What is the 'Push Out Election' under the Bipartisan Budget Act (BBA) and who qualifies for it?

The Push Out Election, under IRC Section 6226, allows a partnership subject to the BBA audit regime to elect to 'push out' adjustments to its reviewed year partners instead of paying the tax at the partnership level. This election is available to any partnership that receives a Notice of Proposed Partnership Adjustment (NOPPA) from the IRS and is subject to the BBA centralized partnership audit rules. The partnership must make this election within 45 days of the NOPPA issuance. It effectively shifts the tax liability and associated interest and penalties to the partners who were partners in the reviewed year.

How does a partnership make the Push Out Election and what IRS form is required?

A partnership makes the Push Out Election by filing Form 8988, 'Election for Alternative to Payment of Imputed Underpayment by Partnership,' with the IRS. This form must be filed within 45 days of the date the NOPPA is mailed. The election is irrevocable once made. The partnership must also furnish a statement to each reviewed year partner detailing their share of the adjustments.

Are there any dollar limits or thresholds for utilizing the Push Out Election?

There are no specific dollar limits or thresholds that dictate whether a partnership can utilize the Push Out Election. The election is available regardless of the size of the imputed underpayment. However, the administrative burden and potential partner pushback might make it less practical for very small adjustments or partnerships with a large number of partners. The decision often hinges on the partnership's cash flow and the partners' willingness to bear the tax directly.

What are the key advantages for a partnership choosing the Push Out Election?

The primary advantage for a partnership is avoiding the direct payment of the imputed underpayment, which can be substantial and impact partnership cash flow. It also allows the reviewed year partners to apply their specific tax attributes, such as net operating losses (NOLs) or passive activity losses, against their share of the adjustments. This can result in a lower overall tax liability than if the partnership paid the tax at the highest individual rate. Furthermore, it avoids the 'highest rate' calculation under IRC Section 6225(b).

What are the potential disadvantages or complexities for partners when a partnership makes the Push Out Election?

Partners receiving pushed-out adjustments must file an amended return (Form 8986, 'Partner's Share of Adjustment to Partnership-Related Items') for the reviewed year, which can be administratively burdensome. They are also directly responsible for the tax, interest, and penalties associated with their share of the adjustments. This can lead to unexpected tax liabilities and potential disputes among partners, especially if the partnership agreement doesn't clearly address such scenarios. Partners may also face a higher interest rate on underpayments under IRC Section 6621(a)(2).

How does the Push Out Election affect the statute of limitations for partners?

When a partnership makes a Push Out Election, the statute of limitations for assessing tax against a reviewed year partner with respect to the pushed-out adjustments is extended. Under IRC Section 6229(f), the statute of limitations for the partner generally does not expire before one year after the date on which the information statement (Form 8986) is furnished to the partner. This ensures the IRS has sufficient time to assess the tax against the individual partners.

What are common mistakes partnerships make when attempting to utilize the Push Out Election?

Common mistakes include failing to file Form 8988 within the strict 45-day deadline after the NOPPA. Another error is not properly calculating and furnishing the correct adjustment information to each reviewed year partner on Form 8986. Partnerships sometimes also fail to adequately communicate the implications of the election to their partners, leading to confusion and potential non-compliance by partners. Incomplete or inaccurate information on Form 8988 can also invalidate the election.

Are there any specific audit red flags related to the Push Out Election that the IRS looks for?

The IRS may scrutinize Push Out Elections if there are inconsistencies between the information reported on Form 8988 and the Forms 8986 provided to partners. Significant delays by partners in filing their amended returns (Form 8986) or paying their share of the tax could also raise red flags. Additionally, if the partnership has a history of non-compliance or complex, aggressive tax positions, the IRS might pay closer attention to the election's execution. Any indication of an attempt to avoid tax through improper use of the election would be a major red flag.

How does the Push Out Election interact with the partnership's ability to claim deductions or credits?

The Push Out Election itself does not directly impact the partnership's ability to claim deductions or credits. Instead, it reallocates the tax consequences of adjustments to those deductions or credits to the reviewed year partners. If the audit results in disallowances of partnership deductions or credits, those disallowances are pushed out to the partners, who then adjust their individual tax liabilities accordingly. The partnership itself does not pay the tax on the disallowed items.

Can a partnership revoke a Push Out Election once it has been made?

No, once a partnership makes the Push Out Election by filing Form 8988, the election is irrevocable. This is a critical point for partnerships to understand before making the decision. The irrevocability ensures certainty for both the IRS and the partners regarding who is responsible for the tax liability. Therefore, careful consideration and consultation with tax professionals are essential before making this election.

What is the role of the Partnership Representative (PR) in the Push Out Election process?

The Partnership Representative (PR) is the sole person with the authority to act on behalf of the partnership in a BBA audit, including making the Push Out Election. The PR is responsible for filing Form 8988 and ensuring that Forms 8986 are properly prepared and furnished to all reviewed year partners. The PR also serves as the primary contact for the IRS regarding the audit and the election. Their role is crucial in navigating the complexities of the BBA regime.

Are there any specific IRS publications or guidance related to the Push Out Election?

Yes, IRS Publication 5316, 'Bipartisan Budget Act (BBA) Centralized Partnership Audit Regime,' provides comprehensive guidance on the BBA rules, including the Push Out Election. Additionally, Treasury Regulations Sections 301.6226-1 through 301.6226-3 detail the specific requirements and procedures for making and implementing the election. These resources are essential for understanding the nuances of the BBA regime and the Push Out Election.

How does the Push Out Election handle interest and penalties associated with the adjustments?

When a Push Out Election is made, the reviewed year partners are responsible for paying their share of the imputed underpayment, along with any applicable interest and penalties. The interest is generally calculated from the due date of the reviewed year return until the date the partner pays the tax. The interest rate for partners can be higher than the general underpayment rate, as specified in IRC Section 6621(a)(2). Penalties, such as accuracy-related penalties under IRC Section 6662, are also assessed at the partner level.

Can a partnership make a Push Out Election if some partners are tax-exempt entities?

Yes, a partnership can make a Push Out Election even if some of its reviewed year partners are tax-exempt entities. However, the tax-exempt partners would still receive a Form 8986 detailing their share of the adjustments. While they may not owe tax on their share of the adjustments due to their tax-exempt status, they are still required to comply with the reporting requirements. The partnership must still provide the necessary information to all reviewed year partners, regardless of their tax status.

What happens if a reviewed year partner fails to comply after a Push Out Election is made?

If a reviewed year partner fails to file Form 8986 and pay their share of the tax, interest, and penalties, the IRS will pursue collection directly from that partner. The partnership is generally relieved of the liability once the election is properly made and the information is furnished to partners. The IRS has the authority to assess and collect the tax from the non-compliant partner, potentially through liens or levies. This underscores the importance of partner communication and cooperation.

How does the Push Out Election impact state tax liabilities for partners?

The Push Out Election primarily addresses federal tax liabilities. However, many states have adopted or are considering adopting their own versions of the BBA centralized audit regime or have mechanisms to conform to federal adjustments. Therefore, a federal Push Out Election will likely trigger corresponding state tax adjustments for partners, requiring them to amend their state tax returns as well. Partners should consult with state tax professionals to understand their specific obligations.

Are there any special considerations for publicly traded partnerships (PTPs) regarding the Push Out Election?

Publicly traded partnerships (PTPs) are generally subject to the BBA rules, and thus the Push Out Election is available to them. However, the practicalities of pushing out adjustments to potentially thousands of unit holders can be extremely complex and administratively burdensome. Due to the high volume of partners and the potential for frequent ownership changes, PTPs often find the Push Out Election less feasible than other partnership structures. They may prefer to pay the imputed underpayment at the partnership level.

What are the potential changes to the Push Out Election rules expected in 2026 or beyond?

While no specific legislative changes to the Push Out Election rules are currently enacted for 2026, the BBA regime is relatively new, and the IRS continues to issue guidance and refine its procedures. Future changes could involve adjustments to deadlines, reporting requirements, or clarification on specific partner scenarios. Tax professionals closely monitor IRS pronouncements and potential legislative proposals that could impact the BBA rules. Partnerships should stay informed of any updates to IRS Publication 5316.

How does the Push Out Election differ from the 'default' BBA payment method?

The Push Out Election (IRC Section 6226) differs significantly from the default BBA payment method (IRC Section 6225). Under the default method, the partnership pays the imputed underpayment at the highest individual tax rate (currently 37% for ordinary income and short-term capital gains, 20% for qualified dividends and long-term capital gains) in the adjustment year. The Push Out Election, conversely, shifts the liability to the reviewed year partners, allowing them to apply their specific tax attributes and potentially lower their overall tax burden. The default method also includes a 'modification' process to reduce the imputed underpayment.

What information must a partnership provide to partners when making a Push Out Election?

When making a Push Out Election, the partnership must furnish each reviewed year partner with a statement, Form 8986, 'Partner's Share of Adjustment to Partnership-Related Items.' This form details the partner's share of the adjustments to income, gain, loss, deduction, or credit for the reviewed year. It also includes the amount of interest and penalties attributable to their share of the adjustments. This information is crucial for partners to properly amend their individual tax returns.

Push-Out Election BBA Audit Rules — 2026 Guide

Overview: Navigating the BBA Push-Out Election for Partnerships

The Bipartisan Budget Act (BBA) of 2015 significantly reformed the IRS audit procedures for partnerships, introducing a centralized regime that generally assesses and collects tax at the partnership level. However, recognizing the complexities this could create, the BBA also provided an alternative: the "Push-Out Election." This election allows an audited partnership to "push out" the tax liability resulting from an audit adjustment to its reviewed-year partners, rather than the partnership itself bearing the imputed underpayment (IU). This guide provides a comprehensive overview of the Push-Out Election under BBA audit rules, focusing on its mechanics, eligibility, claiming process, and critical considerations for the 2026 tax year.

What is the Push-Out Election?

The Push-Out Election, governed primarily by Internal Revenue Code (IRC) Section 6226, is a crucial mechanism available to partnerships undergoing an IRS audit under the BBA centralized partnership audit regime. When the IRS identifies an imputed underpayment (IU) during an audit, the default rule is for the partnership to pay this amount. However, if a partnership makes a valid Push-Out Election, the responsibility for the IU shifts from the partnership to its partners from the "reviewed year" (the tax year under audit). Instead of the partnership paying the IU, each reviewed-year partner is responsible for reporting and paying their share of the adjustment on their own tax return for the "reporting year" (the year in which the partnership furnishes the push-out statement).

This election can be particularly advantageous for partnerships that have experienced significant changes in ownership between the reviewed year and the adjustment year (the year the audit concludes). It ensures that the tax burden is borne by the partners who were part of the partnership during the year the income or deduction items were misstated, rather than the current partners. The election is irrevocable once made and must be carefully considered due to its implications for both the partnership and its partners.

Who Qualifies for the Push-Out Election?

To qualify for and make a Push-Out Election, a partnership must meet specific criteria under the BBA audit rules:

Subject to BBA Audit Rules: The partnership must be subject to the centralized partnership audit regime established by the BBA. This generally applies to tax years beginning after December 31, 2017.
Imputed Underpayment (IU) on Final Partnership Adjustment (FPA): A Push-Out Election can only be made if the IRS issues a Notice of Final Partnership Adjustment (FPA) that includes an imputed underpayment. If there is no IU, or if the partnership successfully modifies the IU to zero, a push-out election is not applicable.
Partnership Representative (PR) Action: The election must be made by the partnership representative (PR), who is the sole point of contact for the IRS during a BBA audit and has the authority to bind the partnership and its partners to audit decisions, including the Push-Out Election.

It is important to note that while most partnerships are subject to the BBA rules, certain eligible partnerships may elect out of the centralized regime annually if they meet specific conditions (e.g., having 100 or fewer partners, all of whom are eligible pass-through entities or individuals). Partnerships that have validly elected out of the BBA regime are not subject to these push-out election rules.

How to Claim It: Forms, Process, and Deadlines

The process for making a Push-Out Election and ensuring its validity involves strict timelines and specific forms:

Making the Election (Partnership Level)

Receipt of FPA: The process begins when the partnership representative receives the Notice of Final Partnership Adjustment (FPA) from the IRS. The FPA details the audit adjustments and the computed imputed underpayment.

45-Day Election Window: The partnership representative has a critical 45-day window from the date the FPA is issued to make the Push-Out Election. This deadline is statutory and cannot be extended. Failure to make a timely and valid election within this period will result in the partnership being liable for the IU.

Form 8988 Submission: To make the election, the partnership representative must complete and electronically submit Form 8988, Election to Alternative to Payment of the Imputed Underpayment – IRC Section 6226. This form must be accompanied by a listing of all reviewed-year partners.

IRS Confirmation: After submitting Form 8988, the IRS will mail Letter 5931, responding to the election. The partnership representative must wait to receive a countersigned Form 8988 before proceeding with the next steps.

Notifying Partners and IRS (Partnership Level)

60-Day Submission Window: Once the audit matters become final (either after the 90-day period to petition the courts expires or upon final court determination), the partnership representative has 60 days to submit push-out statements to its reviewed-year partners and to the IRS. This deadline is also statutory and cannot be extended. Invalid or untimely submission will invalidate the Push-Out Election, making the partnership liable for the IU.

Form 8986 to Partners: The audited partnership must furnish Form 8986, Partner’s Share of Adjustments(s) to Partnership-Related Items(s), to each reviewed-year partner. This form details the partner's share of the adjustments.

Form 8985 to IRS: Concurrently, the partnership representative must electronically submit Form 8985, Pass-Through—Statement Transmittal/Partnership Adjustment Tracking Report, along with all Forms 8986 that were furnished to its partners.

Partner Reporting Requirements

Individuals and C Corporations (Non-Pass-Through Partners): Partners who are individuals (filing Form 1040), C corporations (filing Form 1120), or certain other taxable entities (e.g., trusts filing Form 1041 or tax-exempt organizations filing Form 990-T) and receive a Form 8986 must use Form 8978, Partner’s Additional Reporting Year Tax, to calculate and report their tax impact of the adjustments. This form is filed with their income tax return for the reporting year. These partners can make advance payments to stop the running of interest.

Pass-Through Partner Entities (Partnerships, S Corporations, Trusts): If a reviewed-year partner is itself a pass-through entity (e.g., another partnership, an S corporation, or a trust), it has two main options:

Further Push Out: The pass-through partner can elect to further "push out" the adjustments to its own partners (or shareholders/beneficiaries) by furnishing them with Form 8986 and electronically submitting Form 8985 to the IRS. This must be done by the extended due date of the audited partnership's adjustment year return.

Pay Imputed Underpayment: If the pass-through partner does not further push out the adjustments, it must compute and pay an imputed underpayment based on the adjustments received. This payment can be made via EFTPS, debit/credit card, or check, accompanied by Form 8985-V, Tax Payment by a Pass-Through Partner.

2026 Limits, Amounts, or Rates

The Push-Out Election itself does not have specific monetary limits or rates in the same way a deduction might. Instead, its application is tied to the imputed underpayment (IU) calculated during the BBA audit. The IU represents the aggregate amount of tax that would have been due if the partnership had correctly reported its items in the reviewed year. The calculation of the IU involves applying the highest individual or corporate tax rate in effect for the reviewed year to the net adjustments, unless modifications are elected and approved.

For the 2026 tax year, while the fundamental rules of the Push-Out Election remain consistent with the BBA framework, partnerships and their advisors must stay vigilant for any legislative changes or IRS guidance that could impact the calculation of the IU or the procedural aspects of the election. As of early 2026, no significant changes to the core mechanics of IRC Section 6226 have been announced that would alter the fundamental process described above. However, tax rates used in IU calculations are subject to annual adjustments, and any changes to individual or corporate tax rates for the reviewed year would indirectly affect the IU amount that is pushed out to partners.

Common Mistakes That Cost Taxpayers Money

Navigating the Push-Out Election can be complex, and several common pitfalls can lead to significant financial consequences for partnerships and their partners:

Missing Deadlines: The 45-day deadline for making the election via Form 8988 and the 60-day deadline for furnishing Forms 8986 and submitting Form 8985 are absolute. Missing either deadline invalidates the election, making the partnership liable for the entire IU.

Incomplete or Incorrect Forms: Errors or omissions on Forms 8988, 8985, 8986, or 8978 can lead to the rejection of the election or incorrect tax reporting by partners, potentially triggering further IRS scrutiny, penalties, and interest.

Failure to Notify Partners Properly: Partnerships must ensure that all reviewed-year partners receive their Form 8986 statements in a timely manner. Failure to do so can create compliance issues for partners and undermine the election.

Lack of Partner Communication: The Push-Out Election shifts the tax burden to partners, who may be unaware of their obligations or the implications. Insufficient communication can lead to partners failing to report adjustments correctly, resulting in penalties and interest.

Not Understanding Tiered Partnership Implications: In tiered partnership structures, the flow-through of adjustments can become highly intricate. Pass-through partners must understand their options to either further push out adjustments or pay the IU themselves, and adhere to the corresponding deadlines and forms.

Ignoring State Tax Implications: While the BBA rules are federal, the push-out of adjustments can have significant state and local tax consequences that must be considered and managed.

Inadequate Partnership Agreement Provisions: Partnership agreements should ideally contain provisions addressing BBA audits and Push-Out Elections, including how the partnership representative is chosen, how decisions are made, and how partners will be indemnified or responsible for their share of adjustments.

IRS Code Section Reference

The primary Internal Revenue Code section governing the Push-Out Election is:

IRC Section 6226: "Alternative to Imputed Underpayment Payment." This section outlines the conditions and procedures under which a partnership may elect to "push out" audit adjustments to its reviewed-year partners.

Other relevant sections within the BBA centralized partnership audit regime include:

IRC Section 6221: "Partnership-level determinations." Establishes the general rule that partnership-related items are determined at the partnership level.

IRC Section 6225: "Imputed underpayment." Details the calculation of the imputed underpayment.

IRC Section 6227: "Administrative adjustment requests." Governs how partnerships can request adjustments to their own returns.

Conclusion: Strategic Planning for BBA Audits

The Push-Out Election under BBA audit rules offers partnerships a critical strategic option when facing an imputed underpayment. While it provides flexibility, its successful implementation demands meticulous attention to deadlines, accurate form submission, and clear communication with partners. Understanding the nuances of IRC Section 6226 and related provisions is essential for mitigating risks and ensuring compliance. Partnerships should proactively review their agreements and consult with experienced tax professionals to develop a robust strategy for navigating potential BBA audits and making informed decisions regarding the Push-Out Election.

Ready to navigate complex tax strategies like the Push-Out Election? Book a consultation with Uncle Kam's expert tax strategists today to ensure your partnership is prepared for any IRS audit. Book Your Consultation Here!

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Push Out Election Bba

Overview: Navigating the BBA Push-Out Election for Partnerships

What is the Push-Out Election?

Who Qualifies for the Push-Out Election?

How to Claim It: Forms, Process, and Deadlines

Making the Election (Partnership Level)

Notifying Partners and IRS (Partnership Level)

Partner Reporting Requirements

2026 Limits, Amounts, or Rates

Common Mistakes That Cost Taxpayers Money

IRS Code Section Reference

Conclusion: Strategic Planning for BBA Audits

Push Out Election Bba FAQs

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