What Is Form 1065: U.S. Return of Partnership Income?

Form 1065: U.S. Return of Partnership Income is a tax document issued by the Internal Revenue Service (IRS) used to declare the profits, losses, deductions, and credits of a business partnership. In addition to Form 1065, partnerships must also submit Schedule K-1, a document prepared for each partner.

Form 1065 gives the IRS a snapshot of the company's financial status for the year. The partners must report and pay taxes on their shares of income from the partnership on their tax returns. Partners must pay income tax on their earnings regardless of whether the earnings were distributed.

Key Takeaways

  • IRS Form 1065 is used to declare profits, losses, deductions, and credits of a business partnership for tax filing purposes.
  • This form is filed by LLCs, foreign partnerships with income in the U.S., and nonprofit religious organizations.
  • Partnerships must also submit a completed Schedule K-1.

Who Must File Form 1065: U.S. Return of Partnership Income?

All domestic partnerships must file Form 1065: U.S. Return of Partnership Income. This includes limited liability corporations (LLCs) classified as domestic partnerships and headquartered in the U.S. The IRS defines a partnership as two or more people who carry on a trade or business together. Each person contributes money, skill, labor, or property with the expectation that all partners will reap the economic benefits and the losses. 

Form 1065 does not determine how much tax a partnership owes.

Foreign partnerships with income in the U.S. must also file Form 1065. As of 2018, foreign partnerships earning less than $20,000 in the country or partnerships that receive less than 1% of their income in the U.S. may not have to file.

Nonprofit religious organizations also file this form. They must show that profits were given to their members as dividends, regardless of whether the dividends were distributed.

How to File Form 1065: U.S. Return of Partnership Income

This form requires significant information about the partnership's annual financial status. This includes income information such as gross receipts or sales. Deductions and operating expenses such as rent, employee wages, bad debts, interest on business loans, and other costs are also included. The form requires information about the partners and their stake in the company by percentage of ownership.

Before completing Form 1065, filers need information from:

  • Form 4562: Depreciation and Amortization
  • Form 1125-A: Cost of Goods Sold
  • Form 4797: Sale of Business Property
  • Copies of any Form 1099 issued by the partnership
  • Form 8918: Material Advisor Disclosure Statement
  • Form 114: Report of Foreign Bank and Financial Accounts Disclosure Statement
  • Form 3520: Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts

Farming partnerships need a copy of Form 1040 individual tax return as well.

Form 1065
Form 1065.

Other Relevant Forms

As mentioned above, the taxpayer must also include a completed Schedule K-1. This schedule identifies the percentage share of gains and losses assigned to each partner for the beginning and end of the reporting period.