What California Form 565 (2012) Is For
California Form 565 (2012) is the partnership return of income used to report a partnership’s annual activity to the Franchise Tax Board (FTB). It summarizes the partnership’s income, deductions, gains, losses, and credits, and allocates those items to partners on Schedule K-1 (565).
A partnership is a pass-through entity, so the partnership usually does not pay California income tax on its profits. Instead, each partner reports their share of the partnership’s income and deductions on their own income tax return, and that is where actual tax liability is calculated. Form 565 is the backbone of that reporting, showing how the numbers were computed and how they are split among partners.
When You’d Use California Form 565 (2012)
You use California Form 565 (2012) if the partnership did business in California in 2012 or received California-source income, such as rent from California real estate or fees for services performed in the state. Limited partnerships (LPs), limited liability partnerships (LLPs), and REMICs that are registered, organized, or doing business in California must file even if they had no income.
For calendar-year partnerships, the original due date was March 15, 2013. California grants an automatic six-month extension to file, moving the filing deadline to September 15, 2013, but that does not extend the time to pay the $800 annual tax that applies to LPs, LLPs, and REMICs. You’d also use Form 565 for a past due return or an amended return when you discover errors after filing or when an IRS audit changes the federal numbers.
Key Rules or Details for 2012
Who Must File and Who Does Not
You must file Form 565 if:
- The partnership is engaged in a trade or business in California
- The partnership has California-source income
- The entity is an LP, LLP, or REMIC that is organized in, registered in, or doing business in California
You do not file Form 565 if the entity is:
- An LLC taxed as a partnership (use Form 568 instead)
- A corporation (Forms 100 or 100S)
- A disregarded single-member LLC (reported on the owner’s return)
$800 Annual Tax for Certain Entities
For 2012, LPs, LLPs, and REMICs classified as partnerships owe an $800 annual tax if they are organized, registered, or doing business in California. This tax is due by the original due date (usually March 15), even if you use the filing extension. It is not deductible by the partnership or by the partners. General partnerships do not owe the $800 tax but still have filing requirements.
California vs. Federal Rules
California generally follows federal partnership rules but has important differences. Depreciation, depletion, and certain federal deductions (such as some bonus depreciation and oil and gas benefits) do not match federal rules. You start with federal Form 1065 and then adjust for California-specific rules so the partnership return of income correctly reflects California law.
Withholding for Nonresident Partners
If the partnership has nonresident partners, it may have to withhold California income tax on those partners’ distributive shares of California-source income. This is reported and paid using Forms 592 series, and the amounts flow through to partners via Schedule K-1 (565) and Form 592-B.
Step-by-Step (High Level)
Step 1: Confirm Filing Requirement and Gather Records
Make sure your entity should file Form 565 and not Form 568. Then collect 2012 financial records: gross receipts, cost of goods sold, expense details, capital asset activity, prior-year carryovers, and a copy of the federal Form 1065 and Schedules K and K-1.
Step 2: Complete Entity Information
On the top of Form 565, enter the partnership name, FEIN, California Secretary of State file number (if any), address, principal business activity code, and accounting method. Indicate whether the return is initial, final, or amended and provide total assets at year-end.
Step 3: Report Income and Deductions
Fill out the trade or business income section for gross receipts, cost of goods sold, and other ordinary income items, then list deductions such as salaries, guaranteed payments, rent, interest, and depreciation. Only trade or business items go in these lines—rental, portfolio, and certain capital items are separately stated. The result is ordinary business income or loss.
Step 4: Compute Annual Tax and Payments
If the entity is an LP, LLP, or REMIC, enter the $800 annual tax for 2012. Then report any withholding, prior payments (including extension payments via Form FTB 3538), and total them to see if you have a balance due or overpayment.
Step 5: Complete Schedules K and K-1
Schedule K summarizes the partnership’s total distributive items. Prepare a Schedule K-1 (565) for each partner, showing their share of income, deductions, credits, and withholding. The sum of all K-1s for each line must match the corresponding line on Schedule K.
Step 6: Balance Sheet, Reconciliation, and Signature
If required, complete Schedules L, M-1, and M-2 to show balance sheet information and reconcile book income to the tax return. A general partner signs and dates the return; a paid preparer must also sign and include a PTIN. File electronically if possible, or mail the paper return with any payment due.
Common Mistakes and How to Avoid Them
- Using Form 565 instead of Form 568 for LLCs
- Confirm your entity type; most LLCs taxed as partnerships must file Form 568, not Form 565.
- Missing the $800 annual tax payment
- For LPs, LLPs, and REMICs, the $800 is due by the original due date even when using the extension; late payment adds penalties and interest.
- Incomplete or missing Schedules K-1
- Every partner needs a K-1, and K-1 totals must match Schedule K; missing or inconsistent K-1s trigger notices.
- Mixing ordinary business and investment income
- Keep trade or business income on the main income lines and report rental, portfolio, and some capital income separately on Schedule K.
- Ignoring nonresident withholding duties
- Failing to withhold on nonresident partners’ California-source income can make the partnership liable for that income tax plus penalties.
- Poor recordkeeping and math errors
- Weak records lead to reconciliation problems on Schedules M-1 and M-2 and make an audit much harder to defend.
What Happens After You File
Once Form 565 is filed, the FTB records the partnership return of income and processes any payment or refund. E-filed returns are usually processed faster than paper returns. If excess withholding or payments were made, the partnership may receive a refund; if there is a balance due, penalties and interest apply until full payment is made.
The FTB compares Form 565 with other data, including partners’ returns and withholding forms. You may receive a notice asking for missing schedules, explanations of discrepancies, or documentation. Quick responses reduce the risk of additional assessments. The general statute of limitations is four years from the later of the original due date or the filing date, but it can be extended when there are federal changes.
Each partner uses their Schedule K-1 to report their share on their own California income tax return (Form 540, 540NR, 100, or 100S). The partnership return itself does not complete the tax process—the partners still must file their own returns and pay any personal income tax due based on those K-1 amounts.
FAQs
Do all partnerships have to pay the $800 annual tax for 2012?
No. The $800 annual tax applies only to LPs, LLPs, and REMICs that are doing business in, organized in, or registered in California. General partnerships do not owe the $800 but must still file if they meet the filing requirements.
What if the partnership had no income or was inactive in 2012?
If you are an LP, LLP, or REMIC that is registered or organized in California, you generally must still file Form 565 and pay the $800 annual tax, even with no income. A general partnership with no California business activity and no California-source income usually does not need to file.
How do we file an amended 2012 Form 565?
Check the “Amended return” box on Side 1, complete the form with corrected amounts, and attach an explanation of each change. Issue amended Schedules K-1 to affected partners so they can amend their own returns if their distributive share changed.
What if the IRS audits our federal Form 1065 and makes changes?
If federal changes affect California income, file an amended Form 565 within six months of the final federal determination. Attach a copy of the IRS report and update Schedules K-1 for any partners whose items changed.
How long should we keep records related to the 2012 partnership return?
Keep a copy of the 2012 Form 565, all schedules, K-1s, and supporting documents for at least four years after the due date or filing date, whichever is later. Maintain records related to partner basis and major property transactions even longer, as they affect future years when interests are sold or the partnership is liquidated.
