1. Introduction – What is Form 7036?

IRS Form 7036, titled Election Under Section 1101(g)(4) of the Bipartisan Budget Act of 2015, is an administrative tax form issued by the Internal Revenue Service (IRS). It is governed by the U.S. Department of the Treasury under Treasury Regulation Section 301.9100-22.

This form was created to allow partnerships to elect into the Centralized Partnership Audit Regime (CPAR) for transition-period tax years. The regime was established by the Bipartisan Budget Act of 2015 (BBA), which fundamentally modernized how the IRS audits partnerships and assesses partnership-level tax liabilities.

2. Purpose of the Form – Why Does Form 7036 Exist?

For over three decades, partnership audits were conducted under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA). Under TEFRA, the IRS had to audit the partnership but pass through all resulting tax adjustments and collections to each individual partner, creating severe administrative hurdles for multi-tiered structures.

The Bipartisan Budget Act replaced TEFRA with a centralized regime where taxes, penalties, and interest are assessed and collected directly at the partnership level as an imputed underpayment. While the BBA rules became mandatory for tax years beginning after December 31, 2017, Congress allowed partnerships to opt in early for “gap years” (tax years beginning after November 2, 2015, and before January 1, 2018).

Form 7036 serves several crucial functions:

Early Adoption: It allows eligible partnerships under examination or filing an amended return for 2016 or 2017 to elect early into the BBA audit regime.
Designation of Authority: It formally designates a single Partnership Representative (PR) with exclusive legal authority to represent and bind the entity before the IRS.
Streamlined Audit Resolution: It helps partnerships avoid multi-partner TEFRA litigation by settling potential adjustments at the entity level.

3. Who Needs to File This Form?

Form 7036 is not filed with routine annual tax returns. It is only filed by partnerships (including LLCs taxed as partnerships) that meet specific transitional audit criteria:

Eligible Gap Tax Years: The partnership return under examination or adjustment must cover a tax year beginning after November 2, 2015, and before January 1, 2018.
IRS Examination Selection: The partnership received written notice from the IRS (such as Letter 2205-D) that its 2016 or 2017 return was selected for an audit.
Administrative Adjustment Requests (AAR): The partnership is filing an early amended return or administrative adjustment under BBA rules for an eligible gap year.

4. Who Is Exempt / Not Required to File?

Because Form 7036 is an elective transition document, the majority of businesses and taxpayers do not need to file it:

Tax Years 2018 and Later: All partnerships with tax years beginning on or after January 1, 2018, are automatically governed by the BBA regime and do not use Form 7036.
Pre-BBA Tax Years: Audits for tax years beginning on or before November 2, 2015, are legally required to proceed under TEFRA or general deficiency procedures.
Partnerships Choosing TEFRA: Partnerships with 2016 or 2017 returns under audit that prefer to remain under traditional TEFRA rules simply do not submit Form 7036.
Non-Partnership Entities: Sole proprietorships, C corporations, S corporations, and individual taxpayers never file Form 7036.

5. When to File – Deadlines and Frequency

Form 7036 is an event-triggered election form with strict filing deadlines:

Audit Selection (30-Day Window): If selected for an IRS examination, the partnership must file Form 7036 within 30 days of the date printed on the IRS initial contact letter (Letter 2205-D).
Administrative Adjustment Request: If filing an AAR to modify an eligible return, Form 7036 must be attached and submitted at the exact time the AAR is filed.
One-Time Election: The election is made once per audited tax year. Once a valid election is accepted by the IRS, it cannot be revoked without IRS consent.

6. Where and How to File Form 7036

Form 7036 is typically processed directly by the IRS examination team handling the partnership’s case:

Mail or Secure Transmission to the Revenue Agent: When responding to an audit notice, mail or fax the signed form directly to the assigned IRS revenue agent and address listed on Letter 2205-D.
With an AAR Filing: When making an election alongside an amended partnership return, submit the form to the IRS address as per instructions for Form 1065-X.
Retain Confirmation: Always maintain certified mailing receipts and confirmation copies in your permanent partnership records.

7. Step-by-Step Instructions to Fill Form 7036

Form 7036 consists of partnership identifying data, the formal designation of the Partnership Representative, and mandatory factual certifications.

Part / Section	Field / Item	Instructions
Header Information	Partnership Details	Enter the exact legal name, Employer Identification Number (EIN), business address, and the specific tax year beginning and ending dates.
Section 1: Election Statement	Election Declaration	Confirm the statement electing to have the amendments made by Section 1101 of the Bipartisan Budget Act of 2015 apply to the specified tax year.
Section 2: Partnership Representative (PR)	PR Designation	Provide the legal name, Taxpayer Identification Number (TIN/SSN/EIN), physical U.S. address, and daytime phone number of the designated PR (or designated individual if the PR is an entity).
Section 3: Mandatory Representations	Solvency & Compliance Attestations	Attest that the partnership is not in bankruptcy, is not insolvent, has sufficient assets to pay any potential imputed underpayment, and has notified all partners of the election.
Section 4: Signature & Authorization	Authorized Signature	Sign and date under penalties of perjury. Must be signed by the Tax Matters Partner (TMP) under TEFRA or an authorized individual who signed the Form 1065.

8. Required Documents and Information Needed Before Filling

To ensure a valid and timely election, gather the following documents before completing Form 7036:

IRS Examination Notice: A copy of IRS Letter 2205-D showing the date of initial contact and the tax year under audit.
Filed Form 1065: The partnership tax return and all Schedule K-1 forms for the relevant gap tax year (2016 or 2017).
Partnership Agreement: Legal documentation confirming who holds authority to bind the entity and appoint a Partnership Representative.
Designated PR Information: Social Security Number (SSN) or EIN, U.S. address, and direct phone number for the appointed Partnership Representative.
Financial Solvency Records: Balance sheets, cash flow summaries, or bank records showing the entity has sufficient assets to cover potential imputed tax underpayments.

9. Common Mistakes to Avoid

Procedural errors when submitting Form 7036 can cause the IRS to reject the election, forcing the partnership back into lengthy TEFRA proceedings. Avoid these frequent mistakes:

Missing the 30-Day Deadline: Submitting Form 7036 more than 30 days after the date on Letter 2205-D results in an automatic denial of the election.
Unauthorized Signatures: Having an unauthorized partner or outside accountant sign the form rather than the recognized Tax Matters Partner or authorized return signer.
Failing to Designate a Partnership Representative: The BBA regime cannot function without an appointed PR; omitting this information invalidates the form.
Attempting Early Election for Ineligible Years: Form 7036 cannot be used for tax years beginning on or before November 2, 2015, or for tax years 2018 and later.
Failing the Asset Representation Test: Inability to demonstrate that the partnership has sufficient assets to pay potential tax assessments can lead to IRS election disputes.

10. Penalties for Non-Filing or Errors

Form 7036 is an elective procedural form, so there are no direct fines or penalties for choosing not to file it. However, filing errors create significant procedural consequences:

Reversion to TEFRA Audits: If Form 7036 is rejected or filed late, the audit defaults back to TEFRA rules, requiring individual partner notifications, separate partner-level assessments, and extended administrative disputes.
Loss of Centralized Settlement: The partnership loses the ability to resolve all liabilities at the entity level through a single imputed underpayment.
Statutory Assessment Penalties: If the underlying audit uncovers errors, standard accuracy-related penalties (IRC § 6662) and interest still apply to the resolved adjustments.

11. Related Forms and Schedules

Form 7036 connects to various partnership audit forms and schedules:

Form 1065: U.S. Return of Partnership Income.
Form 1065-X: Amended Return or Administrative Adjustment Request (AAR).
Form 8979: Partnership Representative Revocation, Designation, and Resignation.
Form 8985: Pass-Through—Statement of Adjustments to Partner-Related Items.
Form 8986: Partner’s Share of Adjustment(s) to Partnership-Related Item(s).
Letter 2205-D: Initial Partnership Examination Contact Letter.
Letter 5893 / Letter 5895: Notice of Administrative Proceeding and BBA Summary Report Letters.

12. Frequently Asked Questions (FAQs)

1. What is the main difference between TEFRA and the BBA audit regime?

Under TEFRA, the IRS audited the partnership but assessed taxes against each individual partner. Under BBA, the audit, assessment, and collection of tax (the imputed underpayment) occur entirely at the partnership level.

2. Can a partnership file Form 7036 for a 2019 tax return?

No. Tax years 2018 and beyond are already subject to the BBA regime by law, so no election form is needed.

3. What role does the Partnership Representative play?

The Partnership Representative has the sole statutory authority to act on behalf of the partnership in all IRS audit proceedings. Unlike the old TEFRA Tax Matters Partner, other partners have no statutory right to participate in the audit.

4. Can the IRS deny a Form 7036 election?

Yes. The IRS may challenge or deny the election if the form is submitted late, signed by an unauthorized individual, or if the partnership fails to satisfy the solvency and asset representations.

5. Can our partnership elect out of the BBA regime on Form 7036?

No. Form 7036 is used to elect into the BBA regime for gap years. Electing out of the BBA regime is done on Schedule B-2 of Form 1065 for eligible small partnerships (100 or fewer partners) in tax years 2018 and later.

6. Can Form 7036 be revoked once filed?

No. An election made under Section 1101(g)(4) is irrevocable unless the partnership receives formal written consent from the IRS.

13. Conclusion – Key Takeaways Summarized

IRS Form 7036 provided a critical procedural bridge between the old TEFRA partnership rules and the modern Centralized Partnership Audit Regime. For partnerships facing examinations for 2016 or 2017 tax returns, electing into the BBA regime allows for centralized entity-level resolution and clear authority through a designated Partnership Representative.

Because the election is subject to a strict 30-day window upon receiving an IRS examination notice, partnership managers and advisors must act quickly to evaluate their audit strategy, verify asset solvency, and ensure proper authorized execution.

IRS Form 7036 Guide: BBA Partnership Audit Early Election