Introduction – What Is Form 8985?

IRS Form 8985, titled Pass-Through — Statement Transmittal/Partnership Adjustment Tracking Report (Required Under Sections 6226 and 6227), is a master reporting and transmittal document administered by the Internal Revenue Service (IRS) and the U.S. Department of the Treasury. It operates under the centralized partnership audit regime established by the Bipartisan Budget Act of 2015 (BBA).

This form is used by audited partnerships, partnerships filing Administrative Adjustment Requests (AARs), and intermediate “pass-through partners” (such as upper-tier partnerships, S corporations, and trusts). It serves as a central tracking ledger when audit adjustments are “pushed out” through tiered business structures, ensuring that every dollar of adjustment is accounted for as it moves toward the ultimate taxpayers.

Purpose of the Form – Why Does Form 8985 Exist?

In modern corporate structures, partnerships are frequently owned by other partnerships, creating complex multi-tiered investment webs. Under the BBA audit regime, when an audit results in tax adjustments, the partnership can make a push-out election under Section 6226 to pass the liability to its partners via Form 8986 rather than paying an imputed underpayment at the entity level.

However, when a direct partner receiving Form 8986 is an entity like another partnership or an S corporation, that entity does not pay individual income taxes. Under Section 6226(b)(4), that pass-through partner must choose either to pay the tax liability itself or push the adjustments further up the ownership chain to its own partners. Form 8985 solves the tracking problem by serving as the master transmittal schedule for the IRS, logging incoming and outgoing audit tracking numbers and verifying whether taxes were paid or passed to the next tier.

Who Needs to File This Form?

Form 8985 must be filed by business entities navigating BBA audit adjustments or administrative corrections. You must complete and submit Form 8985 if your entity falls into any of the following categories:

Audited BBA Partnerships: A partnership that underwent an IRS examination, made a Section 6226 push-out election, and is submitting an aggregate package of Forms 8986 to the IRS.
AAR Partnerships: A BBA partnership that files an Administrative Adjustment Request (Form 8082) and elects to push out adjustments to its partners.
Pass-Through Partners Pushing Out: An upper-tier partnership, S corporation, trust, or estate that received a Form 8986 and elects to push the adjustments further to its own partners or shareholders by issuing new Forms 8986.
Pass-Through Partners Paying: An upper-tier pass-through entity that received a Form 8986 and elects to pay the imputed underpayment at the entity level rather than pushing it out to its owners.

Who Is Exempt / Not Required to File?

Many partners and businesses will never need to handle Form 8985. You are exempt or not required to submit this form if:

Ultimate Individual Taxpayers: Individuals, C corporations, and taxable estates that receive Form 8986 do not file Form 8985. Instead, they report their adjustments on their own tax return using Form 8978.
Partnerships Paying at Entity Level: Audited partnerships that resolve their audit by paying the default imputed underpayment directly to the IRS without electing a push-out.
BBA Opt-Out Partnerships: Small partnerships with 100 or fewer qualifying partners that made a valid election under Section 6221(b) to opt out of the centralized BBA audit rules.
Unaffected Partnerships: Partnerships that have not undergone an IRS examination and are not filing an Administrative Adjustment Request.

When to File Form 8985

Form 8985 is an event-driven compliance form governed by strict statutory deadlines tied to the underlying audit or AAR:

Audited Partnerships: Must submit Form 8985 (along with companion Forms 8986) to the IRS no later than 60 calendar days after the date the IRS mails the Notice of Final Partnership Adjustment (FPA).
AAR Partnerships: Must submit Form 8985 concurrently with the filing of their Administrative Adjustment Request.
Pass-Through Partners: Must file Form 8985 and furnish Forms 8986 to their partners by the extended due date of the return for the partnership’s “adjustment year” (the tax year in which the FPA was issued or the AAR was filed), or within specific regulatory windows following receipt of their own Form 8986.

Where and How to File

Under IRS regulations, audited BBA partnerships and their pass-through partners are generally required to submit Form 8985 electronically. Submissions are uploaded through the dedicated IRS BBA partnership digital portal using official, approved file formats.

If you are a pass-through partner of an AAR partnership, or if specific IRS instructions authorize non-portal transmission, Form 8985 and companion Forms 8986 can be transmitted via dedicated IRS secure fax lines or mailed to the designated IRS address as per instructions for BBA filings. If a pass-through partner elects to pay the tax by check or money order, the payment must be accompanied by Form 8985-V.

Step-by-Step Instructions to Fill Form 8985

Form 8985 is a multi-page document that logs audit identifiers, profiles participating entities, tracks adjustments, and calculates entity-level payments.

Tracking Numbers Header

At the top of the form, enter the Incoming Tracking Number (the tracking number found on the Form 8986 received by the pass-through partner). If your entity is pushing out adjustments to its own owners, generate and enter a unique Outgoing Tracking Number, and indicate whether this submission is a summary batch or an incremental part.

Part-by-Part Section Breakdown

Part Number	Form Focus	Filing Directions
Part I	Filer Status & Return Type	Check the box indicating whether you are an audited partnership, an AAR partnership, or a pass-through partner. Identify the tax return filed (Form 1065, 1120-S, 1041).
Part II	Originating Partnership	Report the legal name, EIN, reviewed tax year-end, and audit control number (or AAR filing date) of the partnership that was originally audited.
Part III	Pass-Through Partner Election	If filing as a pass-through partner, enter your entity details. Check Box F1 if making a tax payment at the entity level, or Box F2 if pushing out adjustments via Form 8986. If paying, enter additional tax, penalties, and interest.
Part IV	Adjustment Line Items	Detail the adjustments by Schedule K-1 and Schedule K-3 line numbers, line titles, and codes. Report originally filed amounts, net audit adjustments, and recomputed totals.
Part V	Explanations & Calculations	Provide a narrative explanation of the adjustments or detail the mathematical formula used to calculate entity-level tax payments.
Signatures	Perjury Declaration	Must be signed and dated under penalties of perjury by the Partnership Representative (PR) or Designated Individual (DI).

Required Documents and Information Needed Before Filling

Before preparing Form 8985, compile the following commercial and regulatory tax records:

Received Form 8986: The official statement received from the lower-tier partnership displaying the incoming tracking number and allocated adjustments.
Prior-Year Tax Returns: Filed copies of Form 1065, Form 1120-S, or Form 1041 (including all Schedules K-1 and K-3) for the reviewed year under examination.
Prepared Forms 8986: Complete draft copies of the outgoing Forms 8986 generated for your upper-tier partners (if you are pushing out adjustments).
Payment Documentation: Electronic payment confirmation numbers or a completed Form 8985-V payment voucher if paying at the entity level.
Audit Notice or AAR Records: The original Notice of Final Partnership Adjustment (FPA) or filed Form 8082.

Common Mistakes to Avoid

Errors on Form 8985 can invalidate a push-out election, exposing the pass-through entity to direct tax liability. Watch out for these frequent mistakes:

Transposing Tracking Numbers: Mixing up the incoming and outgoing tracking numbers. The incoming number links to the form you received; the outgoing number links to the batch you are sending.
Using Special Characters in Forms: Entering special characters (such as ampersands, slashes, or hyphens) in entity names or addresses. The IRS electronic filing system rejects forms containing unapproved characters.
Mailing Payments Without Form 8985-V: Sending a paper check with Form 8985 without attaching Form 8985-V. The IRS processing unit requires the voucher to match checks to BBA audit files.
Filing as an Individual: Individuals receiving Form 8986 attempting to file Form 8985. Form 8985 is strictly for entities; individuals report adjustments on Form 8978.
Missing the Strict Response Deadlines: Failing to submit Form 8985 or furnish Forms 8986 within statutory windows, which can immediately invalidate your push-out election.

Penalties for Non-Filing or Errors

Failing to properly complete Form 8985 carries immediate and catastrophic tax consequences for a pass-through entity:

Invalidation of Push-Out Election: If a pass-through partner fails to timely file Form 8985 or furnish Forms 8986 to its partners, the push-out election is legally voided.
Automatic Entity-Level Tax Liability: If the push-out is invalidated, the pass-through partner becomes directly liable for the full imputed underpayment calculated at the highest statutory tax rate (37 percent), plus penalties and interest.
Payee Statement Penalties: Failure to provide timely, accurate Forms 8986 to upper-tier partners triggers fines under IRC Section 6722 for every delinquent statement.
Elevated Section 6621 Interest: Push-out adjustments carry a statutory interest rate that is two percentage points higher than standard underpayment interest rates.

Related Forms and Schedules

Form 8985 functions as the central clearinghouse within the BBA audit reporting framework:

Form 8986: Partner’s Share of Adjustment(s) to Partnership-Related Item(s) (the individual partner statements transmitted with Form 8985).
Form 8985-V: Tax Payment by a Pass-Through Partner (the payment voucher used when an entity pays its liability by check).
Form 8978: Partner’s Additional Reporting Year Tax (used by ultimate taxpayers to report adjustments on their returns).
Form 8082: Notice of Inconsistent Treatment or Administrative Adjustment Request (AAR).
Form 1065 / Form 1120-S / Form 1041: Primary entity returns associated with pass-through partners.

Frequently Asked Questions

What is a “pass-through partner”?

A pass-through partner is any entity that holds an interest in a partnership and is itself required to pass income through to its owners, including an upper-tier partnership, an S corporation, a trust, or an estate.

What is the difference between Form 8985 and Form 8986?

Form 8986 is the individual statement issued to each partner detailing their specific share of audit adjustments. Form 8985 is the master transmittal report filed with the IRS summarizing the entire batch of adjustments.

Can an S corporation that owns a partnership interest file Form 8985?

Yes. An S corporation is legally classified as a pass-through partner. When it receives Form 8986, it must complete Form 8985 to either pay the tax at the S corporation level or push the adjustments out to its shareholders via new Forms 8986.

What are incoming and outgoing tracking numbers?

The incoming tracking number is the unique identification number on the Form 8986 received by the pass-through partner. The outgoing tracking number is a new number generated by the pass-through partner to identify the batch of Forms 8986 it issues to its own owners.

Do individual partners ever need to file Form 8985?

No. Individual partners who receive Form 8986 report their share of adjustments on Form 8978 attached to their personal Form 1040. Form 8985 is filed exclusively by partnerships, S corporations, and trusts.

What happens if a pass-through partner cannot push out adjustments?

If an entity cannot or chooses not to push out adjustments, it must check Box F1 on Part III, calculate the imputed underpayment, and pay the tax directly to the IRS using Form 8985-V or electronic payment.

Conclusion – Key Takeaways Summarized

IRS Form 8985 is the vital operational transmittal that enables tiered partnership structures to navigate BBA audit push-out elections and Administrative Adjustment Requests. It provides the IRS with complete transparency over audit adjustments as they flow across multiple business entities.

To avoid default entity-level tax liabilities, pass-through partners must track their 60-day or adjustment-year filing deadlines, accurately reconcile incoming and outgoing tracking numbers, transmit their filings electronically, and ensure all upper-tier partners receive their Forms 8986 on time.

The IRS Form 8985 Guide: Pass-Through Tracking Report Rules