Fillable Form 8978

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What is Form 8978?

Form 8978, Partner’s Additional Reporting Year Tax, is used by partners in partnerships to report and adjust their share of taxes due to adjustments made under the centralized partnership audit regime. This regime, enacted by the Bipartisan Budget Act of 2015, allows the IRS to assess and collect tax at the partnership level rather than from individual partners. If a partnership undergoes an audit and adjustments are made that increase a partner's tax liability, the partner may need to file Form 8978 to reflect these changes on their individual tax return.

The adjustments typically originate from a "partnership adjustment tracking report" (Form 8986) provided by the partnership. This report details each partner's share of any changes resulting from the audit, including increases or decreases in income, deductions, credits, or other tax items. Partners use the information on Form 8986 to calculate the impact on their personal tax liability and report it on Form 8978. The form ensures that the additional tax is properly reconciled with the partner's reporting year when the adjustment is finalized.

During the process of preparing a partner's income tax return, it is crucial to report adjustments shown on Form 8978 accurately, especially pertaining to partnership related items. These adjustments may involve tax attributes that need to be reflected correctly on the partner's return to ensure compliance. Partners are often advised to consult with a tax professional to navigate complex filing procedures and make the necessary adjustments.

Additionally, in scenarios involving pass through partners, understanding the nuances of partnership related item adjustments is essential to avoid discrepancies. Partners should be aware of the filing requirements and ensure that they file electronically where possible to streamline the process. It's important to note that the due date for Form 8978 aligns with the partner's return due date for the adjustment year. Therefore, partners should review the reviewed year details and ensure timely and accurate filing to mitigate any potential issues with the IRS.

How do I fill out Form 8978?

A fillable copy of Form 8978 can be found here.

Name of Partner(s)

Enter the name or names of the partner associated with this form.

Partner Tax ID Number

Enter the TIN of the partner that this form is being filed for.

Source of Review Year Adjustments

Mark either the BBA Audit or AAR Filing box to indicate the source of your review year adjustments.

Part I - Computation of Additional Reporting Year Tax

For each column, enter the end date for each tax year that you are computing for. Then enter the values in each applicable column for each of the following:

1. Income
   1. Total income per original return or as previously adjusted
   2. Adjustments to income from Schedule A (Form 8978), line 2, columns a through d.
2. Combine Lines 1a and 1b and enter the corrected income.
3. Deductions
   1. Total deductions per original return or as previously adjusted
   2. Adjustments to deductions from Schedule A (Form 8978), Line 4, columns a through d.
4. Combine Lines 3a and 3b and enter the corrected deductions.
5. Subtract Line 4 from Line 2.
6. Income tax on Line 5
7. Alternative minimum tax on Line 5
8. Add Lines 6 and 7.
9. Credits
   1. Total credits per original return or as previously adjusted.
   2. Adjustments to credits from Schedule A (Form 8978), Line 6, columns a through d.
10. Combine Lines 9a and 9b and enter the corrected credits.
11. Subtract Line 10 from Line 8.
12. Total income tax shown on original return or as previously adjusted.
13. Subtract Line 12 from Line 11, columns a through d.
14. Add all amounts on Line 13, columns a through d, and enter the sum.

Part II - Penalties

Enter the relevant values for the below in the necessary columns. Make sure that they are consistent with your documents and are updated to the necessary tax years concerned.

15. Penalties
16. Total Penalties (add all amounts on Line 15, columns a through d)

Part III - Interest

Enter the relevant values for the below in the necessary columns. Make sure that they are consistent with your documents and are updated to the necessary tax years concerned.

17. Interest
18. Total Interest (add all amounts on Line 17, columns a through d)

Frequently Asked Questions (FAQs)

When should Form 8978 be filed?

It must be filed with your income tax return for the year in which you receive the Form 8986 adjustment.

What happens if Form 8978 is not filed?

Failing to file could lead to inaccuracies in tax reporting, penalties, or interest on unpaid taxes.

Can Form 8978 result in a refund?

Yes, if the partnership adjustments reduce the partner’s tax liability, they may be eligible for a refund.

What is the centralized partnership audit regime?

It is a system that allows the IRS to assess and collect tax adjustments at the partnership level rather than from individual partners.

Is Form 8978 filed separately from the partner’s tax return?

No, it is filed as part of the partner’s individual or business income tax return.

What tax years does Form 8978 apply to?

It applies to the reporting year in which the partner receives adjustments from a partnership audit.

Can a partner file Form 8978 electronically?

Yes, if the partner's tax return is filed electronically, Form 8978 can also be submitted electronically.

What is an “imputed underpayment”?

It is the additional tax owed by the partnership as a result of IRS audit adjustments.

How are state taxes affected by Form 8978 adjustments?

Partners should check state-specific rules to determine if and how partnership audit adjustments impact state tax filings.

What penalties apply for errors on Form 8978?

Incorrect reporting could lead to penalties for underpayment of taxes, as well as interest on unpaid amounts.

Can Form 8978 include adjustments from multiple partnerships?

Yes, adjustments from multiple partnerships can be reported on the same Form 8978.

Does Form 8978 apply to foreign partnerships?

Yes, if the partnership has U.S. tax reporting obligations and is subject to the centralized audit regime.

What types of tax items can be adjusted on Form 8978?

Adjustments can include changes to income, deductions, credits, or other tax-related items.

Are there exceptions to filing Form 8978?

Generally, all partners who receive a Form 8986 are required to file Form 8978 unless specifically exempted.

How does Form 8978 affect estimated tax payments?

Partners may need to adjust their estimated payments to reflect additional liabilities reported on Form 8978.