If you need to file form 1065, your filing deadline is fast approaching. Below are just a few of the things that the IRS wants you to keep in mind.
Things to know about form 1065
The IRS notes that partnerships must file an information return to report their income, gains, losses, deductions, credits, etc. A partnership does not pay tax on its income but “passes through” any profits or losses to its partners. Consequently, partners must include partnership items on their tax or information returns. According to the IRS website:
· Every domestic partnership must file Form 1065, unless it neither receives income nor incurs any expenditures treated as deductions or credits for federal income tax purposes. The IRS also states that entities formed as LLCs (that are classified as partnerships for federal income tax purposes) have the same filing requirements as domestic partnerships.
· The IRS states that a foreign partnership that has gross income that is (or is treated as they are) effectively connected with the conduct of a trade or business within the United States or has gross income derived from sources in the United States must file Form 1065, even if its principal place of business is outside the United States (and/or all of its members are foreign persons). A foreign partnership required to file a return must generally report all of its foreign and U.S. partnership items There are, however, two instances in which foreign partnerships with US income isn’t required to file this form. Per the IRS, a return is not required for foreign partnerships with US partners if:
· The partnership had no effectively connected income during its tax year;
· The partnership had U.S. source income of $20,000 or less during its tax year;
· Less than 1% of any partnership item of income, gain, loss, deduction, or credit was allocable in the aggregate to direct U.S. partners at any time during its tax year; and
· The partnership isn’t a withholding foreign partnership as defined in Regulations section 1.1441-5(c)(2)(i).
The IRS also states that form 1065 for foreign partnerships with no US partners and no US-connected income may not be required under the following circumstances:
· The partnership had no effectively connected income during its tax year;
· The partnership had no U.S. partners at any time during its tax year;
· The partnership isn’t a withholding foreign partnership as defined in Regulations section 1.1441-5(c)(2)(i);
· All required Forms 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons, and 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding, were filed by the partnership or another withholding agent as required by Regulations sections 1.1461-1(b) and (c); and
· The tax liability of each partner for amounts reportable under Regulations sections 1.1461-1(b) and (c) has been fully satisfied by the withholding of tax at the source.
In closing
Tax law is complicated and if you’re a member of a partnership, you’ll want to make sure you’re adhering to IRS rules and regulations. If all of this reads like Greek to you and you have questions about whether your partnership needs to file form 1065, we can help. Call our office today to get started.
