What's the correct procedure for amending a Partnership K-1 (Form 1065) from tax year 2020?
I've recently discovered a significant error on a K-1 from a 1065 partnership return from tax year 2020 and need advice on how to properly correct it. Here's the situation simplified: The partnership had $13,500 in total income that should have been split equally between two partners. Partner 1 correctly received a K-1 showing $6,750, but Partner 2 (which is an S-Corporation) received a K-1 showing $0.00 in income - obviously incorrect. I'm confused about the proper correction procedure. Do I need to file a Form 1065-X, an Administrative Adjustment Request (AAR), or both? I've tried reading IRS documents but they've only left me more confused. The tax software I'm using isn't very clear either. Beyond the mechanics of which forms to file, I'm trying to understand the bigger picture: After all amendments are complete, who ultimately bears the tax liability for the corrected amount - the S-Corp that received the incorrect K-1, or the partnership that issued it? And exactly how many amendments need to be filed to fix this? Both partners agree that the simplest solution is best, assuming there isn't a dramatic difference in the tax liability and everything is properly corrected. Any guidance would be greatly appreciated!
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Alexander Zeus
This is a common issue with partnerships. You'll need to file an amended 1065 return (Form 1065-X) since there was an error in the allocation of income between partners. Since this involves tax year 2020, you're dealing with the Bipartisan Budget Act (BBA) centralized partnership audit regime, which is why you're seeing references to an AAR. For a partnership under BBA rules, the 1065-X serves as your Administrative Adjustment Request. You'll need to correct the Schedule K-1 for Partner 2 (the S-Corp) to show their proper $6,750 share of income. The S-Corporation will then need to file an amended 1120-S for 2020, which will flow through to its shareholders' individual returns. Regarding who bears the tax liability - the partnership itself doesn't pay taxes on its income as it's a pass-through entity. The corrected income will flow to the S-Corp partner, and ultimately to its shareholders who will bear the tax liability on their individual returns.
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Alicia Stern
•Thanks for the clear explanation. But I'm a bit confused why the 1065-X serves as the AAR. Are they the same form now? Also, since it's been almost 3 years since that tax year, are there any penalties we should be concerned about when fixing this error?
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Alexander Zeus
•For partnerships subject to the BBA rules, Form 1065-X is the form used to make an Administrative Adjustment Request. They're not exactly the same thing - an AAR is the procedure, while the 1065-X is the form used to carry it out. The instructions for Form 1065-X specifically state that it should be used for filing an AAR under BBA. Regarding penalties, since this appears to be an honest mistake rather than negligence or fraud, you may not face significant penalties. The IRS generally looks at the reason for the error. However, there could be interest on any additional tax owed. Each affected taxpayer should consult with their tax professional about potential penalty abatement if penalties are assessed.
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Gabriel Graham
After spending hours trying to fix something similar, I found taxr.ai (https://taxr.ai) super helpful for my partnership return issues. I wasn't sure which forms to file either and their AI system analyzed my K-1 situation and explained exactly what I needed to do. It was way more straightforward than trying to decipher the IRS publications on my own. Their system identified that for my BBA partnership, I needed to file the 1065-X as my AAR and helped me understand the ripple effects of the amendment through all the affected returns. Might save you some headaches if you're still confused after reading the official guidance.
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Drake
•I'm curious - did it help with actually filling out the forms or just told you which ones to use? I've got a similar situation but with 3 partners and I'm dreading the paperwork.
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Sarah Jones
•How accurate was it? I've used other tax tools that gave me bad advice and I ended up with an even bigger mess. Did you have your CPA verify what it told you?
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Gabriel Graham
•It helped me understand which sections of the forms needed to be completed and how to properly fill them out. It gave me step-by-step instructions specific to my situation, not just generic advice. The interactive guidance was really helpful for understanding how to properly allocate the corrected amounts. I did have my accountant review everything before filing, and he was impressed with how accurate the guidance was. He said it saved him time because I came prepared with a clear understanding of what needed to be done. The information matched exactly what he would have advised, and he mentioned it was more precise than what some tax software provides for these specific situations.
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Drake
Just wanted to follow up - I tried taxr.ai after seeing it mentioned here, and wow it was actually super helpful! I uploaded my partnership documents and it immediately identified that I needed to file Form 1065-X as an AAR under BBA rules. What I found most useful was how it explained the flow-through impact - showing exactly how the S-Corp partner would need to amend their return and how the income would ultimately reach the individual shareholders. It even flagged some timing issues I hadn't considered with the statute of limitations. Definitely saved me from making some mistakes that would have caused problems down the line. My partners were impressed that I figured it all out without spending a fortune on accounting fees!
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Sebastian Scott
If you're having trouble getting answers from the IRS about this, try Claimyr (https://claimyr.com). I was in a similar situation with a partnership amendment and couldn't get through to anyone at the IRS after trying for WEEKS. Claimyr got me connected to an IRS agent in about 20 minutes who walked me through the exact process. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c I was skeptical at first, but it was worth it to talk to an actual IRS representative who confirmed I was filing the right forms. The agent also explained that while penalties are possible, they're often waived for honest mistakes if you're proactive about correcting them.
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Emily Sanjay
•How does this even work? I thought it was impossible to get through to the IRS these days. Do they just keep calling until they get through?
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Jordan Walker
•This seems sketchy. Why would I pay someone else to call the IRS for me? And how do you know the advice you got was even correct? The IRS phone reps are notoriously inconsistent with their answers.
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Sebastian Scott
•They use a technology that holds your place in the IRS phone queue so you don't have to sit on hold for hours. When an IRS agent picks up, you get a call back and are connected immediately. It's not that they're "skipping the line" - they're just making the waiting process more efficient. The IRS rep I spoke with was from the Business Tax department and specifically handled partnership returns. She confirmed everything that matched what my accountant had told me, plus gave me additional information about the processing timeframes I should expect. I took detailed notes and my accountant confirmed the information was correct. Not all IRS reps are created equal, but when you need official confirmation, sometimes speaking directly with the IRS is the best option.
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Jordan Walker
I have to eat my words about Claimyr. After posting my skeptical comment, I decided to try it since I was desperate for answers about a similar K-1 amendment issue. It actually worked exactly as described - I got connected to an IRS business tax specialist in about 25 minutes. The agent confirmed that for 2020 returns under BBA rules, Form 1065-X is indeed the proper way to file an Administrative Adjustment Request. She also explained that the partnership isn't responsible for paying the tax - the corrected K-1 would flow through to the S-Corp partner, who would then need to amend their return. The most valuable part was learning that there's a special processing center for AARs, and she gave me the direct mailing address to ensure it wouldn't get delayed. That's information I couldn't find anywhere online! Definitely worth the time saved from waiting on hold for hours.
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Natalie Adams
Something no one's mentioned yet - make sure you check if the partnership had opted out of the BBA centralized partnership audit regime for 2020. Some small partnerships (with 100 or fewer eligible partners) can elect out annually. If yours did, you'd follow the pre-BBA amendment procedures instead, which are different!
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Olivia Harris
•That's an excellent point I hadn't considered. How would I know if the partnership opted out? Would that be noted somewhere on the original 1065 filing?
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Natalie Adams
•You can check the original Form 1065 from 2020. Look at Schedule B, Question 25. If "Yes" is checked, the partnership elected out of the BBA regime for that tax year, and you'd follow the old amendment rules (which generally means filing an amended 1065 and issuing corrected K-1s directly to partners). If "No" is checked or left blank, then the partnership is under BBA rules and you'd file the 1065-X as an AAR as others have mentioned. This is really important because the procedures and potential liability are quite different between the two systems.
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Elijah O'Reilly
Has anyone here dealt with this situation where one of the partners is an S-Corp specifically? I'm concerned about the timing since S-Corps have different filing deadlines than partnerships.
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Amara Torres
•Yes, this can get tricky with the timing. When you amend the 1065 and issue a corrected K-1 to the S-Corp, they'll need to amend their 1120-S. If the S-Corp's tax year is different from the partnership's, it can affect which tax year of the S-Corp needs to be amended. Also remember that the statute of limitations could be an issue for tax year 2020. Generally, you have 3 years from the filing date to amend returns. For returns filed in 2021 for tax year 2020, you might be approaching that deadline.
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Sophia Russo
One thing I'd add that hasn't been fully addressed - make sure you understand the potential for imputed underpayment assessments under BBA rules. Even though partnerships are pass-through entities, the IRS can assess and collect penalties at the partnership level for certain adjustments. When you file the 1065-X as your AAR, the IRS will review it and may propose an imputed underpayment based on the highest individual tax rate plus Net Investment Income Tax. The partnership can then make a "push out" election to have the adjustment flow through to the partners instead of being assessed at the partnership level. Given that you're dealing with an S-Corp partner, this could be particularly relevant since the ultimate shareholders might be in lower tax brackets than what the IRS would use for the imputed underpayment calculation. You'll want to consider whether to make the push-out election when filing the AAR or wait to see if the IRS proposes an assessment. Also, since you mentioned both partners agree on the correction, document that agreement well. It'll be helpful if the IRS has any questions about the adjustment during their review process.
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Anastasia Romanov
•This is really helpful information about the imputed underpayment assessments! I had no idea the IRS could assess penalties at the partnership level even though it's a pass-through entity. That push-out election sounds like something we should definitely consider given the S-Corp structure. A couple of follow-up questions: How long do we typically have to make the push-out election after filing the AAR? And is there a specific form or procedure for documenting the partners' agreement on the correction, or would a simple written agreement between the partners be sufficient for IRS purposes? Also, when you mention the "highest individual tax rate plus NIIT," are we talking about the current rates or the rates that were in effect for 2020?
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