AIM Financial | Business Tax Preparation in West Michigan

Partnership tax audits can become complicated when the IRS identifies adjustments to a prior-year tax return. The process becomes even more challenging when a partnership has other partnerships, S corporations, trusts, or estates among its owners. In these situations, accurate reporting and communication between entities are essential.

IRS Form 8985, Pass-Through Statement—Transmittal/Partnership Adjustment Tracking Report, helps partnerships and other qualifying pass-through entities report and track partnership-related tax adjustments under Sections 6226 and 6227 of the Internal Revenue Code.

For businesses seeking help understanding complex IRS forms, AIM Financial offers tax preparation guidance and support. This article explains Form 8985 in plain English, including when it may be required and how it works with Form 8986.

What Is IRS Form 8985?

Form 8985 is used to summarize and transmit Forms 8986, which identify each partner’s share of adjustments to partnership-related tax items. It can also be used by certain pass-through partners to report calculations and payments associated with those adjustments. <Cite refs={[“turn562369search0″,”turn562369search2”]}/>

The form is part of the federal centralized partnership audit rules established by the Bipartisan Budget Act of 2015. These rules generally allow the IRS to examine partnership returns and determine adjustments at the partnership level.

When an adjustment results in an imputed underpayment, the partnership may have to pay an amount calculated under the partnership audit rules. In some circumstances, however, a partnership may elect to push the adjustments out to its partners so they can take their respective shares into account under the applicable rules.

Form 8985 helps document and transmit the information associated with these procedures.

It is not a routine attachment required with every Form 1065. It applies to specific partnership audit and administrative adjustment situations.

Who May Need to File Form 8985?

The IRS instructions identify several categories of entities that may need to prepare Form 8985.

These include:

• Audited partnerships that elect under Section 6226 to have their partners take account of partnership adjustments.
• Pass-through partners that receive Form 8986 from an audited partnership or a partnership that filed an administrative adjustment request.
• Partnerships filing an administrative adjustment request (AAR) that elect to push adjustments out to partners or have adjustments that do not result in an imputed underpayment.

Pass-through entities can include partnerships, S corporations, trusts, and estates. An entity may receive adjustments from another partnership and then need to determine how those adjustments affect its own owners or beneficiaries. <Cite refs={[“turn562369search0″,”turn130881view0”]}/>

For example, imagine an audited partnership has an S corporation as one of its partners. The audited partnership makes a push-out election and provides the S corporation with Form 8986. The S corporation must then determine whether it will pay the applicable amount under the rules or pass the adjustments on to its own affected shareholders.

Form 8985 helps document that next step.

What Is the Difference Between Form 8985 and Form 8986?

Although these forms work together, they serve different purposes.

Form	Purpose
Form 8985	Summarizes and transmits adjustment information and related Forms 8986; certain pass-through partners also use it to report payment calculations.
Form 8986	Shows a partner’s share of adjustments to partnership-related items.
Form 8985-V	Used by a pass-through partner to submit certain payments by check or money order associated with a partnership audit or administrative adjustment request.

The correct form depends on the entity’s role in the process. A partnership sending adjustment information to its partners has different responsibilities from a pass-through partner that receives adjustment information from another entity. <Cite refs={[“turn562369search0″,”turn562369search2”]}/>

How to Complete Form 8985

Form 8985 requires accurate identifying information, adjustment details, and supporting documentation. The following steps provide a general overview.

1. Identify the entity submitting the form

The form asks the filer to identify its role in the process. It may be an audited partnership, a pass-through partner, a partnership filing an AAR, or a pass-through partner of a partnership that filed an AAR.

The filer must also identify the type of tax return it normally files.

2. Identify the audited partnership or AAR partnership

The form includes information about the partnership whose adjustments are being reported. This information helps the IRS connect the submission with the correct partnership and tax matter.

3. Provide the relevant tracking information

Depending on the circumstances, the form may require incoming and outgoing tracking numbers, an audit control number, and information about the related Forms 8986.

These identifiers help the IRS track the adjustment information as it moves through multiple entities.

4. Summarize the adjustment information

Part IV is used for information about partners’ total reviewed-year income, gain, loss, deductions, credits, and other items. The form and instructions also address corrected amounts and additional statements where applicable.

The figures must agree with the related Forms 8986 and supporting calculations.

5. Report payment information when applicable

Some pass-through partners may choose to pay an imputed underpayment, including applicable penalties and interest, instead of pushing the adjustments out to their own partners. When this option applies, Form 8985 is used to report the required calculations and payment information.

This decision can have significant tax consequences and should be evaluated using the current IRS rules.

6. Sign and submit the form correctly

The appropriate authorized person must sign Form 8985. Submission requirements and deadlines depend on whether the filing involves an audited partnership, an AAR partnership, or a pass-through partner.

The IRS requires electronic submission for certain audited partnership push-out filings and related pass-through partner filings. Other AAR-related procedures have different submission rules. Always follow the instructions applicable to the specific filing. <Cite refs={[“turn562369search0″,”turn130881view0”]}/>

Important Deadlines and Common Errors

Deadlines are especially important when a partnership elects to push out adjustments.

According to the IRS instructions, an audited partnership that makes a Section 6226 election generally must submit Form 8985 and related Forms 8986 no later than 60 days after the partnership adjustments are finally determined. Pass-through partners generally have until the extended due date of the audited partnership’s adjustment-year return to submit their Form 8985. Different rules apply to certain AAR filings. <Cite refs={[“turn130881view0”]}/>

Common mistakes include:

• Filing Form 8985 without the required Forms 8986.
• Reporting figures that do not match the partner statements.
• Missing applicable submission deadlines.
• Using incorrect tracking numbers or audit identifiers.
• Failing to account for applicable penalties and interest when making a payment.
• Assuming that every partnership adjustment must be handled in the same way.

Because multiple entities may be involved, it is important to keep clear records of the original adjustment information, each form submitted, and any payments or corrections.

How AIM Financial Can Help With Business Tax Reporting

Partnership tax adjustments can affect multiple entities and tax years. Understanding which forms apply, how the adjustments flow through different businesses, and when documents must be submitted can help reduce avoidable reporting errors.

AIM Financial helps individuals and businesses understand tax preparation requirements and organize their tax reporting needs. If your business has questions about partnership returns, pass-through reporting, amended filings, or IRS notices, professional guidance can help you identify the appropriate next steps.

For businesses in Grand Rapids, Kentwood, Wyoming, and throughout West Michigan, contact AIM Financial to discuss your business tax preparation needs.

AIM Financial — helping West Michigan businesses navigate tax reporting with greater clarity and confidence.

This article is for educational purposes only and is not legal or tax advice. Form 8985 applies to specialized partnership audit and adjustment procedures. Filing obligations, payment calculations, and deadlines depend on the facts and applicable IRS rules. Review the current instructions and consult a qualified tax professional before filing.