What California Form 565 Is For
Form 565 serves as an informational form for reporting the activities of a general partnership, limited partnership, limited liability partnership, or certain REMICs that are treated as partnerships. Because California follows federal pass-through rules, income flows to each partner through a Schedule K-1, which partners use on their individual filings.
Partnerships also use this form to report items such as dividends, ownership changes, capital gains, deductions, and California adjustments. Many figures come from Form 1065, but the state requires its own schedules and classifications. While California generally follows federal law, it does not conform to all federal deductions, depreciation rules, or credits. Form 565 helps the state track each partner’s share and confirm compliance with state requirements.
When You’d Use California Form 565
A partnership must file Form 565 if it conducts a trade or business in California or receives source income from California. This requirement applies whether the partnership is active or inactive during the year. It also applies if the partnership is registered with the Secretary of State.
For the 2016 taxable year, the filing deadline for calendar-year filers shifted to March 15. California provides a six-month automatic extension to file, but this extension does not delay required payments. Partnerships must also file Form 565 if they amend a federal return, discover an error, or operate for only part of the year. Any corrected Schedule K-1 forms must be given to partners when changes occur.
Key Rules or Details for 2016
- Not all business entities use Form 565, and most limited liability companies file Form 568 unless they meet a specific exception.
- Partnerships required to file Form 565 must report all income and deductions and follow California’s adjustments for items such as depreciation and federal bonus rules.
- Partnerships structured as limited partnerships or limited liability partnerships are required to pay the $800 annual tax, even if they have no income for the year.
- California requires complete supporting documentation, including accurate partner percentages and all allocation details.
- Partnerships that file Schedule K-1 forms electronically must submit every K-1 form through the approved electronic filing system.
- The state recommends retaining financial statements, ownership records, and other supporting documents for several years in case the return is audited or reviewed in the future.
Step-by-Step (High Level)
Step 1 — Gather Information
Collect federal Form 1065, financial statements, prior-year filings, and partner details. Confirm the partnership’s Employer Identification Number and Secretary of State number before starting.
Step 2 — Complete Identifying Information
List the partnership’s name, address, entity type, and accounting period. Indicate if the return is amended. Enter the correct Tax ID numbers and confirm the partnership’s registration status.
Step 3 — Report Income and Deductions
Enter figures for business income, interest, rents, and deductions allowed by California. Some federal items require adjustments to match state rules. Report capital gains and partnership income separately when needed.
Step 4 — Prepare Schedules
Prepare Schedule K to report each partner’s share of income, deductions, and credits. Complete other schedules as needed for transactions, ownership details, or capital account changes. Prepare each partner’s Schedule K-1 using California’s required format.
Step 5 — Calculate and Pay Required Tax
If the partnership is a limited partnership or limited liability partnership, calculate the $800 annual tax. Payment is due by the original filing deadline to avoid a penalty and interest charges.
Step 6 — Sign and Submit
A general partner must sign the return. Attach all schedules and submit them through approved electronic methods. Include all supporting documentation related to income or allocation items.
Common Mistakes and How to Avoid Them
- Many partnerships file Form 568 when they should file Form 565. Reviewing the entity type and filing instructions helps avoid this mistake.
- Some partnerships report inconsistent partner counts between Schedule K and Schedule K-1. Confirming that every partner appears on both schedules helps prevent this issue.
- Partnerships often format ownership percentages incorrectly, using decimal formatting to four decimal places, which helps avoid these errors.
- Some partnerships misunderstand the extension rules and miss the deadline to pay the annual tax. Checking the original payment due date helps ensure on-time payment.
- A frequent mistake is using federal Schedule K-1 forms instead of the California version. Downloading the correct state form can avoid rejection or delays.
- Partnerships sometimes forget to amend Form 565 after federal changes, and tracking federal adjustments helps ensure timely state amendments.
- Failing to sign the return is a common filing error, and verifying that a general partner has signed before submitting prevents processing delays.
What Happens After You File
Once filed, the Franchise Tax Board reviews the return and checks information against partner filings. Partners use data from their Schedule K-1 to complete their state tax return on Form 540 or 540NR. The state may request additional information if items appear inconsistent or incomplete.
The statute of limitations for the 2016 tax year is typically four years from the filing date, but this may extend when federal audits occur. If the state identifies differences, it may assess additional tax or request more documentation. Refunds and notices are mailed based on the filing details. Long-term records should be maintained to verify income, deductions, and changes in ownership.
FAQs
Does California offer an automatic extension for Form 565?
Yes, California provides a six-month extension to file Form 565, but this extension does not apply to required payments. Partnerships must still pay any annual tax by the original due date to avoid penalties.
Who is required to file California Form 565?
Partnerships must file Form 565 when they do business in California or earn income from California sources. This requirement applies even when a partnership reports losses for the year.
What information do partnerships need to prepare before filing Form 565?
Partnerships should gather federal return details, a current balance sheet, partner information, and all supporting schedules. They must also review their financial tax documentation to ensure the state return is complete and accurate.
Can partnerships use tax software to prepare Form 565?
Yes, partnerships may use approved software to prepare Form 565, but they must still follow California-specific rules and attach the required schedules. Software does not replace the need to review items such as Schedule B or partner allocation details.
What should partnerships be aware of regarding the schedules that support Form 565?
Partnerships may need to complete different schedules depending on their services, income, or allocation structure. They should confirm which schedules apply and ensure each one is accurate before filing.
