What California Form 565 (2022) Is For
California Form 565 (2022) is the information return that partnerships use to report their annual income, deductions, gains, losses, and credits to the Franchise Tax Board (FTB). It’s essentially the partnership’s yearly financial snapshot for California, not a traditional income tax return.
Most partnerships themselves do not pay income tax on their profits. Instead, the entity is a pass-through: income, losses, and credits flow to the partners, who report them on their own individual income tax return or business return. Form 565 shows how those amounts were calculated and allocates each partner’s share on Schedule K-1 (565), which partners then use to determine their own California income tax and tax liability.
When You’d Use California Form 565 (2022)
You use California Form 565 (2022) if the partnership was engaged in a trade or business in California or received California-source income in 2022. This includes general partnerships, limited partnerships (LPs), and limited liability partnerships (LLPs) that are registered with the California Secretary of State. Registration alone is enough to trigger ongoing filing requirements until the entity is formally canceled, even if there is no current-year activity.
For calendar-year partnerships, the 2022 Form 565 was due March 15, 2023. This reflects a key change: the due date moved to the 15th day of the third month after year-end. Fiscal-year filers must file a tax return by the 15th day of the third month after the close of their taxable year. If the due date falls on a weekend or holiday, it rolls to the next business day.
California grants an automatic seven-month extension to file, but the extension does not delay payment of the $800 annual tax for LPs, LLPs, and certain REMICs. That payment must still be made by the original due date, usually using Form FTB 3538. You also use Form 565 for a past due return or to amend a previously filed return when you discover errors or after an IRS audit changes your federal Form 1065.
Key Rules or Details for 2022
Filing Requirements and Entity Types
You must file California Form 565 (2022) if:
- The partnership is doing business in California
- The partnership has California-source income
- The entity is an LP, LLP, or REMIC organized, registered, or doing business in California
Most LLCs taxed as partnerships file Form 568, not Form 565. Only traditional partnerships and certain foreign entities use Form 565, so checking the filing requirements before you file a tax return is essential.
$800 Annual Tax and the First-Year Exemption
Registered California LPs, LLPs, and REMICs generally owe an $800 annual tax, regardless of profit or loss. The tax:
- Is due by the original due date (e.g., March 15, 2023, for calendar-year 2022)
- Is not deductible by the partnership or partners
- Applies even when there is no California income or activity
Exception: Entities first organized or registered with the Secretary of State between January 1, 2021, and December 31, 2023 are exempt from the $800 tax for their first taxable year. They may still have to file California Form 565 (2022), but the entity-level annual tax does not apply in that first year.
California–Federal Differences
For 2022, California conforms to the Internal Revenue Code only as of January 1, 2015. That means it does not conform to many later federal changes, including:
- Qualified business income deduction (IRC §199A)
- Bonus depreciation under IRC §168(k)
- Qualified opportunity zone deferral/exclusion rules
- Expanded §179 expensing and many ARPA provisions
You cannot simply copy federal Form 1065 numbers onto Form 565. Use FTB guidance (including Publication 1001 and the Form 565 instructions) to adjust for California-only rules when determining income tax impacts for partners.
Accounting Methods and Information Returns
The partnership’s accounting method must clearly reflect income and match the method used in its books. Most partnerships cannot use the cash method if they have corporate partners, average annual gross receipts over $5 million, or are tax shelters.
Partnerships must also comply with information return rules, including:
- Federal Forms 1099 for certain payments of $600 or more
- Forms 1099-INT/DIV for interest or dividends of $10 or more
- Form 8300 for cash payments over $10,000
Copies generally must be provided to California residents when those payments relate to California-source income.
Step-by-Step (High Level)
Step 1: Gather Records
Collect:
- Federal Form 1065 and all federal schedules
- 2022 financial statements and general ledger
- Partner ownership percentages and capital contributions
- Documentation of all California-source income and deductions
This groundwork supports both the partnership return of income and partners’ later filings.
Step 2: Complete Entity Information
On page 1 of California Form 565 (2022), enter:
- Partnership name, address, and FEIN
- California Secretary of State file number
- Tax year dates and principal business activity code
- Initial, final, or amended return status
Answer questions about business activity changes, ownership changes, and whether this is a first-year entity that may qualify for the $800 exemption.
Step 3: Report Income and Deductions
Fill out:
- Income lines (1–8) for gross receipts, cost of goods sold, and other trade or business income
- Deduction lines (9–22) for salaries, rent, interest, depreciation, and ordinary business expenses
Only trade or business amounts belong here; capital gains, rental income, and portfolio items are separately stated and reported on the appropriate schedules.
Step 4: Compute Annual Tax and California Adjustments
For LPs, LLPs, and REMICs, compute the $800 annual tax, applying the first-year exemption if applicable. If the partnership operates both inside and outside California, complete Schedule R to apportion income to California using the single-sales factor formula. Attach supporting forms like Schedule D (565), Schedule EO (565), and Form FTB 3885P for depreciation.
Step 5: Complete Schedule K and K-1 (565)
Schedule K summarizes the partnership’s total distributive items. For each partner, prepare a Schedule K-1 (565) that shows their share of:
- Income and loss items
- Deductions and credits
- Withholding and other adjustments
Ownership percentages should be expressed as decimals to four places (for example, 0.3354), not as percentages. Provide each partner a copy so they can correctly file an individual income tax return or business return.
Step 6: Sign, File, and Pay
A general partner must sign Form 565; an unsigned return is not valid. Include contact information in case the FTB needs clarification. File electronically when possible and pay any balance due, including the $800 annual tax and use tax if applicable, by the payment deadline to avoid a past due return situation and added charges.
Common Mistakes and How to Avoid Them
- Assuming no activity means no filing
- Registered LPs and LLPs must file California Form 565 (2022) until they are formally dissolved, even with losses or zero activity.
- Using Form 565 for LLCs
- Most LLCs taxed as partnerships must file Form 568. Always verify the correct form based on entity type and filing requirements.
- Missing the $800 annual tax deadline
- The seven-month extension extends only the filing date, not the payment date. Pay by March 15, 2023, for calendar-year filers unless you qualify for the first-year exemption.
- Incorrect or incomplete Schedule K-1 (565)
- Use California-approved K-1 forms, ensure names and identification numbers are correct, and report ownership percentages in four-decimal format.
- Ignoring California–federal nonconformity
- Failing to adjust for items like §199A, bonus depreciation, or opportunity zones can understate income tax and lead to assessments.
- Weak recordkeeping
- Poor documentation of partner capital and basis makes audits and later transactions (like sales or liquidations) much more difficult.
What Happens After You File
After you file California Form 565 (2022), the FTB records the partnership return of income and processes any payments or refunds. E-filed returns typically process faster than paper returns. If you overpaid annual tax or had withholding in excess of the entity’s obligation, the FTB issues a refund to the partnership.
The FTB may send notices requesting clarification, missing schedules, or support for specific items. Having the signing partner’s phone number and email on the return helps resolve these questions quickly. If a preparer is authorized to discuss the return, the FTB will usually contact them first.
The FTB generally has four years from the later of the original due date or filing date to audit and assess additional tax. If the IRS changes your federal partnership return, California expects you to file an amended partnership return within six months when the change affects California taxable income. Partners then use amended Schedule K-1 (565) forms to update their own returns and tax liability.
Good recordkeeping is essential. Keep copies of filed returns, Schedules K-1, financial statements, bank records, and partner basis schedules for at least the statute of limitations period—and often longer for basis and property records. These documents protect both the partnership and individual partners if questions arise later.
FAQs
Do we have to file California Form 565 (2022) if there was no income or activity?
Yes, if you are a registered LP or LLP that has not been formally dissolved and canceled with the Secretary of State. Registration itself creates ongoing filing requirements. General partnerships that are not registered and had no California-source income generally do not need to file.
Are all partnerships subject to the $800 annual tax?
No. The $800 annual tax applies to LPs, LLPs, and certain REMICs that are organized in, registered in, or doing business in California. General partnerships are not subject to this tax. Entities first formed or registered between 2021 and 2023 are exempt for their first taxable year.
Can partners deduct the $800 annual tax on their own returns?
No. The $800 annual tax is a nondeductible entity-level charge. It cannot be deducted on Form 565 or on partners’ individual income tax returns, even though partners do report their share of the partnership’s income and expenses.
What should we do if the IRS changes our federal Form 1065?
If an IRS audit or adjustment changes federal partnership income or deductions, file an amended California Form 565 within six months of the final federal determination. Attach the Revenue Agent’s Report or other IRS notice and issue amended Schedules K-1 to any partners affected by the change.
What happens if we file late or don’t file at all?
Late or missing returns can trigger an $18-per-partner-per-month penalty (up to 12 months), plus penalties and interest on unpaid $800 annual taxes. For a partnership with many partners, these charges can add up quickly. Filing requirements and deadlines should be monitored carefully to avoid a costly past due return.
