Form 1065: US Return of Partnership Income

Who Files Form 1065

Every domestic partnership (general, limited, or LLP) and multi-member LLC taxed as a partnership. The partnership itself does not pay federal income tax: instead, each partner reports their distributive share on their personal return.

What Form 1065 Reports

Form 1065 reports gross receipts, deductions, ordinary business income, and separately-stated items (rental income, capital gains, Section 179 expense, charitable contributions, foreign tax credits). Each partner receives a Schedule K-1. New partnership audit rules under the BBA require a Partnership Representative and may impose entity-level tax on adjustments.

Key Deadlines

• March 15: calendar-year partnership filing deadline (15th day of the 3rd month after year end)
• Six-month extension available via Form 7004
• September 15: extended partnership filing deadline (calendar year)

Common Mistakes

• Failing to track partner outside basis, capital accounts, and Section 704(b) book accounts
• Special allocations that violate substantial economic effect rules
• Missing Section 754 election when there is a partner buyout or partial sale
• Late filing of K-1s, which can trigger penalties and require partner amended returns

Best Practices

• Track every partner outside basis and capital account meticulously. Partnership audits under the BBA can assess at the entity level, hitting current partners for prior-year errors.
• Make a Section 754 election in the year of any partner buyout or partial disposition to step up inside basis on the exiting partner share.
• Distribute K-1s to partners by the earlier of March 15 or 30 days before the partner extended deadline. Late K-1s force partner extensions and amended returns.
• For special allocations, document substantial economic effect under Section 704(b) regulations. Allocations that fail the test get reallocated by the IRS.
• Designate a Partnership Representative under BBA rules and confirm the designation is current each year. Default IRS-designated representatives may not act in the partners interests.

Source: Official Form 1065 information at IRS.gov