Blog · 16 October 2026

BBA Partnership Audit: Centralized Partnership Audit Regime Guide for US CPA Firms

By Keshav Bansal, CA

A BBA partnership audit does not work like the partner-by-partner exams many clients remember. Under the centralized partnership audit regime created by the Bipartisan Budget Act of 2015, the IRS generally adjusts partnership-related items at the partnership level and assesses the resulting tax against the partnership itself, which can be years after the year under review. David Klasing’s October 13, 2026 CPA Practice Advisor article explains how that reaches individual partners. For US CPA firms preparing Form 1065, most protection comes from choices made at filing.

Partnership audit numbers, as reported

Klasing cites a 2025 Treasury Inspector General for Tax Administration (TIGTA) report: partnership examination starts rose 63%, from 4,106 in FY 2020 to 6,709 in FY 2023. He then cites Treasury’s latest performance data showing partnership examination starts of 2,285 in FY 2024 and 1,589 in FY 2025, roughly a 76% decline from FY 2023. Per TIGTA, he adds, the IRS Pass-Through Entities program lost more than 20% of its staff during 2025, and 82 of the largest U.S. partnerships were selected for examination, 43 still open.

Fewer starts do not mean less risk once selected; see our FY2025 IRS Data Book audit rate guide.

What the centralized partnership audit regime is

The IRS says the BBA (Pub. L. 114-74) was signed on November 2, 2015. It replaced the TEFRA and electing large partnership rules, generally for tax years beginning January 2018. In the IRS’s comparison, TEFRA adjusted at the partnership level but assessed partners; under BBA, both happen at the partnership level. The TEFRA tax matters partner is replaced by a partnership representative, and partners no longer have a right to take part in the exam or to challenge partnership adjustments. (Our Toscano FPAA guide shows how a TEFRA-era case runs.)

Two definitions in 26 U.S.C. §6225(d) drive everything else. The reviewed year is the partnership year the adjusted item relates to. The adjustment year is generally the year the final partnership adjustment (FPA) is mailed, a court decision becomes final, or an administrative adjustment request is filed.

The imputed underpayment and who pays it

Under §6225(b)(1), the IRS computes the imputed underpayment (IU) by netting the partnership adjustments for the reviewed year and applying the highest §1 or §11 rate in effect for that year. The IRS’s worked example uses 37% for a 2023 reviewed year. Klasing notes that the IU is generally assessed and collected from the partnership in the adjustment year, together with penalties, additions to tax and interest.

So today’s partners can end up funding tax for a year when the owners were different. Klasing notes a partnership short of cash may borrow, cut distributions or make a capital call; whether it can compel contributions depends on the partnership agreement and state law. Outside-basis effects still matter for each partner; see our partnership basis and at-risk guide.

Modification and the 45-day push-out election

The IRS lists the notices in order: Letter 2205-D (selection), a notice of administrative proceeding (NAP) about 30 days later, a summary report, the notice of proposed partnership adjustment (NOPPA), and the FPA. After the NAP, the partnership cannot file an AAR and partners cannot amend inconsistently for that year.

• Modification: after the NOPPA, the partnership representative has 270 days to file Form 8980 asking to reduce the IU. One §6225(c) route is reviewed-year partners filing amended returns and paying. The period can be extended or waived by agreement.
• Push-out (§6226): the date of the FPA starts a 45-day window to elect, on Form 8988, to push the adjustments out to reviewed-year partners instead of paying. The IRS says it cannot be extended. Once the audit matters are final, the partnership has 60 days (also not extendable) to furnish Forms 8986 and file Form 8985.
• Partner side: individual partners report the tax on Form 8978 with the return for the year that includes the date Form 8986 was furnished. Under §6226(c), reviewed-year partners owe the penalties; interest is figured at the partner level from the due date of the return for the year the increase relates to, at the underpayment rate computed with 5 percentage points in place of 3.

If no valid, timely election is made, the partnership pays the IU.

Electing out: ≤100 partners and Schedule B-2

Under §6221(b), a partnership can elect out for a year if it must furnish 100 or fewer Schedules K-1 and every partner is an eligible partner: an individual, a C corporation, a foreign entity that would be a C corporation if domestic, an S corporation, or the estate of a deceased partner. Shareholders of an S corporation partner count toward the 100. A partnership, trust, disregarded entity or nominee partner makes it ineligible. On a timely filed return, answer “Yes” to the Form 1065 Schedule B elect-out question, list each partner’s name, TIN and type (plus S corporation shareholders) on Schedule B-2, and notify partners. An elected-out partnership is examined under the general deficiency procedures.

The partnership representative

Each year’s return must designate one unless the partnership elects out. The IRS says the representative has sole authority under BBA, and the partnership and partners are bound by its actions. That covers extending the statute, settling, requesting modification and electing push-out. The representative needs a substantial presence in the U.S.: a U.S. TIN, a U.S. street address, a phone number with a U.S. area code, and availability to meet the IRS in person. If the representative is an entity, it must appoint a designated individual. Changes are made on Form 8979.

AARs replace amended returns

A BBA partnership fixes a filed return with an administrative adjustment request (AAR), not an amended return. That means Form 8082 with an e-filed Form 1065 (box G(5) checked), or Form 1065-X on paper, signed only by the representative or designated individual. It must include an IU computation even when zero; the partnership then pays the IU or pushes adjustments out on Forms 8985/8986, not amended K-1s. Under §6227(c), the deadline is 3 years from the later of the filing date or the original due date, and no AAR is allowed once a NAP has been issued.

Practical review checklist for CPA firms

• Elect-out test each year: count K-1s plus S corporation shareholders, screen for trusts, partnerships and disregarded-entity partners, and complete Schedule B-2 before the original due date.
• Representative block: confirm TIN, U.S. address and phone, a designated individual for an entity, and Form 8979 updates.
• Partnership agreement: ask the client’s counsel how it covers IU funding, push-out decisions and former partners.
• Calendar the deadlines: the 270-day modification window, the 45-day push-out election, the 90-day court petition and the 60-day Form 8986 window.
• Corrections: use an AAR within 3 years; partners reporting inconsistently with a K-1 disclose on Form 8082 (§6222).
• Partner files: keep reviewed-year ownership lists; push-out needs them years later.

Where Tax Brew fits

Tax Brew supports US CPA firms with Form 1065 prep support, K-1 workpapers, ownership schedules and bookkeeping cleanup, including the Schedule B and B-2 data your reviewers check. Your firm keeps the advice, the elections and the signature. The first 20 hours are free for qualifying engagements. See our services, or email info@taxbrewglobal.com.

Sources: CPA Practice Advisor (David Klasing, Oct. 13, 2026), How IRS BBA Assessments Can Affect Individual Partners; IRS BBA centralized partnership audit regime, BBA partnership audit process, elect out, partnership representative, AAR and imputed underpayment pages; About Form 8082; 26 U.S.C. §6221, §6222, §6223, §6225, §6226, §6227 (Cornell LII). General information, not tax or legal advice.