limitations, the Field Exam Group Manager should contact the appropriate Technical Services Pass-through Coordinator (TSPC) Group Manager. The group manager will let them know that the case is ready to be transferred to Technical Services. Look at the Technical Services Pass-Through Coordinators List at https://irsgov.sharepoint.com/sites/ETD-KMT-KB051/Lists/Technical%20Service%20Partnership%20Coordinator/AllItems.aspx? on Knowledge Management to locate the correct TSPC Group Manager. The TSPC Group Manager will provide the Field Exam Group Manager with instructions on how to proceed. The TSPC Group Manager will request the field group to either physically ship or e-mail the case file to the TSPC to review. The field group will keep ERCS/AIMS control over the case until the TSPC is ready to prepare the no-change Letters 6099 and 6099-A and move the case to CCP.

4. When the TSPC authorizes transfer of the case and case controls to Technical Services, then the field group will be instructed to physically ship the case if they previously submitted electronic records only (see item c above). The Field Exam Group Manager is to follow-up with the TSPC’s Group Manager to ensure receipt of the case.

(2) A BBA partnership case with adjustments (no Appeals) with less than 12 months remaining on the IRC 6235(a)(1) statute of limitations at the time the case is received by Technical Services is considered imminent. The imminent statute procedures must be followed:

1. Discussion between the Field Examiner and Field Exam Group Manager concerning the circumstances surrounding the imminent statute.

2. Document the discussion in the case activity record.

3. If there are less than 12 months remaining on the IRC 6235(a)(1) statute of limitations, the Field Exam Group Manager should contact the appropriate Technical Services Pass-through Coordinator (TSPC) Group Manager. The group manager will let them know that the case is ready to be transferred to Technical Services. Look at the Technical Services Pass-Through Coordinators List at https://irsgov.sharepoint.com/sites/ETD-KMT-KB051/Lists/Technical%20Service%20Partnership%20Coordinator/AllItems.aspx? on Knowledge Management to locate the correct TSPC Group Manager. The TSPC Group Manager will provide the Field Exam Group Manager with instructions on how to proceed. The TSPC Group Manager will request the field group to either physically ship or e-mail the case file to the TSPC to review. The field group will keep ERCS/AIMS control over the case until the NOPPA is prepared by the field group, submitted to the TSPC for review and the NOPPA package is issued by Technical Services.

4. When the TSPC authorizes transfer of the case and case controls to Technical Services, then the field group will be instructed to physically ship the case if they previously submitted electronic records only (see item c above). The Field Exam Group Manager is to follow-up with the TSPC’s Group Manager to ensure receipt of the case.

(3) A BBA partnership case with adjustments (to Appeals) with less than 18 months remaining on the IRC 6235(a)(1) statute of limitations at the time the case is received by Technical Services is considered imminent. The imminent statute procedures must be followed:

1. Discussion between the field examiner and field exam group manager concerning the circumstances surrounding the imminent statute.

2. Document the discussion in the case activity record.

3. If there are less than 18 months remaining on the IRC 6235(a) statute of limitations, the field group needs to inform the partnership that the case cannot go to Appeals unless a Form 872-M is secured and executed with at least 18 months remaining on the IRC 6235(a)(1) statute of limitations.

   Caution: If a Form 872-M cannot be secured, the case cannot go to Appeals. In this event, the field group will need to revise the appropriate forms (Form 3198, etc.) and close the case to Technical Services for issuance of a NOPPA. If there are more than 12 months remaining on the IRC 6235(a)(1) statute of limitations, follow normal closing procedures. If less than 12 months remain on the IRC 6235(a)(1) statute of limitations, adhere to imminent statute procedures.

(1) Pursuant to Treas. Reg. 301.9100-22(b)(2)(ii), the election statement must include:

• The partnership’s name, taxpayer identification number and tax year to which the election statement applies.

• The name, address, daytime telephone number and taxpayer identification number of the partnership representative under IRC 6223 (as amended by the BBA) for the tax year to which the election statement applies.

• A representation that the partnership is not insolvent and does not reasonably anticipate becoming insolvent before resolution of any adjustment for the partnership tax year for which the election is being made.

• A representation that the partnership is not currently and does not reasonably anticipate becoming subject to a bankruptcy petition (voluntary or involuntary) under Title 11 of the United States Code.

• A representation that the partnership has sufficient assets, and reasonably anticipates having sufficient assets, to pay a potential imputed underpayment that may be determined during the partnership examination.

• The name, taxpayer identification number, address and telephone number of the individual who signs the election statement.

• A representation signed under penalties of perjury that the individual signing the election statement is duly authorized to make the election and that, to the best of their knowledge and belief, the election statement is true, correct and complete.

(1) Examiners should do the following if they receive an election:

• Immediately notify the IRS "BBA point(s) of contact (BBA POC)" designated to monitor elections and/or provide subject matter expertise regarding the BBA.

• Verify that no AAR or amended return was filed (or deemed to have been filed) by the partnership for the partnership tax year for which an election is being made.

• If Form 7036 is used by the taxpayer to make the election, ensure all required elements are properly completed.

• If Form 7036 is not used, ensure the election statement complies with the requirements of Treas. Reg. 301.9100-22 as previously discussed.

• If additional information is needed, and time permitting, the taxpayer should be notified as soon as possible. All required information must be received within 30 days of the date of the IRS notice of selection for examination for the election to be valid. There is no extension to this 30-day period.

• Determine whether the election statement is valid; this determination requires management concurrence. If so, provide a copy of the valid election statement to the BBA POC.

• If the election is invalid, contact the BBA POC for next steps and follow the existing TEFRA or non-TEFRA (ILSC) procedures accordingly.

(2) IRS must wait at least 30 days after a valid election is received before issuing a notice of administrative proceeding (NAP) in case the partnership wants to file an AAR under IRC 6227 as amended by the BBA. During this 30-day period, the examiner should conduct a cursory check to ensure that the partnership representative identified on Form 7036 or other election statement meets the requirements of Treas. Reg. 301.9100-22(b)(2)(ii)(D). This cursory check will include basic research to ensure the name, taxpayer identification number, address, and daytime telephone number of the partnership representative are correct.

(3) If the election into the BBA is valid, the examiner should do the following relative to case file documentation and ERCS/AIMS updates:

• Complete a second Form 15260, Determination of Pass-through Audit Regime, and retain the original determination (pre-election) Form 15260 and other check sheets in the administrative file.

• Notate activity record that election was received, reviewed, etc., and that a copy was provided to the BBA POC.

• Ensure ERCS/AIMS is updated to set the TEFRA indication to "N" for non-TEFRA

• If the field is currently unused, set the Aging Reason Code (ARC) to "100."

• Ensure the value of the "EARLY-ELECT-INTO-BBA-CD" is "1" to indicate the return is subject to the BBA regime. Notate the change in the "PBBA" section of Form 5348.

• Set the "IRC 6235A1-PPA-DEADLINE-DT" (format as "MMDDYYYY"), which is the later of: 3 years after the date the return was due; 3 years after the date the return was filed; or 3 years after an AAR is filed.

  Note: Generally, the IRC 6235(a)(1) date will match the statute date (ASED) field on AIMS. (Contact the BBA POC if there are any questions about IRC 6235(a)(1) or if there is an AAR)

• After the issuance of the NAP, update AIMS/ERCS to include the NAP Date (format as "MMDDYYYY").

• Associate election with related items in the flow-through administrative file or workpapers. LB&I examiners will use SAIN 724 and UIL 6221B SB/SE examiners will use Section 600.

• Refer to IRM 4.31.9.1.7, Related Resources, for links to additional BBA procedures.

(1) This subsection describes procedures for examiners and managers when an AAR is filed under the BBA (BBA AAR) with respect to partnership tax years beginning after November 2, 2015 and before January 1, 2018 where the partnership elects to be subject to the BBA for such tax year. Form 15260, Determination of Pass-through Audit Regime, and Form 15262, BBA Audit Procedures Checklist, have been updated to accommodate Early Elections into the BBA.

(2) Treas. Reg. 301.9100-22 provides that a partnership may file a BBA AAR for an eligible tax year to have the BBA apply to that tax year. A partnership may not file a BBA AAR solely for the purpose of changing the designation of the partnership representative as described in IRC 6223 as amended by the BBA.

(3) Only partnerships may file a BBA AAR. A partner may file a BBA AAR on behalf of the partnership if they are acting in the capacity of a PR or the partner is the TMP filing an AAR for an eligible tax year together with an election into the BBA. See Treas. Reg. 301.9100-22(b)(2)(ii).

(4) Generally, under IRC 6227(c) as amended by BBA, a partnership may file a BBA AAR within 3 years after the later of (1) the date of filing the partnership return, or (2) the due date of the return without regard to extensions. A partnership that receives a notification of selection for examination (Letter 2205-D) for partnership tax years beginning after November 2, 2015 and before January 1, 2018 may elect to apply the BBA to the partnership return filed for that tax year within 30 days from the date of Letter 2205-D. Once a valid election is made, the partnership has 30 more days to file a BBA AAR.

(5) In no event, may a partnership file a BBA AAR after a Notice of Administrative Proceeding (Letters 5893 and 5893-A) has been mailed by the IRS for that partnership tax year.

(6) A BBA AAR should be filed with the IRS service center where the original return was filed. In the case of a BBA AAR filed for a tax year after being selected for examination (but before the NAP has been issued), the partnership should also provide a copy of the BBA AAR to the examiner.

(7) If the AAR is filed electronically, the partnership uses Form 1065, U.S. Return of Partnership Income (marking the amended return box), and Form 8082, Notice of Inconsistent Treatment or Administrative Adjustment Request (AAR) (marking the BBA AAR box in Part 1 and completing the appropriate items a-e). The partnership also includes a statement, "Election under Section 1101(g)(4)", with the required information. The 2019 instructions to Form 8082 provide details on requirements.

(8) If the AAR is filed on paper, the partnership uses Form 1065X, Amended Return or Administrative Adjustment Request (AAR), marks the BBA AAR box in Part I, completes the appropriate items a-e in Section 2, and completes Part IV (if necessary). The phrase "Election under Section 1101(g)(4)," should be written across the top of the Form 1065X and a statement attached with the required information. The 2019 instructions to Form 1065X provide details on requirements.

(9) For information regarding eligibility to elect into the BBA and for how to make an election, see 26 CFR 301.9100-22.

(10) If an examiner is assigned a BBA AAR for examination that was filed with the service center on or after 1/1/2018, they should immediately notify the BBA POC. The BBA POC will assist the examiner on how to:

• Confirm that the BBA AAR is valid and includes all of the information required by the statute and applicable regulations.

• Ensure that the BBA AAR was filed before the issuance of the NAP.

• Discuss if an update to the statute of limitations (SOL) on making adjustments under IRC 6235(a)(1)(C) is appropriate and if so, how to update that SOL.

• Proceed with the examination.

(11) If an examiner receives a BBA AAR directly from the taxpayer they are auditing, they should immediately notify the BBA POC. The BBA POC will assist the examiner on how to do the following and determine next steps:

• Confirm whether the BBA AAR was filed with the service center and if so, assist the examiner with requesting a copy from the service center for reconciliation purposes. If the taxpayer files the original BBA AAR directly with the examiner, the examiner should date stamp the AAR, make a copy for the case file and forward the AAR to the service center where the original return was filed

• Confirm that the BBA AAR is valid and includes all the information required by the statute and applicable regulations.

• Confirm that the BBA AAR is timely filed. Ensure that the BBA AAR was filed before the issuance of the NAP when the tax year is under examination.

• Discuss if an update to the statute of limitations (SOL) on making adjustments under IRC 6235(a)(1)(C) is appropriate and if so, how to update that SOL.