Form 8978 is the Partner's Additional Reporting Year Tax. A partner that isn't itself a pass-through entity files it, with Schedule A, when a partnership pushes out audit or AAR adjustments on Form 8986. It recalculates the tax for each affected year and adds the total change to the return for the year you received the Form 8986, so you don't amend those old returns.
Everything below comes from the IRS Instructions for Form 8978 (Rev. December 2024) and the form (Rev. January 2023), as of October 2026.
Where Form 8978 fits in a BBA partnership audit
Since the Bipartisan Budget Act of 2015, partnerships under the centralized audit regime are audited at the partnership level. When the partnership elects to push the adjustments out to its partners, or files an administrative adjustment request (AAR), it sends each partner a Form 8986. Partners who are individuals, corporations or other taxable owners then use Form 8978 to work out what those changes do to their own tax.
| Who you are | What you do with Form 8986 |
|---|---|
| Individual, corporation or other non-pass-through partner | File Form 8978 and Schedule A with your return |
| Partnership, S corporation, trust or estate passing items through | Follow the Form 8985 and 8986 rules and push the adjustments to your own owners |
| Trust or estate with both kinds of items | Use Form 8978 for items taxed at the entity, push out the rest |
The four years the form looks at
- Reviewed year: the partnership's tax year the adjustment relates to.
- First affected year: your tax year that includes the end of the reviewed year.
- Intervening years: your years that end after the first affected year and before the reporting year.
- Reporting year: your tax year that includes the date the partnership furnished the Form 8986, shown in Part II, item G.
Each Form 8978 and Schedule A covers up to 4 years. If the adjustments reach further back, you file more than one.
When and where to file
Form 8978 goes with your federal income tax return for the reporting year. The IRS example: a partnership furnishes Forms 8986 on 1 March 2024, so calendar-year individual partners attach Form 8978 to their 2024 returns, due 15 April 2025 without extensions. In the same example, a pass-through partner hands its own Forms 8986 to two individuals on 15 January 2025, and their reporting year is still 2024, because it's tied to the date the audited partnership furnished the original statements.
Filling it in, step by step
- List every adjustment from Form 8986 on Schedule A, lines 1, 3 and 5, for income, deductions and credits by year.
- Add any knock-on changes to your own tax attributes, such as a lower at-risk amount after a cut in your share of recourse liabilities.
- Carry the Schedule A totals to Form 8978, lines 1b, 3b and 9b.
- Figure the tax change for each year and total it on line 14.
- Report line 14 on the appropriate line of your reporting year return.
- Enter penalties on line 15 and interest on line 17, with your workings attached.
Keep two separate sets if you have both kinds of adjustment. What's new on the current form is a pair of check boxes, AAR Filing and BBA Audit, and the instructions say each source type needs its own Form 8978 and Schedule A.
The interest detail most partners miss
Interest on an increase runs from the original due date of the return for each affected year. For adjustments from a BBA audit, the rate is the federal short-term rate plus five percentage points, not the usual three. For adjustments from an AAR, that extra two points doesn't apply. That difference alone is a good reason to keep AAR and audit adjustments apart, exactly as the form now forces you to.
No interest is charged on decreases. Penalties listed in Form 8986, Part V, go on line 15, and interest on penalties runs from the due date including extensions.
Credits, refunds and non-income tax
- Credit changes from the push-out are reported on Form 8978, not duplicated on Form 3800. You can attach Forms 3800 marked "Form 3800 for Form 8978 Calculation Only" to support the workings.
- Carryforward credits left after the intervening years go on the reporting year Form 3800.
- A net decrease reduces your reporting year tax; it isn't a separate refund claim.
- Non-income tax changes, such as self-employment tax, go on an amended return for the first affected year with an explanation, not on Form 8978.
- If you made a deposit to stop interest under section 6603, attach a statement asking for it to be applied.
The IRS worked example, in short
The instructions walk through a single filer, Frank, who receives two Forms 8986 a few weeks apart, both about the same earlier tax year. The first comes from an AAR and adds $5,000 to his share of deductions. The second comes from an audit and adds $10,000 of income. Neither lists a penalty.
- Frank completes one Form 8978 and Schedule A for the AAR items and finds a $1,200 decrease in tax.
- He completes a second Form 8978 and Schedule A for the audit items, carrying the AAR figures in as previously reported amounts, and finds a $2,400 increase.
- He reports the net $1,200 on his Form 1040 and pays it with the return.
- Interest is figured only on the audit increase, at the short-term rate plus five points, from the due date of the original year's return to the date he pays.
The lesson is the order: AAR form first, audit form second, one net figure on the return, and interest only where the tax went up, as of October 2026.
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The verdict
If a Schedule K-1 partnership sends you a Form 8986, don't amend old returns. Build Schedule A from the statement, keep AAR and audit adjustments on separate forms, and price in the extra two points of interest on audit pushouts. Then report the single total on this year's return and keep the workings, because the IRS wants your interest computation attached.
Frequently asked questions
What is Form 8978 used for?
Partners other than pass-through partners use it to report the tax effect of adjustments shown on Forms 8986 from a BBA partnership audit or AAR.
When is Form 8978 due?
It's attached to your federal income tax return for the reporting year, the tax year that includes the date the partnership furnished the Form 8986.
Do I need to amend my old returns?
No. Form 8978 figures the change for each affected year and adds the total to your reporting year tax instead.
Is the interest on Form 8978 higher?
For BBA audit adjustments, interest uses the federal short-term rate plus five percentage points instead of three; AAR adjustments don't get that increase.
Can I combine AAR and audit adjustments on one Form 8978?
No. Each source type needs its own Form 8978 and Schedule A, marked with the AAR Filing or BBA Audit box.
Who doesn't file Form 8978?
Pass-through partners such as partnerships and S corporations don't; they push the adjustments on to their own owners under the Form 8985 and 8986 rules.
