Form 1065, U.S. Return of Partnership Income, is the cornerstone of federal income tax reporting for partnerships. Unlike corporations that file their own taxes, partnerships are “pass-through” entities.
This means that income, losses, deductions, and credits flow through the partnership and are reported on the individual tax returns of its partners. Form 1065 provides the IRS with a comprehensive picture of the partnership’s financial performance, which is then used to prepare each partner’s Schedule K-1.
While federal guidelines form the foundation of partnership taxation, understanding and complying with state-specific requirements is equally important.
State rules can significantly impact how a partnership’s income and losses are treated, filing deadlines, and other essential compliance aspects. Making sense of these varying state-level requirements is essential to avoid penalties and ensure your partnership stays in good standing.
Who Needs To File Form 1065?
Let’s start with the basics. Here’s everything you need to determine whether you need to file Form 1065 in 2024:
Domestic Partnerships
If your partnership is headquartered in the United States, has at least two members, and receives income or incurs deductible expenses, it must file Form 1065 annually.
This applies to general partnerships, limited partnerships, and limited liability companies (LLCs) classified as partnerships for tax purposes. Even if your partnership doesn’t generate a profit, filing Form 1065 is a mandatory step for documenting and reporting your financial activities.
Foreign Partnerships
The filing requirements change slightly for foreign partnerships operating within the United States. A foreign partnership with U.S.-based trade, business, or income sources must generally file Form 1065.
This remains true even when all the partners are foreign persons and the partnership’s principal place of business is outside the U.S. There are two narrow exceptions where a foreign partnership might not need to file Form 1065:
Exception 1: The partnership has no U.S.-derived income, generates U.S. source income of $20,000 or less, allocates less than one percent of any income to US partners, and isn’t a “withholding foreign partnership.”
Exception 2: The partnership has met all filing requirements for other U.S. tax forms (Forms 1042 and 1042-S) and fully satisfied their partner’s tax liability related to U.S. income.
Moreover, religious or apostolic organizations exempt from income tax under Section 501(d) are also subject to unique reporting requirements. These organizations must still file Form 1065 to report their taxable income, which is then allocated to their members as a dividend.
What Are the Filing Deadlines and Extensions?
Filing Form 1065 on time is essential to avoid penalties and keep your partnership compliant. The standard deadline for partnerships with a calendar-year tax year (January 1st to December 31st) is March 15th of the following year.
So, for the 2023 tax year, for instance, a calendar-year partnership would have had to file Form 1065 by March 15th, 2024. But what if your partnership follows a different tax year? Deadlines shift based on when your tax year ends.
For example, a partnership with a tax year ending on June 30th must file Form 1065 by September 15th of the following year. It’s essential to be aware of your partnership’s specific tax year to determine its accurate filing deadline.
Extensions Through Form 7004
Life happens, and sometimes you might need more time to prepare your Form 1065. Filing Form 7004 (Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns) can grant you an automatic six-month extension to file your Form 1065.
Importantly, filing an extension only extends the deadline to file the return — it doesn’t extend the time you have to pay any taxes owed.
Estimated Tax Payments
Even if you file for an extension, you’re still responsible for estimating and paying any taxes your partnership might owe. Each partner must estimate their share of the partnership’s income and make these estimated tax payments throughout the year.
Typically, estimated payments are made quarterly, with specific due dates set by the IRS. Failure to make sufficient estimated payments can lead to additional penalties and interest charges
What About Late Filing?
If you miss the filing deadline, even with an extension, the consequences can add up. The IRS imposes a monthly penalty on partnerships that file their Form 1065 late. This penalty is calculated based on the number of partners and how late the return is filed.
If you anticipate a delay, it’s important to communicate this with your tax advisor to assess and potentially mitigate the impact of penalties.
Additional Considerations
Always verify the specific deadlines and any potential changes on the IRS website or by consulting with a tax professional. It’s also worth noting that some states might have their own deadlines and extension rules for partnership filings. Staying on top of both federal and state-specific requirements is key for smooth sailing.
What Are the Penalties for Late Filing or Incorrect Information?
Nobody wants to deal with IRS penalties, so staying on top of your partnership’s tax obligations is important. Here’s what you need to know:
Penalty for Late Filing
If your partnership misses the deadline for filing Form 1065, brace yourself for a monthly penalty. The IRS calculates this penalty by multiplying the total number of partners by a specified amount, which gets adjusted each year.
This amount keeps increasing for each month (or part of a month) that your return remains overdue, up to a maximum of 12 months. As you can imagine, the larger your partnership, the more significant the potential penalty becomes.
Penalty for Failing To Furnish Schedule K-1s
Each partner needs a Schedule K-1 to report their share of the partnership’s income, losses, and deductions on their individual returns. Failing to provide Schedule K-1s in a timely and accurate manner can also attract a hefty penalty. This penalty applies to each missing or inaccurate Schedule K-1 and can escalate quickly.
The Price of Intentional Disregard
If the IRS determines that any late filing or incorrect information on your Form 1065 (or Schedule K-1s) was due to intentional disregard of the rules, the penalties become even more severe. In this case, the penalties can substantially increase and, in some situations, might even extend beyond just monetary consequences.
What Is “Reasonable Cause” for Avoiding Penalties?
There might be situations where a late filing or information error is unavoidable due to circumstances beyond your control. In such cases, showing “reasonable cause” can potentially help you avoid penalties.
Some examples of reasonable cause might include:
- A significant illness or unexpected death of a partner
- A natural disaster directly impacting your business operations
- Unavoidable delays in receiving necessary information from third parties
If you believe you have a valid reason for a late filing or error, be sure to document everything clearly. Consult with a tax professional to discuss presenting your case to the IRS in the most effective way possible.
Where Can You File?
The IRS has specific guidelines for determining the correct mailing address for your Form 1065. Where you file depends on these main factors:
Your Partnership’s Location: The state where your partnership’s principal place of business or agency is located will determine the general IRS Service Center where you send your form.
Total Assets: The total value of your partnership’s assets, as reported on your Form 1065, plays a role. There are different addresses for larger partnerships and those under a specific asset threshold.
Schedule M-3: If you’re required to file Schedule M-3 along with Form 1065, you’ll always send your return to the Ogden, Utah, IRS Service Center, regardless of location or assets.
Foreign Partnerships: Partnerships classified as foreign have a dedicated IRS address to send their Form 1065.
For the most accurate information, it’s always recommended to refer to the latest instructions provided on the IRS website or in the official Form 1065 instructions booklet. However, here’s a general breakdown based on common scenarios to give you a head start:
| Partnership Location | Total Assets | Filing Address | ||
|---|---|---|---|---|
| IL, GA, VA, NY, WI, NC, MI, SC, MD, ME, NH, IN, DE, NJ, OH, RI, DC, PA, WV, TN, MA, KY, CT, VT | Less than $10M (and no Schedule M-3) | Department of the Treasury | Internal Revenue Service Center | Kansas City, MO 64999-0011 |
| IN, OH, WI, NJ, CT, SC, DE, NC, GA, MA, MI, VT, IL, NY, VA, RI, NH, DC, MD, KY, TN, WV, PA, ME | $10M or more (or Schedule M-3) | Department of the Treasury | Internal Revenue Service Center | Ogden, UT 84201-0011 |
| OK, CO, TX, WY, AZ, IA, MT, MN, FL, KS, ND, HI, CA, OR, LA, AK, NM, UT, AR, MO, SD, MS, AL, ID, NE, WA, NV | Any amount | Department of the Treasury | Internal Revenue Service Center | Ogden, UT 84201-0011 |
| Foreign Country or US Territory | Any amount | Internal Revenue Service | P.O. Box 409101 | Ogden, UT 84409 |
Filing addresses could potentially change, so verify them against the latest IRS guidelines for complete accuracy. Sending your return via certified mail provides proof of timely filing, which could be beneficial in case of any disputes.
For complex situations or foreign partnerships, discussing your specific circumstances with a tax advisor ensures clarity and peace of mind.
What Are the State-Level Variations?
While federal guidelines provide a framework for partnership taxation, it’s important to remember that states have their own rules and regulations. Understanding these state-specific requirements helps you avoid unexpected penalties and ensure full compliance for your partnership.
States Have Significant Autonomy
Each state has a degree of flexibility in how it chooses to tax partnerships. This means federal tax rules might not match your state’s approach. Ignoring these differences can lead to underpayment or overpayment of taxes, triggering interest charges or creating refund complications.
Where States Might Differ
Here are some of the primary areas where state rules often deviate from federal regulations:
Taxation of Pass-Through Income: States use a variety of methods to tax a partner’s share of the partnership’s income. Some states follow federal rules closely, while others might impose their own entity-level partnership tax or vary how they calculate the taxable income base for partners.
Filing Thresholds: Certain states might require partnerships to file a tax return even if they don’t meet the federal filing requirements. These thresholds could be based on factors like gross income or the number of partners.
Due Dates and Extensions: Don’t assume your state uses the same filing deadlines as the IRS. States often have their own due dates for partnership returns, and their extension policies might differ, as well.
Reporting Requirements: States can impose unique reporting obligations on partnerships. These might include specific state-level schedules, reporting of partner information, or additional documentation.
Staying on top of these variations requires a proactive approach. Here are reliable resources to help:
State Tax Authority Websites: Each state has a dedicated website for its Department of Revenue or similar tax authority. These websites provide comprehensive details on partnership tax laws, forms, filing instructions, and key deadlines.
Tax Professionals: A tax advisor specializing in your state’s laws can be an invaluable asset. They offer personalized guidance and assist your partnership information return with the often complex state-specific requirements.
Compliance Tools (Like Mosey): Technology solutions specifically designed for handling state compliance can simplify the process. Mosey keeps track of these rules and their updates, saving you precious time and safeguarding your partnership against costly errors.
Staying informed about state-level variations is essential. Think of it as an additional layer of compliance necessary to maintain your partnership’s good standing and ensure proper handling of its tax obligations.
Stay Compliant With Mosey
Trying to manage a partnership information return across multiple states can be overwhelming. Mosey simplifies the process with its state-specific knowledge, automation features, and centralized compliance resources.
Let Mosey handle the hard tasks so you can focus on what matters — growing your partnership. Visit the Mosey website to explore all the features and schedule a demo today.
