What California Form 565 (2013) Is For
California Form 565 (2013) is the Partnership Return of Income for entities doing business in California or earning California-source income. It’s an information return, not a traditional income tax return that calculates the entity’s own tax liability. Instead, it reports the partnership’s income, deductions, credits, and other tax items to the Franchise Tax Board (FTB).
Because partnerships are pass-through entities, the income tax obligation generally falls on the partners. Form 565 feeds into each partner’s individual income tax return or business return via Schedule K-1 (565), which shows their distributive share of income, deductions, and credits. For 2013, the form could be used by calendar-year and fiscal-year filers and captured business income, rental income, guaranteed payments, capital gains, and other items adjusted for California law.
When You’d Use California Form 565 (2013)
You use California Form 565 (2013) when a partnership, LP, LLP, or REMIC is doing business in California or has California-source income. That includes entities with California operations, California property, or California customers, even if organized elsewhere. LLCs classified as partnerships generally do not use this form for 2013; they file Form 568 unless a narrow exception applies.
For calendar-year partnerships, the original due date was April 15, 2014—the 15th day of the 4th month after the close of the tax year. California allowed an automatic six-month extension to October 15, 2014, if the partnership filed Form FTB 3538 and paid any required $800 annual tax by the original deadline. Form 565 is also used when you need to file a past due return or an amended return to correct errors or reflect federal changes.
Key Rules or Details for 2013
In 2013, limited partnerships, LLPs, and REMICs classified as partnerships owed the $800 annual tax if they were doing business in California or registered with the Secretary of State. General partnerships were usually exempt from this specific tax unless organized as LPs or LLPs. The $800 amount is not deductible by the partnership or partners and had to be paid by the original due date to avoid penalties and interest.
California required partnerships to use apportionment and allocation rules to determine California-source income for nonresident partners. For tax years beginning on or after January 1, 2013, the single-sales factor formula was mandatory for most apportioning trades or businesses. Non-business income was allocated based on where the property or activity was located. Partners then used those K-1 figures when they file a tax return to determine their California income tax liability.
California’s partnership rules broadly follow federal Form 1065, but with state-specific differences. For 2013, the conformity date was tied to federal law as of January 1, 2009 (with selected later adoptions), so bonus depreciation, certain Section 179 limits, and other federal provisions needed adjustments. Depreciation, bad debts, and other items often require separate California calculations. Partnerships had to attach a California Schedule K-1 (565) for each partner, with ownership percentages expressed in decimal form to four places (for example, 25.0000).
Step-by-Step (High Level)
Step 1: Start with the Federal Partnership Return
Complete federal Form 1065 first. California generally starts from federal ordinary income and separately stated items, then requires adjustments for differences in state law. Having a finalized federal return reduces errors when reporting California income tax data.
Step 2: Confirm Entity Type and Filing Requirements
Determine whether the entity is a general partnership, LP, LLP, or REMIC. Confirm that it is not an LLC required to file Form 568. Review whether the partnership is doing business in California, has California-source income, or is registered in the state. If the answer to any of these is yes, the filing requirements for Form 565 likely apply.
Step 3: Complete Basic Identification and Return Checkboxes
On Form 565, enter the legal name, address, FEIN, California Secretary of State file number (if any), accounting method, business activity, and tax year. Check boxes for “initial,” “final,” or “amended” return as appropriate. For a short-period return, enter the short year dates and note the short period in the header.
Step 4: Report Income, Deductions, and the $800 Tax
Fill in gross receipts, cost of goods sold, and other ordinary income items, then subtract deductible expenses such as salaries, rent, interest, and guaranteed payments to partners. Make California-specific additions or subtractions as required. LPs, LLPs, and REMICs compute the $800 annual tax on the appropriate line and ensure it is paid by the original due date, whether or not they file an extension.
Step 5: Complete Schedule K and All Schedules K-1 (565)
Use Schedule K to summarize total partnership items: ordinary business income (loss), separately stated gains, charitable contributions, credits, and other items. Then prepare Schedule K-1 (565) for each partner, including profit, loss, and capital percentages, capital account changes, and all distributive share items. Percentages must be shown in decimals to four places, and the total of all K-1s should tie back to Schedule K.
Step 6: Assemble, Sign, and File the Return
Attach required schedules such as cost of goods sold, balance sheet, capital account reconciliation, apportionment schedules, and any supporting statements. A general partner or authorized person must sign Form 565, and preparers must sign if paid. E-file if using approved software or mail the paper return and payment to the correct FTB address by the due date or extended due date.
Common Mistakes and How to Avoid Them
- Using the wrong form
– LLCs classified as partnerships using Form 565 instead of Form 568
– Non-California partnerships assuming no filing requirements despite California-source income - Missing or late $800 annual tax payment
– LPs, LLPs, and REMICs paying after the original due date and triggering penalties and interest - Incorrect or incomplete Schedules K-1 (565)
– Using federal K-1s instead of California forms
– Failing to express ownership percentages as four-place decimals - Ignoring California-source rules for nonresident partners
– Simply copying federal amounts without apportioning or allocating income to California correctly - Not adjusting for California depreciation and other differences
– Using federal depreciation or deductions where California rules diverge, creating mismatched tax liability - Late filing without extension
– Failing to file Form FTB 3538 and incurring the $18-per-partner-per-month penalty on a past due return
What Happens After You File
Once you file California Form 565 (2013), the FTB processes the return and inputs the Schedule K-1 data into its system. That data is matched to each partner’s California individual income tax return or business return to ensure their income tax reporting is consistent with the partnership’s filing.
If the $800 annual tax is unpaid or underpaid, the FTB will issue a notice assessing the additional tax, penalties, and interest. The agency may also contact the partnership if K-1s are missing, partner counts do not match, apportionment seems inconsistent, or required schedules were left out. Routine returns are often processed without further contact, but discrepancies can trigger follow-up letters.
The statute of limitations generally gives the FTB four years from the original due date or the filing date—whichever is later—to assess additional income tax related to the partnership. Partners and the partnership can usually amend within that same four-year window to correct errors or claim refunds. Because audits can reach back several years, maintaining detailed records is essential.
FAQs
Does a general partnership owe the $800 annual tax for 2013?
No, not if it is a true general partnership. For 2013, the $800 annual tax applied mainly to LPs, LLPs, REMICs classified as partnerships, and taxable LLCs. A general partnership without those characteristics may still have filing requirements but is usually exempt from that specific annual tax.
Do we file Form 565 if we had no income or loss in 2013?
In most cases, yes. If the partnership exists, is registered, or is doing business in California, you generally still must file a tax return, even with zero income. You only stop filing when the entity is formally terminated and a final return is filed with final K-1s issued to all partners.
Can the $800 annual tax be deducted by the partnership or partners?
No. The $800 annual tax is a nondeductible franchise-type tax. It does not reduce the partnership’s ordinary income on Form 565 and cannot be deducted on a partner’s individual income tax return when they file a tax return reporting their share of income tax items.
What if partners receive their K-1s late?
Partners should ideally wait for accurate K-1s before filing their individual income tax return. If they estimate and file early, they may need to amend once the correct K-1 arrives, which can lead to extra work and interest on any underpaid tax liability. Partnerships should aim to issue K-1s by the Form 565 due date, including extensions.
Can we amend Form 565 after four years?
Generally, no. After the four-year statute of limitations has run, the partnership can’t amend to claim additional refunds or adjust reported income. The FTB may still assess additional tax if there was a substantial omission of income, but the partnership’s ability to correct the original filing is limited once that window closes.
What records should we keep and for how long?
Keep copies of Form 565, all Schedules K-1, workpapers, apportionment schedules, depreciation schedules, and California adjustment calculations for at least four years after the later of the return due date or filing date. Records supporting partner basis and property basis should be retained for the entire life of the partnership and several years beyond, in case partners or the FTB revisit prior years.
