What California Form 565 (2015) Is For
California Form 565 (2015) is the partnership return of income used to report a partnership’s annual income, deductions, gains, losses, and other items to the Franchise Tax Board (FTB). It is an information return, not an individual income tax return, because the partnership itself usually does not pay income tax on its profits.
Instead, the partnership “passes through” income, losses, and credits to its partners, who include their shares on their own income tax returns. Form 565 summarizes the partnership’s activity, allocates it on Schedule K-1 (565) for each partner, and, for certain entities like limited partnerships (LPs), limited liability partnerships (LLPs), and REMICs, tracks the mandatory $800 annual tax.
When You’d Use California Form 565 (2015)
You file California Form 565 (2015) if your partnership is engaged in a trade or business in California or receives income from California sources. This includes general partnerships, LPs, and LLPs registered with the California Secretary of State, even if they operated at a loss or had minimal activity. Registered LPs and LLPs must file a tax return every year until they are formally dissolved and canceled.
For calendar-year partnerships, the 2015 Form 565 was due April 15, 2016 (extended to April 18 due to Emancipation Day). Fiscal-year filers must file by the 15th day of the fourth month after the close of their tax year. California allows an automatic six-month extension to file a tax return, but the extension does not push back the deadline to pay the $800 annual tax.
You file an amended Form 565 when you discover errors after submitting the original return or when the IRS changes your federal Form 1065 in a way that affects California tax liability. In that case, you must file an amended California partnership return within six months of the final federal determination, check the “Amended return” box, and send updated Schedules K-1 to affected partners. This applies whether the change creates additional tax or a refund on a past due return.
Key Rules or Details for 2015
California Form 565 (2015) comes with several key filing requirements partnerships cannot ignore. Any LP, LLP, or REMIC registered in California generally owes an $800 annual tax, regardless of income or level of activity, and that amount is not deductible as a partnership expense. Unregistered foreign partnerships may be exempt from the $800 tax if they only report California-source income and are not doing business or organized in California.
For 2015, California conformed to the Internal Revenue Code as of January 1, 2015, but does not follow some federal rules. California disallows the domestic production activities deduction, bonus depreciation on certain property, specific qualified small business stock exclusions, and some federal energy-related deductions. You cannot just copy figures from the federal partnership return; you must adjust for these differences.
Partnerships must use an accounting method that clearly reflects income and generally cannot use the cash method if they have a corporate partner, average annual gross receipts over $5 million, or qualify as a tax shelter. In addition, information returns such as federal Forms 1099 and 8300 must be filed for certain payments and cash transactions, with copies provided to California residents when required.
Finally, most LLCs taxed as partnerships file Form 568 instead of Form 565. Only in narrow cases—typically for unregistered foreign entities—would an LLC file Form 565, so it is important to verify the correct form before you file a tax return.
Step-by-Step (High Level)
Step 1: Gather Partnership and Federal Records
Start with your federal Form 1065, financial statements, partner ownership percentages, and details of all California-source income and deductions. You’ll also need capital contribution records and any prior year carryovers that affect the 2015 tax year.
Step 2: Complete Basic Entity Information
On the front of Form 565, enter the partnership name, address, California Secretary of State file number, federal EIN, and the beginning and ending dates of the tax year. Answer all entity questions about business activity, changes in ownership, and whether this is an initial, final, or amended return.
Step 3: Report Income and Deductions
Fill out the income section (lines 1–8) for gross receipts, cost of goods sold, and other business income items. Then complete the deductions section (lines 9–22) for salaries, rent, interest, depreciation, and other ordinary and necessary business expenses. Some items—such as capital gains, credits, and certain separately stated items—belong on separate schedules rather than in ordinary income.
Step 4: Complete Schedule K and Schedule K-1
Schedule K summarizes the partnership’s total items of income, deductions, and credits. For each partner, prepare a Schedule K-1 (565) showing their distributive share based on ownership percentages or your partnership agreement. Partners use these Schedules K-1 to report their share on their own individual income tax returns or business returns.
Step 5: Compute California Tax and Attach Schedules
LPs, LLPs, and REMICs enter the $800 annual tax on the appropriate line and pay it by the original due date. If the partnership has business in and outside California, complete Schedule R to apportion business income. Attach additional schedules such as Schedule D (capital gains and losses), Schedule EO (ownership in other pass-through entities), and Form FTB 3885P (depreciation) as needed.
Step 6: Sign, File, and Pay
A general partner must sign the return, and any paid preparer must also sign and include their PTIN. File electronically if possible, or mail the form to the FTB with any payment due. Be sure to pay the annual tax on time to limit penalties and interest on the partnership’s tax liability.
Common Mistakes and How to Avoid Them
- Not filing when required
- Registered LPs and LLPs must file Form 565 every year until formally dissolved, even with no income.
- Using the wrong form (565 vs. 568)
- Most LLCs taxed as partnerships must use Form 568; confirm your entity type before you file a tax return.
- Missing or late $800 annual tax payment
- The filing extension does not extend the payment due date; pay by the original deadline to avoid penalties on a past due return.
- Incorrect or late Schedules K-1
- Errors in ownership percentages or late delivery to partners can cause mismatches on individual returns and trigger notices.
- Ignoring California–federal differences
- Adjust federal amounts for items like bonus depreciation and disallowed deductions to avoid underreporting income tax.
- Weak recordkeeping
- Poor tracking of partner basis, capital, and distributions makes it hard to support positions if the FTB audits the partnership.
What Happens After You File
After you submit California Form 565 (2015), the FTB records the return and processes any payments or refunds. E-filed returns usually move faster than paper, but processing time can still vary based on the complexity of the partnership’s activity. If you overpaid annual tax or had withholding, the FTB issues a refund once the return is processed.
The FTB may send notices requesting clarification, missing schedules, or documentation to support items on the return. Responding quickly and completely helps avoid assessments and keeps penalties to a minimum. If you authorized your preparer to speak with the FTB, they may handle these contacts on the partnership’s behalf.
The statute of limitations generally gives the FTB four years from the later of the original due date or the filing date to audit and assess additional tax. If the IRS later adjusts your federal partnership return, California can extend that period and expects you to file an amended Form 565 within six months when the change affects California income. Partners must then update their own individual or business returns if their K-1 items change.
The partnership should retain copies of filed returns, Schedules K-1, financial statements, and supporting documents for at least four years—and maintain partner basis and capital records much longer. These records are crucial if the FTB challenges reported items or if a partner sells an interest or liquidates.
FAQs
Do we have to file Form 565 if the partnership had no income?
Yes, if you are a registered LP or LLP with the California Secretary of State, you must file Form 565 each year until the entity is properly dissolved and canceled. Only nonregistered general partnerships with no California business activity and no California-source income may be able to skip filing.
Can partners deduct the $800 annual tax on their own returns?
No. The $800 annual tax is a non-deductible entity-level charge. It is not deducted on Form 565 and cannot be claimed as a deduction by individual partners on their personal income tax returns.
What if we filed Form 565, but later learn we should have filed Form 568?
You should file an amended return on the correct form and attach a statement explaining the change in filing requirements. Correct any schedules and K-1 reporting so partners can update their own returns if needed.
What happens if we miss the filing deadline?
Late-filing penalties are assessed per partner—$18 per partner per month up to 12 months—plus penalties and interest on unpaid annual tax. A partnership with many partners can rack up large penalties quickly, so it is critical to file and pay on time or use the extension correctly.
Do we need to file Form 565 if the partnership operates only outside California but has California partners?
Not solely because partners live in California. Form 565 is required when the partnership is doing business in California or has California-source income, or when it is registered as an LP or LLP in the state. Residents who are partners still report their distributive share of income on their own California returns.
