When a partnership client received a Notice of Proposed Partnership Adjustment with an imputed underpayment well above what the actual partners would owe at their individual rates, the decision to request the alternative under IRC 6226 through Form 8989 was straightforward in theory – but the deadline was uncomfortably close by the time we analyzed all the numbers. Form 8989 is a form that rewards being organized early in the BBA audit process.
Key Takeaways
- What it does: Form 8989 is used by a BBA partnership to request IRS approval to use the “alternative to penalties” under IRC Section 6226, which allows the partnership to push out audit adjustments to reviewed year partners rather than paying the imputed underpayment at the entity level.
- Who files it: The partnership (through its partnership representative) files Form 8989 after receiving a Final Partnership Adjustment from the IRS, during the BBA audit proceeding.
- Critical deadline: The request must be made within 45 days of the date the Final Partnership Adjustment is mailed – missing this window forfeits the election and the partnership must pay the imputed underpayment.
- Why it matters: The imputed underpayment uses the highest applicable tax rates (37% for individual income, 21% for corporate). Partners who are tax-exempt, in lower brackets, or have offsetting items may owe substantially less at their own rates.
- Connection to Form 8978: Once the election is approved, the partnership must furnish push-out statements to reviewed year partners, who then report their share on Form 8978 Schedule A with their reporting year returns.
- SOP tip: Start the push-out vs. imputed underpayment analysis as soon as the Notice of Proposed Partnership Adjustment arrives – do not wait for the Final Partnership Adjustment to begin the decision process.
What Form 8989 Is and When to Use It
Under the BBA centralized partnership audit rules, when the IRS concludes a partnership audit with a Final Partnership Adjustment (FPA), the default outcome is an imputed underpayment paid by the partnership itself at the applicable highest tax rate. This is administratively simple but often economically unfair: current partners bear the cost of tax adjustments attributable to reviewed year partners who may have already exited the partnership.
Congress created an alternative mechanism under IRC Section 6226: the push-out election. Instead of the partnership paying the imputed underpayment, the partnership “pushes out” the audit adjustments to the reviewed year partners, who then take those adjustments into account on their own returns and pay any resulting additional tax. Form 8989 is the request form the partnership files with the IRS to use this alternative.
Why “Alternative to Penalties” Is the Form’s Label
The IRS originally framed the imputed underpayment payment as analogous to a penalty – it falls on the current partnership at the highest rate regardless of actual partner circumstances. The push-out election, by allowing tax to flow to partners at their actual rates, was described as an “alternative” to that default penalty structure. Hence Form 8989’s title: Request to Use the Alternative to Penalties Under IRC 6226.
Who Benefits Most from Making This Election
The push-out election is most valuable when the reviewed year partners include tax-exempt entities (which would owe zero tax on their share of adjustments), individuals in lower tax brackets than 37%, partners with significant net operating losses or other offsets in the reviewed year, or when the reviewed year partner mix differs substantially from the current partner mix. A quantitative analysis comparing the aggregate partner-level tax under push-out to the partnership-level imputed underpayment is the foundation of the election decision.
How to Complete Form 8989
Form 8989 is a procedural request form – it is not a computation form. Its primary purpose is to notify the IRS that the partnership elects to use the Section 6226 alternative and to identify the partnership and the Final Partnership Adjustment to which the election applies.
| Section / Field | What to Complete | Practitioner Notes |
|---|---|---|
| Partnership Identification | Partnership name, EIN, tax year(s) under examination (the reviewed year) | Use the exact reviewed year, not the current tax year. The form relates to the year the IRS audited, not the year it is being filed. |
| Final Partnership Adjustment Information | Date the FPA was mailed, FPA document number or reference | The 45-day election deadline runs from the FPA mailing date. Document this date precisely – it is the countdown clock for the election. |
| Partnership Representative Information | Name and contact information of the current partnership representative | The PR who signs Form 8989 must be the currently designated PR for the audit proceeding. Verify this before filing. |
| Election Statement | Statement that the partnership elects to use the alternative to penalties under IRC Section 6226 | The form includes a pre-printed election statement; do not alter its language. Any modifications may cause the IRS to reject the election. |
| PR Signature | Signature of the partnership representative and date | The PR has sole authority to make this election on behalf of the partnership. Partner signatures are not required on Form 8989 itself, though they may be required under the partnership’s own governance documents before the PR acts. |
Where and How to Submit Form 8989
Form 8989 is submitted to the IRS office or agent handling the partnership audit – not to a general filing address. Submit via certified mail or the method specified in the audit correspondence to create a record of the submission date. Retain a copy and confirm receipt. A missed deadline is an irrecoverable loss of the election right.
Deadlines and Consequences of Missing the Window
The 45-day deadline is the central compliance risk for Form 8989. It is strict and, to the best of current regulatory guidance, not subject to extension.
| Event | Deadline | Consequence |
|---|---|---|
| File Form 8989 with IRS | Within 45 days of the date the Final Partnership Adjustment is mailed | Missing this deadline forfeits the push-out election; the partnership must pay the imputed underpayment at the entity level |
| Furnish push-out statements to reviewed year partners | Within 60 days after the FPA becomes final (following IRS approval of the election) | Failure to timely furnish statements may expose the partnership to penalties and creates downstream problems for partners who need the statements to complete Form 8978 Schedule A |
| Partners file Form 8978 Schedule A | With the partner’s reporting year return (normal due date plus extensions) | Partners who miss their filing deadline face standard late filing penalties plus BBA interest that accrues from the reviewed year |
| IRS review of Form 8989 | No fixed IRS timeline; IRS processes and confirms the election | The partnership should follow up with the assigned agent to confirm the election was received and accepted before beginning to furnish partner statements |
The Push-Out vs. Imputed Underpayment Decision Framework
The decision to file Form 8989 should be based on a quantitative and qualitative analysis performed as early as possible in the BBA audit process – ideally starting when the Notice of Proposed Partnership Adjustment is received, not after the FPA is issued.
Quantitative Comparison
Start with the total imputed underpayment amount shown on the FPA. Then estimate the aggregate additional tax that reviewed year partners would owe if the adjustments were pushed out to them at their actual tax rates. If the aggregate partner-level tax is materially lower than the imputed underpayment, the push-out election (Form 8989) generates net tax savings for the overall group. The savings are most significant when the partner group includes tax-exempt organizations, trusts with low distributable net income, or individuals with significant capital loss carryforwards or other reviewed year offsets.
Operational and Relationship Considerations
Even when the tax math favors push-out, operational factors may counsel against it. Locating and furnishing statements to former reviewed year partners adds administrative burden. Partners who receive push-out statements must engage their own advisors to complete Form 8978 Schedule A, which creates cost and friction. If the partnership has dissolved or the partner list is unresolvable, push-out may be impractical regardless of the tax savings.
Penalty Abatement Alongside Push-Out
When the partnership also wants to pursue penalty abatement on any penalties associated with the FPA, the push-out election through Form 8989 does not eliminate the need for a separate penalty abatement request. The two proceedings run in parallel. My practice is to file both Form 8989 and the penalty abatement request simultaneously, within the 45-day window, to preserve all available options.
Post-Election Obligations: From Form 8989 Approval to Partner Statements
Filing Form 8989 is the beginning of the process, not the end. Once the IRS approves the push-out election, the partnership has significant follow-up obligations.
Furnishing Push-Out Statements to Partners
Within 60 days of the FPA becoming final, the partnership must furnish statements to every reviewed year partner that includes their allocated share of each adjustment, the applicable tax year information, and identification of the adjustment type. These statements are the inputs partners need to complete Form 8978 Schedule A. The content and format requirements for these statements are detailed in the regulations – getting them wrong creates downstream compliance failures for every partner who receives one.
Tracking Partner Information
For partnerships with complex partner rosters – including former partners, tiered structures, or high partner turnover – assembling accurate partner contact information and allocating adjustments correctly requires significant coordination. Build a partner information database before the FPA arrives so the 60-day statement window is not consumed by information gathering.
Common Mistakes That Slow Things Down
- Missing the 45-day deadline – The most consequential mistake: the deadline runs from the FPA mailing date, not the date received. Calendar it immediately when the FPA arrives and build in time for the analysis and PR signature process.
- Not analyzing the election before the FPA arrives – By the time the FPA is issued, the 45-day clock is running. The quantitative push-out vs. imputed underpayment analysis should begin at the Notice of Proposed Partnership Adjustment stage so the decision is ready when the FPA arrives.
- Failing to confirm the PR’s current designation before filing – The PR who signs Form 8989 must be the current valid partnership representative for the audit. If the PR has changed, confirm Form 8979 and Form 8983 are in order before submitting Form 8989.
- Not retaining proof of submission – Form 8989 must be filed within 45 days. Use certified mail, fax with confirmation, or another method that creates a verifiable submission record. A submission without proof cannot be defended if the IRS claims the election was untimely.
- Furnishing partner statements late – The 60-day window for furnishing push-out statements to reviewed year partners starts running immediately after the election is confirmed. Late statements create cascading compliance issues for every partner who needs them for Form 8978 Schedule A.
- Missing former partners when furnishing statements – The push-out obligation covers all reviewed year partners, including those who have since exited. A statement that should have been sent but was not creates penalties and may leave the omitted partner without the information needed to comply with their own Form 8978 filing obligation.
Practical Checklists You Can Reuse
Copy these into your internal wiki or SOP.
Form 8989 Election Decision Checklist
- Calendar the FPA mailing date immediately; set the 45-day deadline in all relevant calendars
- Obtain the total imputed underpayment amount from the FPA
- Identify all reviewed year partners (current and former) and their applicable tax rates for the reviewed year
- Estimate aggregate partner-level tax on pushed-out adjustments at actual partner rates
- Compare aggregate partner tax to imputed underpayment; quantify the potential savings
- Assess operational feasibility: can all reviewed year partners be located and furnished statements?
- Consult with partnership counsel on any governance requirements for the PR to make this election
- Decide within the 45-day window; document the decision analysis in a memo
- File Form 8989 with the IRS agent handling the audit via a method that creates proof of timely submission
- Confirm IRS receipt and acceptance of the election before beginning to prepare partner statements
Post-Election Partner Statement Checklist
- Confirm IRS approval of the Form 8989 election in writing
- Calendar the 60-day statement furnishing deadline from FPA finalization
- Compile complete list of all reviewed year partners with current contact information
- Allocate each adjustment item to individual partners per the reviewed year partnership agreement
- Prepare statements that include all required information per IRS regulations (partner name, TIN, adjustment allocations, reviewed year identification)
- Furnish statements to all reviewed year partners by the 60-day deadline
- Retain copies of all statements with delivery confirmation for each partner
- Follow up with partners to confirm receipt and advise them to engage their own advisors for Form 8978 Schedule A
For Accounting Firms – Keep Delivery Smooth While You Scale
BBA partnership audit administration – managing the Form 8989 election, coordinating partner statement preparation, and supporting the downstream Form 8978 Schedule A filings – requires structured workflow management across multiple partners and advisors. Firms serving partnership clients through BBA audits need clear processes to meet the strict deadlines before the 45-day and 60-day windows close.
Accountably works with CPA and EA firms that need offshore delivery capacity to support structured compliance and return preparation work, including partnership tax workflows and the documentation management that BBA audit engagements require. We keep this mention brief on purpose, your process comes first.
FAQs About Form 8989
What is Form 8989 used for?
Form 8989 is used by a BBA partnership to request IRS approval to use the alternative to penalties under IRC Section 6226 – the push-out election. By making this election, the partnership avoids paying the imputed underpayment at the entity level, and instead pushes the audit adjustments out to the reviewed year partners, who then report and pay their share of additional tax through Form 8978 Schedule A on their own reporting year returns.
What is the deadline for filing Form 8989?
Form 8989 must be filed within 45 days of the date the Final Partnership Adjustment is mailed by the IRS. This deadline is strict. Missing it forfeits the push-out election permanently, and the partnership must pay the imputed underpayment. The deadline runs from the FPA mailing date, not the date it is received, so calendar it immediately upon the FPA’s arrival.
When does the push-out election save tax?
The push-out election saves tax when the aggregate additional tax that reviewed year partners would owe at their own rates is less than the imputed underpayment the partnership would owe at the highest applicable rates (37% for individuals, 21% for corporations). The savings are greatest when the partner group includes tax-exempt entities, partners in lower tax brackets, or partners with significant reviewed year offsets such as capital loss carryforwards or net operating losses.
What happens after Form 8989 is approved?
After the IRS accepts the Form 8989 election, the partnership must furnish push-out statements to all reviewed year partners within 60 days of the FPA becoming final. These statements include each partner’s allocated share of the audit adjustments. Partners then use those statements to complete Form 8978 and Schedule A, which they file with their own reporting year returns.
Can the push-out election be revoked after Form 8989 is filed?
Once the IRS accepts the Form 8989 election, the push-out mechanism is in motion and cannot be easily reversed. The partnership becomes obligated to furnish statements to all reviewed year partners. Attempting to withdraw the election after IRS acceptance would require the IRS’s consent and would likely not be granted once statements have been furnished. Make the push-out decision carefully before filing.
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.