Question #2 --Under BBA, can the IRS assess penalties directly at the partner level.
**Q1: No, not by default.** Under BBA (the centralized partnership audit regime, IRC §6221–6241), any imputed underpayment resulting from a partnership adjustment — including any related penalty, addition to tax, or additional amount — is determined, assessed, and collected at the partnership level [Freeman Law](https://freemanlaw.com/partnership-representatives-and-partnership-audits-the-bipartisan-budget-act-bba/imputed-underpayments/) , not against individual partners. The imputed underpayment is a liability of the partnership itself rather than the relevant partners. [AICPA & CIMA](https://www.aicpa-cima.com/resources/article/partnership-audit-and-adjustment-rules)
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Individual partners become liable only in specific exceptions:
- **Push-out election (§6226):** The partnership elects to push adjustments (and penalties) out to the reviewed-year partners, who then report and pay their share on their own returns. Making a push-out election shifts the liability to pay an imputed underpayment from the partnership to the reviewed-year partners. [BDO](https://www.bdo.com/insights/tax/the-centralized-partnership-audit-regime-increased-irs-focus-on-partnerships-is-here)
- **Valid election out of BBA (§6221(b)):** Eligible small partnerships (100 or fewer partners, all eligible partner types) can elect out annually on a timely Form 1065, reverting to standard deficiency procedures against each partner individually. A partnership is subject to BBA unless it is an eligible partnership and makes an annual election out of BBA on a timely filed Form 1065. [irs](https://www.stayexempt.irs.gov/vi/newsroom/irs-launches-bba-centralized-partnership-audit-webpage)
- **Inconsistent reporting:** A reviewed-year partner who files inconsistently with the partnership's return and is individually audited (without a partnership-level audit) can be personally liable. [BDO](https://www.bdo.com/insights/tax/the-centralized-partnership-audit-regime-increased-irs-focus-on-partnerships-is-here)
- **Partnership ceases to exist or fails to pay:** Partners in a later year may become liable if the partnership terminates under §708(b)(1) or fails to pay the amount due within 10 days of notice and demand. [BDO](https://www.bdo.com/insights/tax/the-centralized-partnership-audit-regime-increased-irs-focus-on-partnerships-is-here)
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**Q2: Generally, no.** The IRS assesses penalties at the partnership level as part of the imputed underpayment calculation — it doesn't directly assess partners unless one of the exceptions above applies (push-out election, valid opt-out, inconsistent reporting, or partnership default/dissolution). That said, partners can raise certain partner-level defenses (e.g., reasonable cause) during the modification process or after a push-out, even though the initial determination happens at the partnership level.
Worth noting: a valid BBA election-out doesn't exist retroactively — it has to be made annually on a timely filed return, so this matters for how you advise clients going into a filing season versus mid-audit.
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The **push-out election** (IRC §6226) is an alternative to the partnership paying the imputed underpayment (IU) itself. Instead, the partnership shifts responsibility for the tax to the **reviewed-year partners** — the people who were partners in the year under audit, not necessarily the current partners.
**How it works:**
- Within **45 days** of receiving the final notice of partnership adjustment (FPA), the partnership must make the election on a timely filed statement.
- The partnership issues each reviewed-year partner a **statement** (Form 8986) showing that partner's share of the adjustments.
- < cite index="7-1">A partnership making a valid push-out election is no longer liable for the imputed underpayment to which the election applies.</cite>
- Each reviewed-year partner then takes their share of the adjustment into account on their **own return for the year that includes the date the statement was furnished** — not by amending the reviewed year. < cite index="7-1">The reviewed-year partner must pay any additional chapter 1 tax for the taxable year that includes the date the statement was mailed.</cite>
- Partners generally owe **tax plus interest**, and the interest rate is 2 percentage points higher than the standard underpayment rate (a cost of choosing push-out over partnership-level payment).
**Why partnerships choose it:**
- Avoids having current partners bear the cost of adjustments that relate to a prior partner group (important after ownership changes/buy-ins/buy-outs).
- Lets partners with lower individual tax rates or favorable attributes (NOLs, credits) absorb the adjustment more efficiently than a flat partnership-level payment.
- Preserves each partner's ability to raise their own defenses (reasonable cause, etc.) on their share.
**Trade-offs:**
- More administrative burden — separate statements to every reviewed-year partner, correct calculations, timely furnishing.
- If not done correctly or timely, the election can be considered invalid, and liability reverts to the partnership by default.
- The premium interest rate makes it more expensive per dollar than if the partnership just paid the IU outright, so it's often a liquidity/fairness trade rather than a pure cost-saver.
This is the mechanism your BBA partnership clients would use to keep an audit adjustment from unfairly landing on new partners who weren't around in the reviewed year.
