Do I need to file Form 8985 & 8986 for non-BBA LLC that received 8986 from AAR Partnership?

Thanks for the explanation! I'm in a similar situation but our partnership is a BBA partnership. In that case, would we need to issue the 8985 and 8986 forms? Also, is there a specific timeline we need to follow for issuing these if required?

For BBA partnerships, the rules are different. If your BBA partnership receives a Form 8986 from an upstream partnership, you generally would need to either pay any imputed underpayment or push out the adjustments to your partners by issuing Forms 8985 and 8986. Since you're a BBA partnership, you would need to issue these forms even if the adjustments are favorable. As for timing, you generally have 60 days from the date you received the Form 8986 from the upstream partnership to either pay the imputed underpayment or furnish statements (8986) to your partners. You'll need to file Form 8985 (along with copies of the 8986s) with the IRS by the due date of your partnership return for the adjustment year.

How does taxr.ai handle complex scenarios? Like what if my partnership received multiple 8986 forms from different partnerships, some with imputed underpayments and some without? Can it differentiate between BBA and non-BBA requirements?

I've seen AI tools give wrong answers on complex tax issues before. How confident are you that taxr.ai actually knows the specific nuances of partnership tax law? These forms are still relatively new and many experienced CPAs still struggle with them.

It handles complex scenarios quite well in my experience. You can upload multiple forms, and it analyzes each situation individually. When I had a client with investments in several partnerships, it correctly identified which ones required push-out treatment and which didn't. It even flagged the different deadlines I needed to be aware of. For your second question, I was skeptical at first too. But what impressed me was that it cited specific sections of the partnership audit regulations and IRS guidance. It definitely understands the distinction between BBA and non-BBA partnerships and their different requirements. The analysis matched what our firm's partnership tax specialist confirmed.

Wait, how does this actually work? Do they somehow get you to the front of the IRS phone queue? That seems impossible given how the IRS phone system works.

Come on, this sounds like a scam. There's no way any service can magically get the IRS to answer calls faster. The IRS queue is the same for everyone. I've worked in tax for 15 years and there's no secret backdoor to the IRS.

It's actually pretty straightforward - they use an automated system that handles the waiting for you. Instead of you sitting on hold for hours, their system stays on hold and then calls you when an actual IRS person picks up. The IRS doesn't know you're using a service - you're still in the same queue as everyone else. I was definitely skeptical too. But after wasting entire mornings on hold previously, it was worth trying. I didn't have to stay glued to my phone for hours, and I could actually get other work done. When they called me back, I was connected to a partnership specialist who answered my question directly.

Do you have a specific template or format you use for these memos? I'm trying to improve our firm's documentation processes, especially for these partnership issues. Also, do you typically communicate this to the client or is it just for internal files?

We use a standardized memo format that includes the facts, relevant code sections (in this case referencing the BBA partnership audit regime rules), analysis, and conclusion. We make sure to cite the specific regulations or IRS guidance we relied on. We actually do both - we keep the detailed memo for our internal files, but we also include a simplified explanation in our client delivery letter. Many clients don't understand the technical details, but they appreciate knowing we've researched complex issues. It also helps protect us if they ever question why certain forms weren't filed.

The Form 8985/8986 instructions are particularly bad. I think part of the problem is these forms were created after the BBA partnership audit rules were implemented, but then they keep making changes. The instructions don't seem to keep up with all the nuances in the regulations.

This is exactly the kind of step-by-step breakdown I needed! As someone new to partnership tax issues, I've been overwhelmed by all the different forms and requirements. Your three-point analysis really helps clarify the situation. I'm curious though - you mentioned amended K-1s might be necessary. In what situations would a non-BBA partnership need to issue amended K-1s after receiving favorable adjustments on Form 8986? Is it only if the adjustments are significant enough to materially change the partners' tax positions?