he Office of IRS Appeals may interact with a BBA case in several different phases of the BBA centralized partnership audit regime, including the following:
- Early Election into BBA;
- Administrative Adjustment Request (AAR);
- Notice of Proposed Partnership Adjustment (NOPPA);
- Modification Disputes; and,
- Notice of Final Partnership Adjustment (FPA).
If an early election into the BBA was requested or the entity is covered under the BBA for tax years beginning on or after January 1, 2018, BBA cases have Appeals rights.
If there is a dispute in a BBA case, the taxpayer will generally receive a 30-day BBA letter (Letter 5891) with a summary report, allowing the taxpayer to request an Appeals hearing. Appeals disputes may cover the substantive audit issues, penalties and/or imputed underpayment adjustment groupings and subgroupings disputes.
At the end of the Appeals process and issuance of the Notice of Proposed Partnership Adjustment (NOPPA) for all disputed tax issues (resolved and unresolved), Appeals will send the BBA case to Ogden BBA Unit for processing.
In response to the NOPPA, the partnership may request modification. If there is a dispute regarding modification, the taxpayer will have an opportunity to appeal the dispute. Appeals will not reconsider an unagreed previous disputed tax issue if the entire case is later returned to Appeals for modification hearing.
LB&I will issue the Notice of Final Partnership Adjustment (FPA) notice. The FPA allows the partnership to either request a push out the adjustments for its partners to take into account, petition for judicial review of the adjustments, or both. Normally, Appeals will not issue the FPA.
Appeals hears disputes on three types of BBA cases:
- BBA Case with Adjustments. A 30-day letter (Letter 5891) mailed out by the examiner and BBA entity disputed the audit issues (Protested to Appeals),
- BBA Modification disputes, and
- Docketed BBA Cases after the issuance of the FPA.
On unagreed cases, the IRS examiner will issue the 30-day BBA letter (Letter 5891). The examiner will send the BBA case file to the Technical Services (TS) function for case review. When a formal protest is received, The IRS will seek to ensure at least 365 days is remaining on the statute.
In general, all non-docketed BBA cases received by Appeals are required to have at least 365 days remaining on the statute of limitations. Form 872-M, BBA Consent to Extend Time for Making Adjustments to Partnership-Related Items, is the appropriate form to extend the BBA key case statute of limitations.
Contents of BBA case file
The BBA case administrative file should contain the following items:
• Form 1065, U.S. Return for Partnership Income, for a BBA key case.
• Consents (if any) extending the statute of limitations; Form 872-M, BBA Consent to Extend Time for Making Adjustments to Partnership-Related Items.
• Letter 2205-D, Initial Contact to Schedule Appointment – Partnership Returns, used by Compliance to begin a partnership examination.
• Letter 5893, Notice of Administrative Proceeding – Partnership, and Letter 5893-A, Notice of Administrative Proceeding – Partnership Representative.
• Form 7036, Election under Section 1101(g)(4) of the Bipartisan Budget Act of 2015, used by partnership if early elected into BBA when notified of audit selection.
• Examiner’s BBA 30-Day Letter and Summary Report Package, including:
- Letter 5895, BBA Summary Report Cover Letter
- Form 14791, Preliminary Partnership Examination Changes, Imputed UnderpaymentComputation and Partnership Level Determinations as to Penalties, Additions to Taxand Additional Amounts
- Forms 886-A, Explanation of Items
- Letter 5891, 30-Day Letter – Bipartisan Budget Act Partnership
- The draft NOPPA package includes the following:
A. Form14792,Partnership Examination Changes, Imputed Underpayment Computation and Partnership Level Determinations as to Penalties, Additions toTax and Additional Amounts,
B. Letter5892, Notice of Proposed Partnership Adjustments-Partnership,
C. Letter5892-A,Notice of Partnership Adjustments-Partnership Representative, and
- D. Forms886-A,Explanation o fAdjustments for both substantive issues and imputed underpayment amount
- Protest based on the 30-Day Letter Package for the partnership including the Imputed Underpayment Amount (IUA) reported on Form 14791.
- Power of Attorney, if applicable.
- Compliance mandatory check sheets, if applicable.
If an AAR was filed, then the case may also contain:
• Form 8082, Notice of Inconsistent Treatment or Administrative Adjustment Request (revised 2018 or later), used for the partnership to file an electronic AAR with Form 1065, if an electronic AAR was filed with Form 1065.
• Form 1065X, Amended Return or Administrative Adjustment Request (revised 2018 or later), used for the partnership to file BBA requests, if a paper AAR was filed.
Location of Appeals Conference.
Appeals conferences will generally be offered in the Appeals Office servicing the area where the partnership has its principal place of business. The Appeals Office will consider the issues and discuss the facts, law, and arguments of the case with the Partnership Representative (PR).
Note: The PR is the representative for the partnership and has sole authority to bind the partnership. Partners are no longer considered parties under BBA. This is a departure from TEFRA where partners signed their own separate agreements.
Appeals may attempt to enter into a settlement agreement on the treatment of partnership-related items with finality by securing a binding agreement with Form 14792-AD, Settlement Agreement of Partnership Examination Changes, Imputed Underpayment Computation and Partnership Level Determinations as to Penalties, Additions to Tax and Additional Amounts.
The NOPPA will be issued by Appeals for all 30-Day BBA letter (Letter 5891) cases in Appeals, whether or not a settlement is reached.
After settlement negotiations, the ATE will prepare an Appeals Case Memo (ACM) reflecting the revised adjustments and settlement recommended.
Closure of Substantive Issue Cases.
For BBA early elect-in 30-day letter stage and all BBA cases, the Appeals process is limited to hearing the audit dispute for substantive issues. After the Appeals hearing, the case will go back to the Compliance function, who will handle all future correspondence. If the PR requests modification and disputes Compliance’s determination, the PR may then request an Appeals hearing on the unagreed modification items only. Appeals will not reconsider a previous unagreed disputed tax issue if the entire case is later returned to Appeals for modification hearing. Appeals will hear the same issue only once for BBA cases regardless of substantive issues or modification issues.
Administrative Adjustment Requests (AAR) for BBA Partnerships
A BBA partnership is permitted to change the reporting of items on its return by the PR filing an Administrative Adjustment Request (AAR). An AAR is filed using a Form 1065X, Amended Return or Administrative Adjustment Request, or Form 8082, Notice of Inconsistent Treatment or Administrative Adjustment Request, in accordance with their respective instructions.
AAR procedures for BBA partnerships are different than TEFRA partnerships, which an AAR can be filed by partners of the TEFRA partnerships using the same Forms 1065X and 8082.
A partnership with an eligible tax year, any tax period beginning after November 2, 2015, and before January 1, 2018, may elect to be a BBA partnership by changing its return on an AAR on or after January 1, 2018.
A BBA partnership with a tax period beginning after January 1, 2018 can change its filed return only by filing an AAR.
Form 8082 is used for AARs by both BBA and TEFRA Partnerships when Form 1065X is not used. Partners also use the form to notify the Service, for both BBA and TEFRA Partnerships, when they have taken a position on their return that is inconsistent with the reporting on the partnership tax return.
Forms 8082 or 1065X, showing an Imputed Underpayment filed by the Partnership Representative (PR) on behalf of the partnership, provides for payment of the tax by the partnership or push-out of the adjustments to the reviewed year partners. If push-out is elected, the Service can apply math error procedures and assess partners who do not file consistently with the push-out statement received.
If Form 8082 or 1065X filed by the PR includes adjustments that do not result in an imputed underpayment amount, the adjustments are required to be pushed out and taken into account by the partners when they file their return for the adjustment year, which is the taxable year the AAR is filed.
An AAR must be filed within three years after the later of the date that the partnership return was filed or the last day for filing the return (determined without regard for extensions).
An AAR cannot be filed after a Notice of Administrative Proceeding (NAP) has been mailed to the partnership and PR for the same tax year.
No Action by Service.
If an AAR is filed, the statute of limitations to adjust partnership-related items of the partnership for the taxable year will not expire until three years after the AAR is filed.
An examination of a BBA partnership is for the taxable year, including the original return and any AAR.
AAR Filed on Behalf of the Partnership.
An AAR filed by the PR on behalf of the partnership is filed using Form 1065X or Form 8082. The instructions to these forms provide for the following:
- Use Form 8082 to file an AAR, if the partnership files electronically or if the partnership did not file electronically for early election into BBA.
- Use Form 1065X, if the partnership does not file electronically, to file an AAR for a BBA partnership that was such when it filed its return.
All filed AARs must include revised schedules showing the effect on the distributive shares of the partners.
When the AAR is filed, the PR must decide whether the BBA partnership wants the Service to assess the tax liability of the partnership or elect to push out the adjustments to the partnership’s partners. If the partnership does not push out the adjustments, the partnership should pay any IU resulting from the adjustments at the time the AAR is filed.
All timely filed AARs provide a revised starting point for any examination report.
Judicial Review of AARs.
An AAR filed by the PR on behalf of the partnership will only be received in Appeals as part of an examination of the taxable year in question. As such it is subject to the same judicial review as the examination of any BBA partnership.
An AAR may change the allocation of income, loss, or credit among the partners. If the adjustments are pushed-out to the reviewed year partners, the reallocation may result in a refund for at least one partner and a deficiency for another. If the taxable year is not examined, the reallocation reported on the AAR is accepted as filed.
Allocations disputed by an IRS examiner are treated the same as allocations disputed on the original return of the partnership.
Partnership Proceeding Begun.
If, in response to an AAR, the Service begins a BBA partnership proceeding, the issues raised in the AAR will be considered along with any other issues raised during the proceeding.
Statutes – Period of Limitations – AAR.
IRC 6235(a)(1) provides that the period to make adjustments is extended because an AAR is filed. The period, without extension by agreement, will not expire until three years after the latest of:
- the date on which the partnership return for such year was filed,
- the return due date for the taxable year, or
- the date on which the partnership filed an AAR with respect to such year under IRC 6227.
AAR for Same Tax Year
An AAR cannot be filed after a Notice of Administrative Proceeding (NAP) has been mailed to the PR and the partnership for the same tax year. This notice should be issued before the examination begins.
If a PR raises a new issue after a case is received in Appeals, the procedures are the same regardless of how the issue is raised.
AAR Filed By a Partner
A partner may not file an AAR on behalf of the partnership.
Partner Notification of Inconsistent Treatment
A partner may be permitted to request an adjustment to a partnership-related item on the partner’s return so long as the partner properly notifies the IRS of any inconsistency from the treatment on the partnership return in accordance with IRC 6222.
Notice of Proposed Partnership Adjustment (NOPPA)
For both agreed and un-agreed BBA partnership cases, the IRS is required to issue the Notice of Proposed Partnership Adjustment (NOPPA) to the partnership and the Partnership Representative (PR) before the issuance of the Notice of Final Partnership Adjustment (FPA).
Notice of Proposed Partnership Adjustment (NOPPA) Package
- The NOPPA is a mandatory notice which reflects the adjustments to the partnership-related items and computes an Imputed Underpayment Amount (IUA), if any.
- The IRS must issue a NOPPA to the partnership and the PR by certified mail. The mailing of the NOPPA to the partnership and PR starts the 270-day window for the PR to submit a request to modify any imputed underpayment amount reflected on the NOPPA.
- The timely issuance of the NOPPA is vital to protecting the statute of BBA cases. The NOPPA may not be mailed more than 3 years after the later of: (1) the date on which the partnership return for the taxable year was filed, (2) the return due date for the taxable year, or (3) the date on which the partnership filed an AAR with respect to the taxable year. This date may be extended on Form 872-M.
Form 886-A – Explanation of Items
(1) Unless otherwise instructed by the ATE, the TCS will use the sample paragraphs located on the Appeals TCS website for Notices of Deficiency as guides for the explanatory paragraphs in the NOPPA. If the TCS prepares the paragraphs, then the ATE should give the ACM to the TCS to assist them in choosing or writing an appropriate paragraph.
Modification Requests for BBA Partnerships
After the issuance of the Notice of Proposed Partnership Adjustment (NOPPA), the Partnership Representative (PR) has the option of requesting modification of the Imputed Underpayment Amount (IUA).
Modification of the Imputed Underpayment Amount
The NOPPA is a mandatory notice which reflects the adjustments to the partnership-related items and computes an IUA, if any. The Imputed Underpayment (IU) calculated on the NOPPA is based on the highest tax rate in effect for the reviewed year per IRC 1 (individual rate) or IRC 11 (corporate rate). The PR has the option to request a modification of the IU whereby to modify the amount of the adjustments that go into the calculation of the IU and/or the rate used to calculate the IU.
The PR has 270 days after the NOPPA issue date to submit all the substantiation to support reducing the IUA. This 270-day period may be extended by executing Form 8984, Consent to extend the taxpayer modification submission period under section 6225(c)(7).
If Ogden BBA Unit and the PR do not agree on the modified IUA, the case will be forwarded to Appeals for consideration of the modification computation.
Notice of Final Partnership Adjustment (FPA)
The FPA is a mandatory notice which reflects the adjustments to the partnership-related items and computes an Imputed Underpayment Amount (IUA), if any.
The IRS must issue the FPA by certified mail to the partnership and the PR. The mailing of the FPA to the partnership and PR establishes a time within which a PR may request to push out the partnership adjustments to the reviewed year partners.
Note: The BBA Ogden Unit will issue all FPAs unless there is a short statute.
Notice of Final Partnership Adjustment Package
The Notice of Final Partnership Adjustment (FPA) is the functional equivalent of a statutory notice of the results of a BBA proceeding. A partnership has 90 days after the date that the FPA is mailed to file a petition in Tax Court, a District Court or a Court of Federal Claims.
The FPA is subject to IRC 6235, which provides the period of limitations on making adjustments under the centralized partnership audit regime. The general rule is that no adjustment for any partnership taxable year may be made after the later of three dates:
- The first date is three years after the latest of (a) the date on which the partnership return for such taxable year was filed, (b) the return due date for the taxable year, or (c) the date on which the partnership filed an AAR with respect to such year.
- The second date is, in the case of any modification of the Imputed Underpayment, 270 days (plus the number of days of any extension consented to by the Secretary under IRC 6225(c)(7)) after the date on which everything required for purposes of modification is submitted.
- The third date is, in the case of any NOPPA issued under IRC 6231(a)(2), the date that is 330 days (plus the number of days of any extension consented to by the Secretary under IRC 6225(c)(7)) after the date of such notice.
- The period may be extended by agreement with the Service and the partnership before the expiration of such period.
Generally, the FPA shall be mailed no earlier than 270 days after the date on which the Notice of Proposed Partnership Adjustment is mailed, provided that the NOPPA is timely mailed. Any Notice of Final Partnership Adjustment is considered sufficient if mailed to the last known address of the partnership and the PR, even if the partnership has terminated its existence.
The IRS must issue the FPA to the PR by certified mail, unless the PR waived its issuance by agreement with the Service on Form 14726. The mailing of the FPA to the PR establishes the time periods within which a petition may be filed by the PR.
The IRS must also mail an FPA to the Partnership.
Currently, all FPAs require Associate Area Counsel review.
Note: An FPA can be rescinded by consent of the partnership and the Service.
Entire FPA for the PR and the Partnership
The FPA for both the PR and the partnership will include the following documents:
- Letter 5933 or 5933-A
- The FPA (Form 15027 and Form 8988), and c. Form 886-A, Explanation of Items