What IRS Form 1065 (2020) Is For
IRS Form 1065 (2020) is an information return that domestic partnerships use to report partnership income, gains, losses, deductions, and credits from their business operations to the IRS. This form provides detailed information about the taxable year, allowing the IRS to review how profits, income, and capital gains are allocated among partners.
Partnerships generally do not pay tax directly. Instead, income passes through to partners, who report their share on individual income tax returns using Schedule K-1. This helps ensure that each partner pays federal taxes on their share of partnership income as defined by law.
When You'd Use Form 1065 for 2020 (Late or Amended Filing)
You would file IRS Form 1065 (2020) for the 2020 tax year if the partnership missed the original due date of March 15, 2021, or needs to correct previously filed information. Late filing can result in penalties unless the partnership can show reasonable cause for the delay. Partnerships may also need to file an amended return or Form 1065-X to correct partnership income, deductions, or Schedule K-1 allocations. The IRS may issue a notice, such as CP-59, if it identifies a failure to file or a missing partnership tax return.
Key Rules Specific to 2020
- COVID-19 Relief Reporting: Partnerships were required to report employee retention credits and payroll credits received under the CARES Act and the Families First Coronavirus Response Act.
- Tax Basis Capital Accounts: The IRS required that all partner capital accounts be reported using the tax basis method.
- Gross Receipts Reporting: Certain entities with higher business receipts had to provide expanded reporting of partnership income and capital gains.
- Business Interest Limitations: Updated Section 163(j) rules limited interest deductions for the taxable year.
For complete details on wage reporting, withholdings, and unemployment tax filings, see our guide to Business Income Tax Forms.
Step-by-Step (High Level)
- Gather Transcripts: Request partnership transcripts from the IRS by calling 800-908-9946 or accessing them at IRS.gov.
- Complete the 2020 Form: Carefully fill out the official 2020 Form 1065, ensuring that all business income, deductions, credits, and partnership items are accurately reported.
- Prepare Schedule K-1s: Furnish a Schedule K-1 to each partner showing their allocated share of profits, income, and deductions for the taxable year.
- Attach Schedules: Include Schedule B (Other Information), Schedule M-1 (Book-Tax Reconciliation), and other schedules required under federal tax rules.
- File the Return: File electronically if the partnership has 100 or more partners. Paper filings should be mailed to the correct IRS address for the business’s location.
- Keep Records: Retain copies of the tax return, K-1s, and supporting documents for at least three years from the date filed.
Learn more about federal tax filing through our IRS Form Help Center.
Common Mistakes and How to Avoid Them
- Failing to issue K-1s: Send each partner a complete Schedule K-1 on time to avoid per-partner penalties that apply monthly up to the maximum limit.
- Incorrect capital accounts: Track each partner’s capital account using the tax basis method to prevent IRS notices or processing delays.
- Incomplete reconciliation: Review and reconcile Schedules M-1 and B carefully to avoid delays and additional IRS information requests.
- Incorrect employer identification number: Ensure the EIN matches IRS records before filing to prevent delays or rejected submissions.
- Ignoring state filings: File required partnership returns in all applicable states to avoid added penalties and interest.
- Entity classification errors: Confirm that any S corporation election or Form 8832 classification remains valid for the current tax year.
What Happens After You File
After filing IRS Form 1065 (2020), the IRS typically processes electronically filed partnership returns within six to eight weeks and paper returns within 12 to 16 weeks. If a penalty applies due to late filing or failure to pay tax, the IRS may issue a notice such as CP-138. Partnerships can make payments online through IRS.gov/payments or request an installment agreement using Form 9465.
If reasonable cause exists, penalties may be reduced or waived, but interest on unpaid federal taxes generally cannot be removed. The IRS requires a detailed explanation and supporting documentation, such as illness, disaster, or other valid circumstances, to approve relief. Partnerships may also be subject to BBA audit procedures, which determine how adjustments to partnership income and deductions are reviewed.
FAQs
What is IRS Form 1065 (2020) used for?
IRS Form 1065 (2020) is used to report partnership income, deductions, credits, and other partnership items from business operations. It is an information return that lets the IRS confirm how profits and losses are distributed among partners. Each partner then reports their share on an individual tax return.
How does partnership income affect my tax return?
Partnership income is reported on each partner’s personal tax return. Each partner reports their share using Schedule K-1. The income may increase your federal tax liability, depending on your total taxable income, deductions, and capital gains for the year.
Do capital gains need to be reported on Form 1065?
Yes, capital gains are part of the total partnership income reported on Form 1065. Each partner receives their share on Schedule K-1 and reports it on their individual income tax return, along with other taxable income or losses.
What is a Schedule K-1, and why is it important?
Schedule K-1 reports each partner’s share of partnership income, deductions, and credits. It is essential for accurate tax reporting. Failure to issue K-1s or provide complete information can result in penalties, interest, and IRS notices requesting further clarification.
How does Form 1065 differ from an S corporation return?
Form 1065 applies to partnerships, while S corporations file Form 1120-S. Certain entities may elect S corporation status if they meet IRS criteria. The primary difference lies in how income and deductions are allocated and how partners or shareholders are taxed.
What happens if there’s a failure to file the return on time?
Failure to file Form 1065 by the due date can result in penalties that apply monthly until the return is filed. The penalty is calculated per partner and can quickly accumulate. Filing promptly or showing reasonable cause can reduce or eliminate penalties.
What if a K-1 or return needs additional information?
If a K-1 or tax return requires additional information, the partnership must file corrected forms with the IRS and provide updated copies to partners. The IRS may issue a notice requesting clarification, and interest or penalties may apply if delays affect processing.
