A Notice of Final Partnership Adjustment is the IRS’s final word on a partnership audit conducted under the Bipartisan Budget Act (BBA) rules, and it starts two hard clocks: 45 days to elect to push the tax out to individual partners, and 90 days to file a petition challenging the adjustments in court.1Internal Revenue Service. BBA Partnership Audit Process Miss either one, and the partnership is locked into an imputed underpayment taxed at the highest individual rate, often far above what the partners would owe on their own returns. Both deadlines run from the mailing date printed on the notice, not the day it arrives in the mailbox.
What the Notice Contains and Where the Clock Starts
The FPA package includes Letter 5933 to the partnership and Letter 5933-A to the partnership representative, explaining the options to agree, push out, or challenge. Form 15027 shows the final computation of the imputed underpayment, along with interest and penalties. Form 886-A explains each adjustment.1Internal Revenue Service. BBA Partnership Audit Process
The imputed underpayment is calculated under 26 U.S.C. § 6225 by netting the partnership’s adjustments for the reviewed year and applying the highest individual income tax rate. Partners who would actually owe at lower rates — a C corporation partner, or an individual with capital gains — are effectively overcharged unless rate modifications were secured earlier in the audit.2Office of the Law Revision Counsel. 26 USC 6225 – Partnership Adjustment by Secretary
Find the mailing date on the first page of Letter 5933 and write it down. Every deadline below counts calendar days from that date.
The 45-Day Push-Out Election
The earlier and less forgiving deadline is the push-out election under 26 U.S.C. § 6226. The partnership representative has 45 days from the FPA’s mailing date to elect to push the adjustments out to the reviewed-year partners instead of having the partnership pay the imputed underpayment itself. The 45 days cannot be extended.1Internal Revenue Service. BBA Partnership Audit Process
The election is made by electronically submitting Form 8988 together with a list of reviewed-year partners. Once the IRS returns a countersigned Form 8988 and the audit matters become final, the partnership representative has 60 days to furnish Form 8986 to each reviewed-year partner and electronically submit Form 8985, the transmittal form, along with all Forms 8986 to the IRS. That 60-day window cannot be extended either.1Internal Revenue Service. BBA Partnership Audit Process
Partners who receive a Form 8986 use Form 8978 to figure the tax impact on their own return for the reporting year, which is the year the partnership furnishes the Form 8986. One point often overlooked: interest on pushed-out amounts runs at the federal short-term rate plus five percentage points rather than the usual three-point addition for individuals. That higher rate applies to every partner regardless of entity type, which can make the push-out more expensive than a first look suggests.
Pass-through partners — another partnership, an S corporation, certain trusts — that receive a Form 8986 face their own choice: push the adjustments further down to their own partners by furnishing new Forms 8986 by the extended due date of the audited partnership’s adjustment year return, or compute and pay an imputed underpayment themselves.1Internal Revenue Service. BBA Partnership Audit Process
The 90-Day Petition Deadline
To contest the adjustments in court, the partnership must file a petition for readjustment within 90 days of the FPA’s mailing date.3Office of the Law Revision Counsel. 26 USC 6234 – Judicial Review of Partnership Adjustment The count is in calendar days. If day 90 falls on a Saturday, Sunday, or legal holiday, the deadline moves to the next business day.4eCFR. 26 CFR 301.7503-1 – Time for Performance of Acts Where Last Day Falls on Saturday, Sunday, or Legal Holiday
This deadline is jurisdictional. No court can waive it, extend it, or forgive a missed day, no matter the reason. A petition arriving on day 91 gets dismissed, and the underlying adjustment stands. Partnerships have lost the ability to challenge six- and seven-figure adjustments over a single missed day, so cutting it close is not a strategy.
The push-out election and the petition are not mutually exclusive in every sense, but the partnership representative should decide the strategy well before the 45-day mark, because filing a petition after making a push-out election, or vice versa, changes what is being contested and by whom.
Choosing the Court
Under the BBA, the petition can be filed in one of three courts: the U.S. Tax Court, the U.S. district court for the district where the partnership’s principal place of business is located, or the U.S. Court of Federal Claims.3Office of the Law Revision Counsel. 26 USC 6234 – Judicial Review of Partnership Adjustment The choice carries real consequences.
Filing in the Tax Court requires no upfront tax payment. The partnership can litigate the adjustments without funding them first, which is why most partnerships without ready cash file there. Filing in a district court or the Court of Federal Claims requires the partnership to deposit the full imputed underpayment, plus penalties and additions to tax, with the IRS on or before the date the petition is filed. The deposit is not treated as a tax payment, but it stops additional interest from accruing. A good-faith attempt that falls short can be corrected rather than causing dismissal.3Office of the Law Revision Counsel. 26 USC 6234 – Judicial Review of Partnership Adjustment
Reasons to choose a district court or the Court of Federal Claims despite the deposit include the availability of a jury trial (district court only) and body of precedent that may be more favorable on particular issues. The Tax Court has the deepest bench of judges experienced in partnership disputes.
Electronic filing with the Tax Court goes through the DAWSON system.5United States Tax Court. DAWSON Paper petitions sent by U.S. mail or a designated private delivery service qualify under the timely mailed, timely filed rule. The filing fee is $60.6United States Tax Court. Court Fees
Who Is Allowed to Act
Under the BBA, only the partnership representative can act for the partnership during the audit and any court challenge. That person has sole authority to bind the partnership and every partner to a settlement or a court decision.7Office of the Law Revision Counsel. 26 USC 6223 – Partners Bound by Actions of Partnership Individual partners cannot separately intervene or file their own petition.
The partnership representative does not need to be a partner. Any person with a “substantial presence in the United States” — a U.S. taxpayer identification number, a U.S. street address, a U.S. phone number, and availability to meet with the IRS in person at a reasonable time and place — qualifies.8eCFR. 26 CFR 301.6223-1 – Partnership Representative The partnership can even designate itself. If no valid designation is in effect, the IRS chooses.
If the current representative is unresponsive or acting against the partners’ interests, the partnership can revoke the designation and appoint a replacement on Form 8979. When the IRS notifies the partnership that no designation is in effect, a new Form 8979 must be submitted within 30 days, or the IRS will pick someone. During an active audit, Form 8979 goes directly to the IRS employee handling the case.9Internal Revenue Service. Instructions for Form 8979
If the Partnership Does Nothing
Silence during the 45-day and 90-day windows makes the adjustments final. The IRS assesses the imputed underpayment and demands payment. The partnership pays the tax as if it were imposed for the adjustment year, and normal deficiency procedures do not apply, meaning there is no additional notice or pre-assessment opportunity to contest.10eCFR. 26 CFR 301.6232-1 – Assessment, Collection, and Payment of Imputed Underpayment
Interest runs from the original due date of the reviewed-year partnership return. The accuracy-related penalty is 20 percent of the underpayment.11Office of the Law Revision Counsel. 26 USC 6662 – Imposition of Accuracy-Related Penalty on Underpayments If the IRS finds fraud, the penalty rises to 75 percent of the portion attributable to fraud.12Office of the Law Revision Counsel. 26 USC 6663 – Imposition of Fraud Penalty For underpayments over $100,000 by a C corporation, or a partnership treated similarly, the interest rate itself steps up to the federal short-term rate plus five percentage points instead of three.13Office of the Law Revision Counsel. 26 USC 6621 – Determination of Rate of Interest
Once assessment is final, the case moves into collection. The IRS can file federal tax liens against partnership assets and issue levies. The opportunity to argue the merits of the original positions is permanently gone.
Rescinding the FPA
The IRS and the partnership can agree to rescind an FPA that has already been mailed. Under 26 U.S.C. § 6231(d), a rescinded notice is treated as though it was never issued, so it no longer triggers the 90-day petition deadline or the 45-day election deadline. The trade-off: the partnership also loses the right to file a petition based on that notice.14Office of the Law Revision Counsel. 26 USC 6231 – Notice of Proceedings and Adjustment Rescission requires mutual agreement, and it usually happens when the parties spot an error in the calculations or want to return to the negotiating table. A partnership cannot force it.
Two Situations Where the Rules Are Different
Partnership returns for tax years beginning before 2018 may still be governed by the older TEFRA regime rather than the BBA.15Internal Revenue Service. Final Partnership Administrative Adjustment Under TEFRA, a 60-day backup window opens after the initial 90-day period expires: if the Tax Matters Partner does not file a petition within 90 days, a “notice partner” can file one within the next 60 days, producing a 150-day outside window measured from the mailing date.16The Tax Adviser. TEFRA Petition Filing Deadline Is Jurisdictional The BBA has no equivalent backup; the partnership representative’s decision is final.
Some partnerships never see an FPA because they elected out of the BBA entirely. A partnership can elect out for any tax year if it has 100 or fewer partners and each partner is an individual, C corporation, S corporation, foreign entity that would be treated as a C corporation if domestic, or the estate of a deceased partner. The election is made on a timely filed return and must disclose each partner’s name and taxpayer identification number. S corporation shareholders count toward the 100-partner limit.17Office of the Law Revision Counsel. 26 USC 6221 – Tax Treatment Determined at Partnership Level A partnership that elected out is audited partner by partner, not at the entity level, and no FPA process applies.