Key Takeaways
– Form 1065, U.S. Return of Partnership Income, is the tax return partnerships file to report income, gains, losses, deductions and credits for the partnership’s year. The partnership itself generally does not pay federal income tax; profits and losses “pass through” to partners, who report them on their individual returns via Schedule K-1.
– All domestic partnerships (general partnerships, limited partnerships, and LLCs classified as partnerships) with activity in the U.S. must file Form 1065 unless they have no income and no expenditures treated as tax deductions or credits.
– Each partner must receive a Schedule K-1 (Form 1065) showing that partner’s share of items of income, loss, deduction and credit.
– Form 1065 is normally due by the 15th day of the third month after the partnership’s tax year ends (for calendar-year filers, that is March 15). You can request a 6‑month extension by filing Form 7004 by the original due date.
– Failure to file on time results in a monthly per-partner penalty (amounts adjust over time; see IRS instructions for current rates — for returns due in 2023 the penalty was $220 per month per partner).
What is Form 1065?
Form 1065 is the informational federal tax return partnerships use to report the partnership’s annual financial activity to the IRS. The return summarizes the partnership’s revenues, deductible expenses, ordinary business income or loss, and other tax items. The partnership reports each partner’s allocable share of items on Schedule K-1 (Form 1065); partners use that Schedule K-1 to prepare their individual income tax returns (Form 1040 and related schedules).
Eligibility Criteria for Filing Form 1065
Who must file
– Domestic partnerships: general partnerships, limited partnerships, and LLCs taxed as partnerships located in the U.S.
– Foreign partnerships with U.S.-source income (subject to certain exceptions).
– Some tax-exempt organizations classified as partnerships (for example, certain organizations under Internal Revenue Code section 501(d)).
Who may be excepted
– A foreign partnership with minimal U.S. involvement may be excepted in some cases (for example, if it has less than $20,000 of U.S. income for the year or less than 1% of its income from U.S. sources — see IRS guidance for specifics).
– A domestic partnership with absolutely no income and no expenditures that create deductions or credits generally does not need to file (see “Do I Need to File a 1065 If My Partnership Did Not Have Income?” below).
Important notes and special cases
– LLCs: A domestic LLC with two or more members is generally treated as a partnership for federal tax purposes unless it elects to be taxed as a corporation.
– Farming partnerships and other special types may have additional reporting requirements.
– Some partnerships must complete additional schedules (Schedules L — balance sheet, M‑1 — reconciliation of income (loss) per books with income (loss) per return, and M‑2 — analysis of partners’ capital accounts) depending on accounting method and balance-sheet requirements. See Form 1065 instructions to determine when these are required.
– Foreign partners, withholding obligations and state filing requirements can add complexity. Consult the Form 1065 instructions and applicable state guidance.
Filing Process for Form 1065 — Practical steps and checklist
Before you start
Collect the following:
– Employer Identification Number (EIN) for the partnership.
– Legal name, address, and the tax year end of the partnership.
– Partnership agreement and records of partner ownership percentages and capital accounts.
– For each partner: name, mailing address, Social Security number or EIN, and beginning/ending ownership percentages.
– Year-end financial statements: profit & loss (income) statement and balance sheet (beginning and end of year).
– Records of all revenues, costs of goods sold, business expenses, guaranteed payments to partners, partner contributions and distributions, and tax-basis information if available.
– Any prior-year Form 1065 and partner K-1s for comparison.
– Documentation for credits, depreciation schedules, retirement plan contributions, and other tax items.
Step-by-step practical filing process
1. Prepare the partnership’s accounting records and financial statements for the tax year (income, expenses, assets, liabilities).
2. Determine partnership taxable items: ordinary business income/loss, separately stated items (capital gains/losses, dividends, interest, tax credits), guaranteed payments, and any adjustments required by tax law.
3. Complete Form 1065:
– Fill in partnership identifying information (EIN, address, tax year).
– Report income, deductions, and determine ordinary business income (loss).
– Complete applicable schedules and attachments (Schedules K, L, M‑1, M‑2 when required).
4. Prepare a Schedule K-1 (Form 1065) for each partner showing that partner’s share of income, deductions, credits, and other items. Give each partner a copy (partners need K‑1 to prepare their individual returns).
5. Review the return for accuracy and attach any required statements or supporting forms (e.g., Form 8832 if entity classification changed, Forms for credits, etc.).
6. File the return:
– Electronically: Many partnerships file electronically through approved e-file software/providers. E-filing is required for many partnerships (check IRS requirements).
– By mail: If filing paper returns, use the IRS mailing address specified in the Form 1065 instructions for your partnership’s location.
7. Provide Schedule K-1s to partners by the due date so partners can meet their filing deadlines.
8. Keep copies of the filed Form 1065 and K‑1s in partnership records.
Filing electronically vs. paper
– The IRS increasingly requires or strongly encourages electronic filing for business returns. Check the Form 1065 instructions and your tax software or tax professional for e-file options.
– If mailing, verify the correct IRS address in the year’s Form 1065 instructions; IRS mailing addresses vary by type of return and state.
Deadlines for Submitting Form 1065
– Regular due date: the 15th day of the third month after the end of the partnership’s tax year. For calendar-year partnerships, the typical due date is March 15.
– Extension: File Form 7004 (Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns) by the original due date to obtain an automatic 6‑month extension to file (does not extend time to pay any tax-related obligations; partnerships usually have no income tax payments but may have other withholding or employment tax obligations).
– Note: The extension is automatic when Form 7004 is filed timely; if the extension is not granted or is denied, the IRS will notify you.
What Is the Penalty for Failing to File Form 1065?
– Late filing penalty: If a partnership fails to file Form 1065 by the due date (including any extension), the IRS assesses a penalty based on a per-partner, per-month amount for each month (or part of a month) the return is late. The penalty amount is adjusted periodically. For returns due in 2023, the penalty was $220 for each month (or part of a month) the return is late per partner. See current Form 1065 instructions for the applicable penalty rate for the tax year in question.
– Additional penalties may apply for failing to furnish Schedule K-1s to partners, for filing incorrect returns, or for certain underpayments/withholding failures.
– Important: Penalties can add up quickly for partnerships with many partners because they are assessed per partner.
Do I Need to File a 1065 If My Partnership Did Not Have Income?
– Generally, every domestic partnership must file Form 1065 unless it had no income, and it did not incur any expenditures which are deductible or creditable for federal income tax purposes. If a partnership had no receipts and no deductible expenses, it commonly is not required to file. However, if it had expenses, deductions, credits, or activity of any kind, a return is typically required.
– Even if the partnership had no taxable income, it may need to file to report capital account changes, partner distributions, guaranteed payments, or other items that affect partners’ tax situations.
– When in doubt, consult the Instructions for Form 1065 or a qualified tax professional to determine filing obligations for your specific situation.
What Is the Difference Between a K-1 and Form 1065?
– Form 1065 is the partnership’s informational tax return that reports the partnership-level results for the tax year (income, expenses, other items).
– Schedule K-1 (Form 1065) is prepared for each partner and reports that partner’s share of the partnership’s income, losses, deductions, credits, and other tax items. Partners use their K-1s to report these items on their individual tax returns.
– In short: Form 1065 reports the partnership as a whole; Schedule K-1 reports each partner’s allocated share of those results.
The Bottom Line
Form 1065 is a critical informational return for partnerships and for partners, because it communicates the partnership’s tax results and each partner’s share (via Schedule K-1). Partnerships should maintain timely, accurate accounting records year-round, gather required documents well before the filing deadline, and ensure each partner receives a correct K‑1 in time to file their own returns. File Form 7004 if you need a 6‑month extension to avoid late-filing penalties. Because rules around foreign partners, withholding obligations, and various schedules can be complex, consider consulting the Form 1065 instructions or a tax professional for partnerships with unusual items or large numbers of partners.
Sources and further reading
– Investopedia. “Form 1065.” https://www.investopedia.com/terms/f/form-1065.asp
– Internal Revenue Service. “Form 1065, U.S. Return of Partnership Income” (current form and instructions). https://www.irs.gov/forms-pubs/about-form-1065
– Internal Revenue Service. “Instructions for Form 1065, U.S. Return of Partnership Income.” https://www.irs.gov/instructions/i1065
– Internal Revenue Service. “Partner’s Instructions for Schedule K-1 (Form 1065).” https://www.irs.gov/instructions/i1065#en_US_2023_publink100020070
– Internal Revenue Service. “Instructions for Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns.” https://www.irs.gov/instructions/i7004
If you’d like, I can:
– Provide a printable checklist you can use every year when preparing Form 1065.
– Walk through a sample Form 1065 and K‑1 with example entries (fictional data) to show where common items go.
– Help you determine whether your specific partnership must file (you can give me high-level facts about income, expenses and partners).