Form 8893, “Election of Partnership Level Tax Treatment,” was the IRS form that let a qualifying small partnership opt into partnership-level audit procedures under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA). It is obsolete for partnership tax years beginning on or after January 1, 2018, because the Bipartisan Budget Act of 2015 replaced the TEFRA audit regime with a new centralized partnership audit system.1Internal Revenue Service. Form 8893 (Rev. September 2017) – Election of Partnership Level Tax Treatment No new elections can be made on it.
What Form 8893 Did
Under TEFRA, the IRS audited most partnerships at the entity level in a single unified proceeding rather than examining each partner separately. Small partnerships were carved out of that regime. A partnership generally qualified as “small” if it had ten or fewer partners, all of whom were individuals, C corporations, or estates of deceased partners, and those partnerships were audited at the partner level instead.
Form 8893 was for the small partnerships that wanted TEFRA treatment anyway. Filing it consolidated any potential examination into one proceeding covering all partners at once, rather than leaving each partner exposed to a separate audit. The election was made on the form, attached to the partnership’s Form 1065, and signed by an authorized partner. It applied to the tax year of the return it accompanied.2Internal Revenue Service. IRS Internal Revenue Manual 4.31.3 – TEFRA Examinations – CPF Procedures
Why Form 8893 Is Obsolete
The Bipartisan Budget Act of 2015 eliminated TEFRA for partnership tax years beginning after December 31, 2017. Because the Form 8893 election existed only within the TEFRA framework, it can only apply to tax years beginning before January 1, 2018. The IRS last revised the form in September 2017, and it remains posted for historical reference and for any lingering proceedings tied to pre-2018 years.1Internal Revenue Service. Form 8893 (Rev. September 2017) – Election of Partnership Level Tax Treatment
What Applies Now Instead
The centralized partnership audit regime replaced TEFRA and reversed the old default. Now the IRS audits partnerships at the entity level and generally collects any resulting tax from the partnership itself. Every partnership is covered automatically. The partnership designates a “partnership representative” with sole authority to act on its behalf during an audit, and that person does not need to be a partner.
Small partnerships can elect out. A partnership with 100 or fewer partners, all of whom are individuals, C corporations, S corporations, or estates of deceased partners, may opt out of the centralized regime each year by making the election with its Form 1065. Under TEFRA, small partnerships opted in with Form 8893; under the current rules, they opt out.
A partnership that cannot or does not opt out has another tool. Within 45 days of receiving a final audit adjustment, it can make a “push-out” election that shifts the resulting tax to the partners from the reviewed year. Those partners may owe interest on top of the adjustment.
Forms and Elections People Mistake for Form 8893
Form 8893 is sometimes confused with other IRS forms whose numbers sit nearby. Form 8949 reports sales and other dispositions of capital assets.3Internal Revenue Service. About Form 8949, Sales and Other Dispositions of Capital Assets Form 8993 calculates the Section 250 deduction for foreign-derived intangible income available to domestic corporations. Neither has anything to do with partnership audit elections.
A separate mix-up involves Qualified Small Business Stock rollovers under IRC Section 1045. Some online sources incorrectly point to Form 8893 for that election. Section 1045 rollovers have never used Form 8893; the election is made on Schedule D by reporting the gain, writing “section 1045 rollover” below the relevant line, and entering the deferred amount as an offsetting loss on the same line. The governing guidance is Revenue Procedure 98-48 and the Schedule D instructions.4Internal Revenue Service. Revenue Procedure 98-48