The first time a client received a push-out statement from their partnership after a BBA audit, they brought it to me three weeks before their individual return was due and had no idea what it meant. Walking through Form 8978 and Schedule A with a partner who had never encountered the centralized audit rules was a lesson in how much the BBA regime changed the landscape for individual and entity partners who thought the partnership handled everything.
Download Form 8978 Schedule A PDF
Key Takeaways
- What it does: Form 8978 Schedule A computes the additional tax a reviewed year partner owes on their own reporting year return after a BBA partnership makes a push-out election under IRC Section 6226.
- Who files it: Any partner – individual, corporation, trust, or pass-through entity – who was a partner during the reviewed year and receives a push-out statement from the partnership.
- Key deadline: Filed with the partner’s return for the reporting year, due on the normal return due date; additional tax bears an interest charge from the reviewed year through the reporting year.
- Interest component: The additional tax does not just carry forward at the standard underpayment rate – it carries an interest-based addition computed under specific BBA rules that can be material.
- Main pitfall: Partners receiving push-out statements late in the year often fail to anticipate the interest charge, creating an unexpected tax bill beyond the base additional tax amount.
- SOP tip: When a partnership client is under BBA audit, notify all current and former partners immediately so they can engage their own advisors – a push-out election affects people who may no longer be your clients.
What Form 8978 Schedule A Is and When to Use It
The Bipartisan Budget Act of 2015 fundamentally changed how IRS audits of partnerships are conducted. Under the old TEFRA rules, partnership adjustments flowed through to partners who then reported them on their own amended returns. Under the BBA centralized audit regime (effective for partnership tax years beginning after December 31, 2017), the default is for the partnership entity itself to pay an “imputed underpayment” at the highest applicable tax rate.
But Congress also gave partnerships an alternative: the push-out election under IRC Section 6226. When a partnership makes this election, it “pushes out” the audit adjustments to the reviewed year partners, who then must take those adjustments into account on their own returns. Form 8978 is the form those partners use, and Schedule A is the attachment that computes how much additional tax they owe on those pushed-out adjustments.
The BBA Timeline: Reviewed Year, Adjustment Year, Reporting Year
Three time periods matter in BBA audit mechanics. The reviewed year is the year the IRS is auditing (e.g., 2022 partnership return). The adjustment year is the year in which the final partnership adjustment is made (e.g., 2025, when the IRS issues its Final Partnership Adjustment). The reporting year is the partner’s tax year that includes the date the push-out statement was received (also often 2025). Schedule A connects these three time periods by computing the reviewed year tax impact and requiring payment – with interest – in the reporting year.
Who Receives Push-Out Statements
The partnership must furnish statements to all reviewed year partners when making a push-out election. This includes not just current partners but any partner who held an interest during the reviewed year, even if they have since left the partnership. For large partnerships with frequent partner turnover, locating and notifying former partners is operationally challenging and creates liability exposure for the partnership representative if statements are not timely furnished.
How to Complete Form 8978 Schedule A
Schedule A walks through a step-by-step computation that starts with the partner’s reviewed year tax and builds up to the additional tax plus the BBA interest charge. The computation is partner-type sensitive – the tax rate and available deductions differ for individuals, corporations, and pass-through entities.
| Schedule A Step | What to Compute | Practitioner Notes |
|---|---|---|
| Part I – Adjustment items | List each adjustment item from the partnership push-out statement: income, gain, loss, deduction, credit increases and decreases | The partnership statement allocates specific dollar amounts to each partner. Use those figures exactly – do not recalculate from K-1 data, which relates to a different year. |
| Part II – Tax attributable to adjustments | Recompute the reviewed year tax by including the pushed-out adjustments, then subtract the tax as originally reported for that year | This requires accessing the partner’s original reviewed year return. Gather that return before starting Schedule A. |
| Part III – Interest computation | Compute the BBA interest charge from the due date of the reviewed year return through the due date of the reporting year return | The interest rate compounds daily using the federal short-term rate plus 5 percentage points. The IRS provides interest factor tables to simplify this computation; use the current tables from the instructions. |
| Total additional tax | Additional tax from Part II plus BBA interest from Part III | This total flows to Form 8978 Line 14, which flows to the partner’s return (Schedule 2, Form 1040 for individuals; Form 1120 for corporations). |
| Credit adjustments | If pushed-out adjustments include credit reductions, those are computed separately and reduce any credit otherwise claimed on the reporting year return | Credit push-outs are particularly complex – the computation must account for the credit type and any applicable limitations that would have applied in the reviewed year. |
Partner-Level Tax Rate Issues
The additional tax on Schedule A is computed at the partner’s own tax rates for the reviewed year – not at any blended partnership-level rate. This is one of the potential advantages of the push-out election over the imputed underpayment: a partner in a lower tax bracket may owe less tax on the same adjustment than the partnership-level imputed underpayment rate would generate. Quantifying this difference is a standard part of the push-out vs. pay analysis that partnership representatives and their advisors should perform before making the Section 6226 election.
Deadlines, Penalties, and Filing Requirements
The filing deadlines for Form 8978 and Schedule A are tied to the partner’s own return due date for the reporting year, but the interest clock started ticking in the reviewed year.
| Event | Deadline | Notes |
|---|---|---|
| Partnership furnishes push-out statements to partners | 60 days after the Final Partnership Adjustment becomes final | Statements must include partner-specific adjustment amounts and the election year |
| Partner files Form 8978 with reporting year return | Normal due date of reporting year return (e.g., April 15 for individuals; with extension to October 15) | The form is attached to the return for the year in which the partner receives the push-out statement |
| Interest accrual on additional tax | Accrues from original reviewed year return due date through reporting year return due date | This means interest typically runs for 2+ years; the longer the audit process, the larger the interest charge |
| Late filing penalty | Standard 5% per month penalty on additional tax if reporting year return is filed late | Extensions are available for the reporting year return; the extension applies to the Form 8978 filing deadline as well |
| Accuracy-related penalty | 20% of underpayment if the additional tax computation is incorrect | Negligence or substantial understatement standards apply; good documentation of the Schedule A computation is the primary defense |
Push-Out Election vs. Paying the Imputed Underpayment: The Analysis
When a partnership receives a Final Partnership Adjustment from the IRS, the partnership representative must decide: pay the imputed underpayment at the entity level, or make the push-out election under Section 6226. This decision has significant tax and relationship implications.
Arguments for the Push-Out Election
The push-out election makes sense when the reviewed year partners would collectively owe less tax at their individual rates than the imputed underpayment amount the partnership would owe at the 37% default rate (or 21% for corporate partners). Tax-exempt partners, partners with significant losses in the reviewed year, or partners in lower brackets can all reduce the aggregate tax burden through push-out. The election also prevents current partners from bearing the economic cost of tax liabilities attributable to former partners.
Arguments Against the Push-Out Election
Push-out creates an administrative burden for the partnership – it must locate and furnish statements to potentially dozens or hundreds of reviewed year partners, including those who have since exited. It also creates uncertainty about whether all partners will correctly compute and pay their share of the additional tax. Partnerships with complex partner rosters or significant partner turnover may find the imputed underpayment simpler operationally, even if the aggregate tax cost is higher.
Pass-Through Partners and Tiered Structures
If a reviewed year partner is itself a pass-through entity (a partnership, S corporation, or trust), the push-out statement flows through to that entity, which must then push the adjustment further through to its own partners or shareholders. This creates a tiered push-out chain that can require multiple Forms 8978 at different levels of the ownership structure. Tracking this chain is one of the more operationally complex aspects of BBA audit administration.
How Push-Out Interacts With Amended Returns and the BBA Interest Charge
A common misconception is that partners who receive push-out statements must file amended returns for the reviewed year. They do not. The Form 8978 mechanism specifically avoids amended returns – the additional tax is reported on the reporting year return (the current year return), not an amended prior year return. This is administratively simpler but means the interest clock runs longer.
The BBA Interest Rate
The interest rate under the BBA push-out regime is the federal short-term rate plus 5 percentage points, compounded daily. This is higher than the normal underpayment interest rate (federal short-term rate plus 3 points). The premium reflects Congress’s intent to incentivize voluntary compliance without partnership-level audit. From my side of the desk, the interest charge often exceeds 15–25% of the base additional tax when two or three years have elapsed since the reviewed year – clients need to be prepared for that.
Interest Netting Considerations
Some practitioners explore whether the BBA interest charge can be netted against other interest the IRS might owe the partner (from overpayments in the same reviewed year period). The netting rules are complex and fact-specific – this is an area where careful analysis before filing Schedule A can produce meaningful savings.
Common Mistakes That Slow Things Down
- Ignoring the push-out statement until the last minute – Partners who receive push-out statements late in the filing season often face compressed timelines to compute Schedule A correctly. Build a workflow trigger: when a partnership under BBA audit sends a push-out statement, start the Schedule A computation immediately.
- Using K-1 data instead of push-out statement allocations – The amounts on the push-out statement are not the same as the K-1 amounts from the reviewed year. The push-out statement reflects IRS audit adjustments, not original partnership allocations. Always use the statement amounts for Schedule A.
- Not retrieving the reviewed year partner return – Computing the tax “as if” the reviewed year return included the adjustments requires the original return. If the partner’s reviewed year return is unavailable, obtain a transcript before proceeding.
- Underestimating the BBA interest charge – The interest component on Schedule A often surprises partners because it uses a higher rate than standard underpayment interest and compounds daily. Run the interest calculation early so clients understand their full exposure before the return is due.
- Failing to address tiered structures – If the partner receiving the push-out statement is itself a pass-through entity, it must push the adjustment through to its own owners. Missing this requirement creates a reporting failure at the pass-through level.
- Applying the wrong tax rate for the reviewed year – The additional tax on Schedule A uses the tax rates and rules applicable in the reviewed year, not the reporting year. If the rates changed between years (e.g., pre- and post-TCJA), use the correct reviewed year rates.
- Missing the partnership’s Section 6226 election deadline – The election must be made by the 45-day deadline after the Final Partnership Adjustment is mailed. A missed deadline means the partnership must pay the imputed underpayment; there is no retroactive election.
Practical Checklists You Can Reuse
Copy these into your internal wiki or SOP.
Partner’s Form 8978 Schedule A Preparation Checklist
- Receive and review the push-out statement from the partnership; confirm partner’s name, TIN, and reviewed year
- Retrieve the partner’s original tax return for the reviewed year
- Identify each adjustment item listed in the push-out statement
- Determine whether any adjustments affect credits, not just income/deduction items
- Recompute reviewed year tax including the pushed-out adjustments
- Compute the difference between recomputed reviewed year tax and original reviewed year tax
- Calculate the BBA interest charge using current IRS interest factor tables for the period from reviewed year due date to reporting year due date
- Sum the additional tax and interest charge; confirm the total flows correctly to Form 8978 and from there to the reporting year return
- Determine if the partner is itself a pass-through entity and whether further push-through is required
- File Form 8978 with Schedule A attached to the reporting year return by the normal due date
Partnership Representative Pre-Election Checklist
- Quantify the imputed underpayment the partnership would owe under the default BBA rules
- Estimate aggregate partner-level tax if push-out election is made – include tax-exempt partners, partners in lower brackets, and partners with offsetting items
- Identify all reviewed year partners and confirm contact information is current – former partners may be difficult to reach
- Confirm the 45-day deadline for making the Section 6226 election and build a decision checkpoint well before that date
- Assess administrative feasibility of push-out: complexity of partner roster, tiered structures, foreign partners
- Obtain legal and tax advice on the election decision; document the analysis in a memo for the file
- If push-out is elected, prepare and furnish partner statements within 60 days of the Final Partnership Adjustment becoming final
For Accounting Firms – Keep Delivery Smooth While You Scale
BBA audit compliance – Form 8978, Schedule A preparation, push-out election analysis, and tiered structure tracking – is a growing area of work for CPA firms serving partnership clients. As IRS partnership audits increase in frequency and the BBA regime matures, more firms will need structured workflows to manage push-out statement processing for individual, corporate, and pass-through partners across multiple client files simultaneously.
Accountably works with CPA firms that need offshore delivery capacity for structured compliance and return preparation tasks, including partnership tax work and supporting the analysis and documentation workflows that BBA audit responses require. We keep this mention brief on purpose, your process comes first.
FAQs About Form 8978 Schedule A
What is Form 8978 Schedule A?
Form 8978 Schedule A is the Partner’s Additional Reporting Year Tax schedule. It is completed by reviewed year partners who receive a push-out election statement from a BBA partnership following an IRS audit under IRC Section 6226. Schedule A computes the additional tax the partner owes in their reporting year as a result of taking the partnership’s audit adjustments into account on their own return, plus a BBA interest charge that runs from the reviewed year.
Who files Form 8978 Schedule A?
Any partner who was a partner during the BBA-reviewed year and receives a push-out statement from the partnership must file Form 8978 (with Schedule A attached) with their own return for the reporting year. This applies to individual partners, corporate partners, and pass-through entity partners, and it applies to former partners who are no longer in the partnership when the audit concludes.
What is the push-out election in BBA partnership audits?
Under the BBA centralized audit rules, when the IRS makes adjustments to a partnership’s reviewed year return, the default is for the partnership to pay an imputed underpayment at the entity level. However, the partnership can elect under Section 6226 to push those adjustments out to the reviewed year partners. Those partners then compute and pay additional tax on their own reporting year returns using Form 8978 and Schedule A.
When is Form 8978 Schedule A due?
Form 8978 and Schedule A are filed with the partner’s reporting year return – the year in which the partner receives the push-out statement. The return is due on the normal due date for that partner’s return type, with extensions available. However, interest on the additional tax accrues from the original reviewed year return due date, so the total amount owed grows the longer the audit process takes.
How is the additional tax on Schedule A computed?
Schedule A computes the additional tax by recomputing the reviewed year tax with the pushed-out adjustments included, then subtracting the tax as originally reported for the reviewed year. The difference is the base additional tax. A BBA-specific interest charge, computed at the federal short-term rate plus 5 percentage points compounded daily for the period from the reviewed year return due date to the reporting year return due date, is then added on top. The total flows to Form 8978 and from there to the partner’s reporting year return.
This article is educational, not tax advice. Rules change, and states differ. Confirm thresholds, deadlines, and elections against the current IRS instructions for your year and facts.