When To File
Generally, a domestic partnership must file Form 1065 by the 15th day of the 4th month following the date its tax year ended as shown at the top of Form 1065. For partnerships that keep their records and books of account outside the United States and Puerto Rico, an extension of time to file and pay is granted to the 15th day of the 6th month following the close of the tax year. If the due date falls on a Saturday, Sunday, or legal holiday, file by the next business day.
Private Delivery Services
The partnership can use certain private delivery services designated by the IRS to meet the timely mailing as timely filing/paying rule for Form 1065. The most recent list of designated private delivery services was published by the IRS in September 2002. The list includes only the following:
- Airborne Express (Airborne): Overnight Air Express Service, Next Afternoon Service, Second Day Service.
- DHL Worldwide Express (DHL): DHL Same Day Service, DHL USA Overnight.
- Federal Express (FedEx): FedEx Priority Overnight, FedEx Standard Overnight, FedEx 2Day, FedEx International Priority, and FedEx International First.
- United Parcel Service (UPS): UPS Next Day Air, UPS Next Day Air Saver, UPS 2nd Day Air, UPS 2nd Day Air A.M., UPS Worldwide Express Plus, and UPS Worldwide Express.
The private delivery service can tell you how to get written proof of the mailing date.
Extension
If you need more time to file a partnership return, file Form 8736, Application for Automatic Extension of Time To File U.S. Return for a Partnership, REMIC, or for Certain Trusts, for an automatic 3-month extension. File Form 8736 by the regular due date of the partnership return. The automatic 3-month extension period includes any 2-month extension granted to partnerships that keep their records and books of account outside the United States and Puerto Rico.
If, after you have filed Form 8736, you still need more time to file the partnership return, file Form 8800, Application for Additional Extension of Time To File U.S. Return for a Partnership, REMIC, or for Certain Trusts, for an additional extension of up to 3 months. The partnership must provide a full explanation of the reasons for requesting the extension in order to get this additional extension. Form 8800 must be filed by the extended due date of the partnership return.
Period Covered
Form 1065 is an information return for calendar year 2002 and fiscal years beginning in 2002 and ending in 2003. If the return is for a fiscal year or a short tax year, fill in the tax year space at the top of the form.
The 2002 Form 1065 may also be used if:
- The partnership has a tax year of less than 12 months that begins and ends in 2003 and
- The 2003 Form 1065 is not available by the time the partnership is required to file its return.
However, the partnership must show its 2003 tax year on the 2002 Form 1065 and incorporate any tax law changes that are effective for tax years beginning after 2002.
File Form 1065 at the applicable IRS address listed below.
Where To File
| If the partnership's principal business, office, or agency is located in:
|
And the total assets at the end of the tax year (Form 1065, page 1, item F) are:
|
Use the following Internal Revenue Service Center address:
|
| Connecticut, Delaware, District of Columbia, Illinois, Indiana, Kentucky, Maine, Maryland, Massachusetts, Michigan, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Vermont, Virginia, West Virginia, Wisconsin
|
Less than $10 million $10 million or more
|
Cincinnati, OH 45999-0011 Ogden, UT 84201-0011
|
| Alabama, Alaska, Arizona, Arkansas, California, Colorado, Florida, Georgia, Hawaii, Idaho, Iowa, Kansas, Louisiana, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Mexico, North Dakota, Oklahoma, Oregon, South Dakota, Tennessee, Texas, Utah, Washington, Wyoming
|
Any amount
|
Ogden, UT 84201-0011
|
| A foreign country or U.S. possession
|
Any amount
|
Philadelphia, PA 19255-0011
|
Who Must Sign
General Partner or LLC Member
Form 1065 is not considered to be a return unless it is signed. One general partner or LLC member must sign the return. If a receiver, trustee in bankruptcy, or assignee controls the organization's property or business, that person must sign the return.
Paid Preparer's Information
If a partner or an employee of the partnership completes Form 1065, the paid preparer's space should remain blank. In addition, anyone who prepares Form 1065 but does not charge the partnership should not complete this section.
Generally, anyone who is paid to prepare the partnership return must:
- Sign the return, by hand, in the space provided for the preparer's signature. Signature stamps or labels are not acceptable.
- Fill in the other blanks in the Paid Preparer's Use Only area of the return.
- Give the partnership a copy of the return in addition to the copy to be filed with the IRS.
Paid Preparer Authorization
If the partnership wants to allow the paid preparer to discuss its 2002 Form 1065 with the IRS, check the Yes box in the signature area of the return. The authorization applies only to the individual whose signature appears in the Paid Preparer's Use Only section of its return. It does not apply to the firm, if any, shown in the section.
If the Yes box is checked, the partnership is authorizing the IRS to call the paid preparer to answer any questions that may arise during the processing of its return. The partnership is also authorizing the paid preparer to:
- Give the IRS any information that is missing from its return,
- Call the IRS for information about the processing of its return, and
- Respond to certain IRS notices that the partnership has shared with the preparer about math errors and return preparation. The notices will not be sent to the preparer.
The partnership is not authorizing the paid preparer to bind the partnership to anything or otherwise represent the partnership before the IRS. If the partnership wants to expand the paid preparer's authorization, see Pub. 947, Practice Before the IRS and Power of Attorney.
The authorization cannot be revoked. However, the authorization will automatically end no later than the due date (excluding extensions) for filing the 2003 return.
Penalties
Late Filing of Return
A penalty is assessed against the partnership if it is required to file a partnership return and it (a) fails to file the return by the due date, including extensions, or (b) files a return that fails to show all the information required, unless such failure is due to reasonable cause. If the failure is due to reasonable cause, attach an explanation to the partnership return. The penalty is $50 for each month or part of a month (for a maximum of 5 months) the failure continues, multiplied by the total number of persons who were partners in the partnership during any part of the partnership's tax year for which the return is due. This penalty will not be imposed on partnerships for which the answer to Question 4 on Schedule B of Form 1065 is No, provided all partners have timely filed income tax returns fully reporting their shares of the income, deductions, and credits of the partnership. See page 20 of the instructions for further information.
Failure To Furnish Information Timely
For each failure to furnish Schedule K-1 to a partner when due and each failure to include on Schedule K-1 all the information required to be shown (or the inclusion of incorrect information), a $50 penalty may be imposed with respect to each Schedule K-1 for which a failure occurs. The maximum penalty is $100,000 for all such failures during a calendar year. If the requirement to report correct information is intentionally disregarded, each $50 penalty is increased to $100 or, if greater, 10% of the aggregate amount of items required to be reported, and the $100,000 maximum does not apply.
Trust Fund Recovery Penalty
This penalty may apply if certain excise, income, social security, and Medicare taxes that must be collected or withheld are not collected or withheld, or these taxes are not paid. These taxes are generally reported on:
- Form 720, Quarterly Federal Excise Tax Return;
- Form 941, Employer's Quarterly Federal Tax Return;
- Form 943, Employer's Annual Tax Return for Agricultural Employees; or
- Form 945, Annual Return of Withheld Federal Income Tax.
The trust fund recovery penalty may be imposed on all persons who are determined by the IRS to have been responsible for collecting, accounting for, and paying over these taxes, and who acted willfully in not doing so. The penalty is equal to the unpaid trust fund tax. See the Instructions for Form 720, Pub. 15, Circular E, Employer's Tax Guide, or Pub. 51, Circular A, Agricultural Employer's Tax Guide, for more details, including the definition of a responsible person.
Accounting Methods
Figure ordinary income using the method of accounting regularly used in keeping the partnership's books and records. Generally, permissible methods include:
- Cash,
- Accrual, or
- Any other method authorized by the Internal Revenue Code.
In all cases, the method used must clearly reflect income.
Generally, a partnership may not use the cash method of accounting if (a) it has at least one corporate partner, average annual gross receipts of more than $5 million, and it is not a farming business or (b) it is a tax shelter (as defined in section 448(d)(3)). See section 448 for details. If inventories are required, the accrual method must be used for sales and purchases of merchandise. However, qualifying taxpayers and eligible businesses of qualifying small business taxpayers are excepted from using the accrual method and may account for inventoriable items as materials and supplies that are not incidental. For more details, see Schedule A - Cost of Goods Sold, on page 19.
Accrual method. Under the accrual method, an amount is includible in income when:
- All the events have occurred that fix the right to receive the income which is the earliest of the date: (a) the required performance takes place, (b) payment is due, or (c) payment is received, and
- The amount can be determined with reasonable accuracy.
See Regulations section 1.451-1(a) for details.
Generally, an accrual basis taxpayer can deduct accrued expenses in the tax year in which:
- All events that determine liability have occurred,
- The amount of the liability can be figured with reasonable accuracy, and
- Economic performance takes place with respect to the expense.
There are exceptions to the economic performance rule for certain items, including recurring expenses. See section 461(h) and the related regulations for the rules for determining when economic performance takes place.
Nonaccrual experience method. Accrual method partnerships are not required to accrue certain amounts to be received from the performance of services that, on the basis of their experience, will not be collected, if:
- The services are in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting or
- The partnership's average annual gross receipts for the 3 prior tax years does not exceed $5 million.
This provision does not apply to any amount if interest is required to be paid on the amount or if there is any penalty for failure to timely pay the amount. For information, see Chapter 11 of Pub. 535, Business Expenses.
Percentage of completion method. Long-term contracts (except for certain real property construction contracts) must generally be accounted for using the percentage of completion method described in section 460. See section 460 and the underlying regulations for rules on long-term contracts.
Mark-to-market accounting method.
Dealers in securities must use the mark-to-market accounting method described in section 475. Under this method, any security that is inventory to the dealer must be included in inventory at its fair market value (FMV). Any security that is not inventory and that is held at the close of the tax year is treated as sold at its FMV on the last business day of the tax year, and any gain or loss must be taken into account in determining gross income. The gain or loss taken into account is generally treated as ordinary gain or loss. For details, including exceptions, see section 475 and the related regulations.
Dealers in commodities and traders in securities and commodities may elect to use the mark-to-market accounting method. To make the election, the partnership must file a statement describing the election, the first tax year the election is to be effective, and, in the case of an election for traders in securities or commodities, the trade or business for which the election is made. Except for new taxpayers, the statement must be filed by the due date (not including extensions) of the income tax return for the tax year immediately preceding the election year and attached to that return, or, if applicable, to a request for an extension of time to file that return. For more details, see Rev. Proc. 99-17, 1999-1 C.B. 503, and sections 475(e) and (f).
Change in accounting method.
Generally, the partnership must get IRS consent to change its method of accounting used to report income (for income as a whole or for any material item). To do so, it must file Form 3115, Application for Change in Accounting Method. However, there are new procedures under which a partnership may obtain automatic consent to certain changes in accounting method. See Rev. Proc. 2002-9, 2002-3 I.R.B. 327 as modified by Rev. Proc. 2002-19, 2002-13 I.R.B. 696 and Rev. Proc. 2002-54, 2002-35 I.R.B. 432. For more information, see Form 3115 and Pub. 538, Accounting Periods and Methods.
Certain partnerships that are qualifying taxpayers or small business taxpayers that want to use the cash method for an eligible trade or business (described on page 19) may get an automatic consent to change their method of accounting. For details, see Rev. Proc. 2001-10, 2001-2 I.R.B. 272, Rev. Proc. 2002-28 and Form 3115.
Example. The partnership changes to the cash method of accounting. It accrued sales in 2001 for which it received payment in 2002. It must report those sales in both years as a result of changing its accounting method and must make a section 481(a) adjustment to prevent duplication of income.
Section 481(a) adjustment. The partnership may have to make an adjustment to prevent amounts of income or expenses from being duplicated. This is called a section 481(a) adjustment. The section 481(a) adjustment period is generally 1 year for a net negative adjustment and 4 years for a net positive adjustment. However, a partnership may elect to use a 1-year adjustment period if the net section 481(a) adjustment for the change is less than $25,000. The partnership must complete the appropriate lines of Form 3115 to make the election. For more details on the section 481(a) adjustment, see Rev. Proc. 2002-19 as amplified and clarified by Rev. Proc. 2002-54.
Include any net positive section 481(a) adjustment on page 1, line 7. If the net section 481(a) adjustment is negative, report it on Form 1065, line 20.
Accounting Periods
A partnership is generally required to have one of the following tax years:
- The tax year of a majority of its partners (majority tax year).
- If there is no majority tax year, then the tax year common to all of the partnership's principal partners (partners with an interest of 5% or more in the partnership profits or capital).
- If there is neither a majority tax year nor a tax year common to all principal partners, then the tax year that results in the least aggregate deferral of income.
Note: In determining the tax year of a partnership under 1, 2, or 3 above, the tax years of certain tax-exempt and foreign partners are disregarded. See Regulations section 1.706-1(b) for more details.
- Some other tax year, if:
- The partnership can establish that there is a business purpose for the tax year (see Rev. Proc. 2002-39, 2002-22 I.R.B.1046); or
- The partnership satisfies the 25% gross receipts test for a natural business year other than its required tax year (see Rev. Proc. 2002-38, 2002-2 I.R.B. 1037); or
- The tax year is a grandfathered year (see Rev. Proc. 2002-38); or
- The partnership elects under section 444 to have a tax year other than a required tax year by filing Form 8716, Election to Have a Tax Year Other Than a Required Tax Year. For a partnership to have this election in effect, it must make the payments required by section 7519 and file Form 8752, Required Payment or Refund Under Section 7519.
A section 444 election ends if a partnership changes its accounting period to its required tax year or some other permitted year or it is penalized for willfully failing to comply with the requirements of section 7519. If the termination results in a short tax year, type or legibly print at the top of the first page of Form 1065 for the short tax year, SECTION 444 ELECTION TERMINATED.
To change an accounting period, see Pub. 538 and Form 1128, Application To Adopt, Change, or Retain a Tax Year, (unless the partnership is making an election under section 444).
Note: The tax year of a common trust fund must be the calendar year.
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