Prepare a BBA partnership correction for an AAR review

When a partnership discovers an error, preserve the original return and determine whether that year was subject to the BBA regime. The IRS directs BBA partnerships to correct partnership-related items through an administrative adjustment request, or AAR. An ordinary amended-return package can send the correction through the wrong process.

Give the preparer the original filing date, applicable due date, any election out and all examination correspondence. The AAR timing rules and restrictions after a notice of administrative proceeding require specific review. Ask the preparer to record the available procedure and deadline before staff prepare replacement partner statements.

Prepare a correction schedule with the reported amount, proposed amount and evidence for the difference. Identify the partnership-related item and its tax character. A net change in taxable income can conceal adjustments that the preparer must group or analyze separately. Keep the underlying transactions available instead of presenting only a balancing journal entry.

For example, a hypothetical omitted expense and a misallocated income item raise different questions even if their dollar effects offset in a summary. The first needs support for the expense and year; the second needs the allocation provision and partner population. Label such examples as illustrations when explaining the issue internally.

Separate proposed changes to tax reporting from corrections to the financial statements. Record which books, periods and owner records need updating after the tax analysis. Preserve the original values so the reviewer can reproduce the proposed change.

An AAR concerns a prior reviewed year, while the filing occurs in an adjustment year. Compile the owners and allocations for the reviewed year, including former partners. Current ownership percentages can produce the wrong recipient schedule. Reconcile the population to the filed partner statements and explain transfers during the year.

Have the preparer calculate the imputed underpayment and identify adjustments that do not result in one. IRS guidance requires the computation even when the result is zero or negative. Ask for the calculation and the proposed treatment of each adjustment; do not treat a zero payment as evidence that no partner reporting remains.

For any proposed push-out treatment, obtain current delivery details for the reviewed-year partners. Flag pass-through owners because their follow-on responsibilities differ from those of individuals or corporate owners. Retain entity classifications as confirmed facts for the preparer's review.

Confirm that the reviewed-year partnership representative or designated individual has the required authority to sign. Assemble the selected AAR forms, any payment instructions and the partner statements required by the chosen treatment. Ask the preparer to explain the election or payment decision before the representative approves it.

Forms 8985 and 8986 carry the applicable adjustment information through the push-out process. Reconcile their totals and recipients to the approved correction schedule. Track the furnishing task with the filing task so partner communications are ready when required, using the current instructions for the particular AAR.

Retain the accepted submission, payment evidence where applicable and final partner copies. Give each unresolved state or partner-level consequence its own owner. The completed federal AAR file should show exactly which adjustments were submitted and which follow-on work remains.