Understanding your tax obligations as a partnership can feel overwhelming, but Form 1065 doesn't have to be complicated. This guide breaks down everything you need to know about filing your 2010 partnership tax return in plain English.

What Form 1065 Is For

Form 1065 is an information return that partnerships use to report their financial activities to the IRS. Here's the key point: partnerships themselves don't pay income tax. Instead, the business “passes through” its profits and losses to the individual partners, who then report their share on their personal tax returns.

Think of Form 1065 as a detailed report card for your partnership. It shows all the income your partnership earned, the expenses it paid, and how those amounts are divided among the partners. Every domestic partnership operating in the United States must file this form unless it had absolutely no income and no expenses during the year.

Who Needs to File

All partnerships must file, including general partnerships, limited partnerships, and limited liability companies (LLCs) with two or more members that are classified as partnerships for tax purposes. Even if your partnership didn't make a profit, you still need to file if you had any business activity.

Foreign partnerships with U.S.-source income or income connected to a U.S. business must also file, though some limited exceptions exist.

Along with Form 1065, you must prepare a Schedule K-1 for each partner. This individual statement shows each partner's share of the partnership's income, deductions, and credits—essentially their “piece of the pie.” Each partner uses their Schedule K-1 to complete their personal income tax return.

When You’d Use Form 1065 (Late or Amended Filings)

For tax year 2010, partnerships had to file Form 1065 by April 15, 2011 (the 15th day of the 4th month after the calendar year ended). If your partnership operates on a fiscal year, the deadline is the 15th day of the 4th month after your fiscal year ends.

Filing Extensions

If you missed the deadline, you could request an automatic 5-month extension by filing Form 7004 before the original due date. Partnerships keeping their books outside the U.S. and Puerto Rico automatically received an extension to the 15th day of the 6th month (with an additional 3-month extension available). However, an extension to file is not an extension to pay any taxes owed.

Amended Returns

If you discover errors after filing, you must file an amended return.

• Partnerships subject to consolidated audit procedures under sections 6221–6234 filed Form 8082 (Notice of Inconsistent Treatment or Administrative Adjustment Request).
• Partnerships not subject to these procedures filed an amended Form 1065, checking box G(5) and attaching a statement explaining each change.
• If partner information was incorrect, send amended Schedule K-1 forms to affected partners.

Key Rules for 2010

Start-Up Cost Deduction

For 2010, partnerships could deduct up to $10,000 of start-up costs in the first year of business under section 195(b)(3).

New Tax Credits

Three new credits became available in 2010:

• New Hire Retention Credit (Form 5884-B)
• Credit for Small Employer Health Insurance Premiums (Form 8941)
• Qualifying Therapeutic Discovery Project Credit (Form 8942)

Partnership Termination Rule

A partnership “terminates” for tax purposes if 50% or more of total interests in both capital and profits are sold or exchanged within 12 months. This may require filing a short-year return.

Signature Requirements

Only one general partner or LLC member-manager needed to sign the return. If a fiduciary (receiver, trustee, or assignee) filed, that person signed instead.

Mandatory Electronic Filing

Partnerships with more than 100 partners had to e-file. Smaller partnerships could file by mail (Cincinnati Service Center for Eastern states, Ogden for Western states and Schedule M-3 filers).

Accounting Methods

Most partnerships used the cash or accrual method. However, partnerships with a corporate partner, receipts over $5 million, or tax shelters generally could not use cash accounting.

Step-by-Step Filing (High Level)

Step 1: Gather Your Records

Collect all income statements, expense receipts, and bank records for the tax year.

Step 2: Complete Basic Information

Enter the partnership’s name, address, EIN, accounting method, and tax year.

Step 3: Report Income

Report gross receipts, returns, cost of goods sold, and other income on lines 1–8. Exclude portfolio and rental income—those go on Schedules K and K-1.

Step 4: Calculate Deductions

List all deductible business expenses (lines 9–20). The result is ordinary business income on line 22.

Step 5: Complete Schedules K and K-1

Schedule K summarizes partnership-level items. Prepare and distribute Schedule K-1s for each partner.

Step 6: Complete Required Schedules

Include Schedules A, B, L, M-1, and M-2 as applicable. Small partnerships under $250,000 in assets may be exempt from some.

Step 7: Designate a Tax Matters Partner

One partner must be designated as the Tax Matters Partner (TMP) to handle IRS communications.

Step 8: Review and Sign

Verify accuracy, have a partner sign, and file electronically or by mail.

Common Mistakes and How to Avoid Them

Incomplete Returns

Fill out every applicable line. Don’t leave blanks or write “See attached” without totals.

Missing or Late Schedule K-1s

Provide every partner with a Schedule K-1 promptly to avoid penalties.

Misreporting Income Types

Do not report portfolio or rental income on page 1—use Schedules K and K-1.

Wrong Filing Location

Check the correct IRS address based on your business location and whether you filed Schedule M-3.

Requesting Unnecessary EINs

Continue using the original EIN even after a technical termination due to ownership changes.

Forgetting Attachments

Attach all required forms and label them with the partnership name and EIN.

Address Errors

Ensure addresses are complete and accurate.

Mathematical Errors

Double-check all calculations and consider using tax software.

What Happens After You File

Processing Timeline

The IRS processes partnership returns in a few weeks to months. Partnerships don’t receive refunds because they don’t pay tax directly.

Partner Reporting

Partners report their share of income, deductions, and credits using their Schedule K-1.

IRS Review

If selected for audit, the IRS contacts the Tax Matters Partner and examines the partnership as a whole.

Notices and Corrections

Respond quickly to IRS notices—deadlines are strict.

Record Retention

Keep all records and copies of Schedules K-1 for at least three years (or six years if income was understated by 25%+).

State Returns

Many states require separate partnership returns. Check state rules after filing your federal return.

FAQs

1. Do partnerships pay income tax on Form 1065?

No. Partnerships are pass-through entities—they don’t pay federal income tax themselves. Profits and losses are reported on partners’ individual returns.

2. What’s the difference between a partner’s guaranteed payment and a distribution?

Guaranteed payments are like salaries paid to partners for services or capital use and are deductible by the partnership.
Distributions are partners’ shares of profits and not deductible.

3. Can husband-and-wife partnerships avoid filing Form 1065?

Yes, but only if they qualify as a joint venture and file a joint return with separate Schedules C.

4. What happens if I file Form 1065 late?

The IRS charges $195 per partner per month, up to 12 months, plus penalties for late or incorrect Schedule K-1s.

5. My LLC has two members. Do I file Form 1065?

Yes. A multi-member LLC is treated as a partnership unless you elect corporate status using Form 8832.

6. What if my partnership had no income this year?

You must still file if there were deductible expenses. Only partnerships with no income and no expenses are exempt.

7. Can I make changes to my partnership return after filing?

Yes. File an amended Form 1065 (check box G(5)) or Form 8082 if subject to consolidated audit procedures. Send amended K-1s to affected partners.

Need more help? Visit IRS.gov/Form1065 for official forms, instructions, and publications. For tailored tax guidance, consult a qualified tax professional or CPA.