Partnerships use Form 1065, or “U.S. Return of Partnership Income,” to report financial activity for the business to the IRS. While partnerships themselves are not taxed on a federal level, they must report the business’s income, deductions, credits, and other relevant details on this form. But, who exactly needs to file Form 1065? Let’s break it down.
Domestic Partnerships
All partnerships based in the United States are required to file Form 1065 annually regardless of the income of the business. This includes:
- General Partnerships (GPs)
- Limited Partnerships (LPs)
- Limited Liability Partnerships (LLPs)
- Limited liability companies (LLCs) which are taxed as partnerships
Partnerships must file even if they had no income or expenses during the year.
Foreign Partnerships With U.S. Income
Non-U.S. partnerships must file Form 1065 if the foreign partnership is engaged in a trade or business in the U.S. or has income that is effectively connected to a U.S. source. Even if there are no U.S. partners in the business, these regulations still apply.
LLC’s Choice of Partnership Taxation
As a default rule, multi-member LLCs are classified as partnerships for federal taxation. Accordingly, they also have to file Form 1065. An LLC with more than one member not opting for corporate taxation will be subject to the partnership filing rules and hence will have to file Form 1065 and issue Schedule K-1 to each member.
Exceptions Not Paying Filing Fees
There are a limited number of exceptions, for example, a joint venture between husband and wife in a community property state can be considered as a qualified joint venture and submit two Schedule Cs instead of Form 1065. This is not the case in most scenarios so they need to be in touch with a tax advisor.
Final Thoughts
To wrap up, any domestic partnership, foreign partnership with income sourced in the U.S., or multi-member LLC classified as a partnership must file Form 1065. Not filing or filing incorrectly can result in penalties. It is advisable to discuss taxation with professionals to stay compliant and avoid hefty fines.
Dimov Tax stands ready to lend a helping hand in filing Form 1065. Contact us today for more than a decade of expertise.