What California Form 565 (2019) Is For
California Form 565 (2019) is the annual partnership return used to report income, deductions, gains, losses, and credits from business activity connected to California. Partnerships are pass-through entities, so the form itself does not compute a partnership-level income tax liability the way an individual income tax return does.
Instead, California Form 565 (2019) captures the partnership’s results and allocates them to the partners via Schedule K-1 (565). Each partner then uses their K-1 to file a tax return and report their share of income tax on their own California return. The form applies to general partnerships, limited partnerships (LPs), limited liability partnerships (LLPs), and certain entities treated as partnerships, such as some REMICs; most LLCs taxed as partnerships use Form 568 instead.
When You’d Use California Form 565 (2019)
You must file California Form 565 (2019) if your partnership conducted any trade or business in California or had California-source income during the year, regardless of where it was formed. Partnerships organized or registered with the California Secretary of State often have filing requirements even when they have no activity or income in the year.
For calendar-year partnerships, the original due date for the 2019 tax year was March 15, 2020, the 15th day of the third month after year-end. California automatically grants a seven-month extension to file, moving the extended deadline to October 15, 2020, but this does not extend time to pay the $800 annual tax. If you discover errors after filing—such as incorrect income, missed adjustments, or wrong partner allocations—you file an amended return and amended Schedules K-1.
A major trigger for amending is an IRS change to your federal Form 1065. When federal audit adjustments become final, you must file an amended California Form 565 within six months and notify partners so they can update their own California returns as needed. Missing filing deadlines or submitting returns without complete Schedules K-1 can drive significant penalties that grow monthly until corrected.
Key Rules or Details for 2019
For 2019, California required Form 565 from partnerships with California business activity, California-source income, or registration or organization in the state. LPs, LLPs, and REMICs that are organized in, registered in, or doing business in California owe an $800 annual tax, even if they report a loss. This flat amount is not tied to income or profit and is not deductible at the partnership or partner level.
California conformed to the Internal Revenue Code as of January 1, 2015, with modifications. California Form 565 (2019) does not follow most Tax Cuts and Jobs Act changes such as the Section 199A qualified business income deduction, expanded Section 179 limits, or qualified opportunity zone incentives. However, California did conform to the repeal of the “technical termination” rule and to limiting like-kind exchanges to real property after January 10, 2019.
If you prepare a Form 565 (2019) using tax preparation software, electronic filing is mandatory. Paper filing is reserved for manually prepared returns. Multi-state partnerships must apportion business income using California’s single-sales factor formula and report California-apportioned amounts on Schedule R and in column (e) of each partner’s Schedule K-1.
Step-by-Step (High Level)
Step 1: Confirm Filing Requirements and Annual Tax
Determine whether your entity is a partnership for California purposes and whether it is organized in, registered in, or doing business in California. Decide if you must file California Form 565 (2019) and whether the $800 annual tax applies to your LP, LLP, or REMIC.
Step 2: Gather Federal and California Records
Collect the completed federal Form 1065 and all related schedules, along with your books for income, deductions, assets, and partner capital. Pull partner details: names, addresses, identification numbers, residency status, and ownership percentages, expressed in decimal form to four places.
Step 3: Complete Entity and Header Information
Fill in the partnership’s legal name, mailing address, FEIN, California Secretary of State number (if any), principal business activity code, and tax year dates. Check the boxes for business type and indicate whether this is an original or amended return. Answer the identifying questions about ownership changes, real property, and other structural issues.
Step 4: Report Income and Deductions
On Side 1, report gross receipts or sales, cost of goods sold, and other income, then list deductions such as salaries, guaranteed payments, rent, interest, and depreciation. Calculate ordinary business income or loss as the difference between total income and total deductions. Non-business items like rental or portfolio income will be reported later on Schedule K.
Step 5: Complete Schedule K and Any Apportionment
Use Schedule K to summarize all partnership income, deductions, credits, and other items for the year. If your partnership operates in multiple states, complete Schedule R to compute the California sales factor and apply it to business income. Reflect total amounts and then the California-source portions consistently across Form 565 and supporting schedules.
Step 6: Prepare Schedule K-1 for Each Partner
Create a Schedule K-1 (565) for every partner, including their identifying information, entity type, and ownership percentage to four decimal places. Report each partner’s share of each Schedule K item and, where required, the California portion in column (e). Verify that the totals of all K-1s tie exactly to each corresponding line on Schedule K.
Step 7: Pay, Sign, and File
If the $800 annual tax applies, make sure it is paid by the original March 15 due date, even if you use the automatic extension to file later. A general partner must sign the return, and any paid preparer should complete the preparer section. E-file the return when required, or mail a manual paper return to the correct Franchise Tax Board address, and provide all partners with their Schedules K-1 so they can file a tax return and report their income tax properly.
Common Mistakes and How to Avoid Them
- Failing to file when registered in California
- Registration with the Secretary of State often triggers filing requirements, even with no activity
- Treating the $800 annual tax as deductible
- Do not deduct it on Form 565 or reduce partners’ distributive shares with it
- Missing or incomplete Schedules K-1
- Every partner must have a complete California K-1, with questions and IDs filled in
- Ownership percentages not in proper format
- Use decimals to four places (0.3333), not percentage signs, fractions, or “Various”
- Schedule K and K-1 totals that don’t match
- Always reconcile K-1 totals to Schedule K before filing to avoid notices and delays
- Ignoring the six-month deadline after federal changes
- Calendar the date of final IRS action and file amended California Form 565 within six months
What Happens After You File
Once California Form 565 (2019) is filed, the Franchise Tax Board validates that all required schedules and K-1s are included and that amounts reconcile. E-filed returns are usually processed faster than paper returns, but both can generate notices if information is missing or doesn’t match FTB records.
If you underpay the $800 annual tax, penalties and interest start from the original due date. The partnership may also face the $18-per-partner-per-month penalty, up to 12 months, if the return is late or incomplete. Those amounts can add up quickly for firms with many partners.
Partners use their Schedules K-1 to report California-source partnership items on their own individual income tax return or other applicable return. The FTB can generally audit a 2019 partnership return for four years from the later of the filing date or original due date, so keep copies of Form 565, all Schedules K-1, and supporting records for at least that long. If you later amend because of an internal error or federal audit change, expect slower processing and make sure partners have time to amend their own returns to correct their tax liability.
FAQs
Does a partnership with no income still need to file California Form 565 (2019)?
Often yes. If the partnership is organized or registered in California, or is an LP, LLP, or REMIC subject to the $800 annual tax, it generally must file even with no income or operations. The filing requirement is tied to status and registration, not just activity.
Do general partnerships have to pay the $800 annual tax?
No. The $800 annual tax applies to LPs, LLPs, and REMICs that are organized in, registered in, or doing business in California. A general partnership that is not an LP or LLP still files California Form 565 (2019) when required, but it does not pay the $800 annual tax.
How does a multi-state partnership report California income?
A partnership with business activity both inside and outside California must use the single-sales factor formula on Schedule R to apportion business income. You then report the California-apportioned amounts on each partner’s Schedule K-1 so they can calculate their California income tax correctly on their own returns.
What if we forgot to include a partner’s Schedule K-1 with our return?
You should file an amended California Form 565 (2019) and include a complete set of Schedules K-1, including the missing one. Check the amended boxes on the return and K-1s, explain the change in an attachment, and provide the affected partner with their K-1 so they can amend their own return if needed.
What happens if the IRS adjusts our 2019 federal Form 1065?
Once IRS adjustments become final, California requires you to file an amended Form 565 within six months. Attach the federal adjustment notice, update Schedule K and all affected Schedules K-1, and notify partners so they can amend their individual income tax return or other California returns to reflect their revised share of income and credits.
