What California Form 565 Is For
California Form 565 is the information return partnerships use to report their income, deductions, gains, losses, and California-specific tax items for 2024. It functions similarly to the federal Form 1065 but applies state rules and adjustments. The form itself does not calculate a partnership’s tax liability. Instead, it identifies each partner’s distributive share so they can report income tax properly on their individual or business returns.
Most general partnerships, limited partnerships, limited liability partnerships, and certain REMICs must file Form 565 if they conduct business in California or have California-source income. LLCs classified as partnerships typically file Form 568 instead unless they meet narrow exceptions. For 2024, updated rules on oil and gas deductions, wildfire-related exclusions, and pass-through entity elections affect how partnerships prepare this return.
When You’d Use California Form 565
You must file Form 565 when your partnership is doing business in California, registered with the Secretary of State, or earning California-source income. California’s doing-business thresholds include meeting or exceeding amounts for sales, property, or compensation, or holding registration status alone.
Form 565 is also used for amended or late filings. Calendar-year partnerships must file by March 15, 2025, while fiscal-year filers submit by the 15th day of the third month after year-end. California grants an automatic seven-month filing extension, but any required annual tax must still be paid by the original due date. Partnerships amend the return when errors arise or when the IRS makes federal adjustments that require corresponding California updates.
Key Rules or Details for 2024
$800 Annual Tax
LPs, LLPs, and REMICs owe an $800 annual tax if they’re organized, registered, or doing business in California. This payment is not deductible as a partnership expense. LPs filing solely to report California-source income without conducting business do not owe the fee.
2024 Oil and Gas Changes
California no longer permits intangible drilling and development cost deductions for expenses incurred on or after January 1, 2024. Percentage depletion for oil, gas, coal, and oil shale is also disallowed. The Enhanced Oil Recovery Credit has been repealed, except for prior-year carryovers.
Wildfire Relief Provisions
Amounts received as qualified wildfire loss mitigation payments through the state’s Wildfire Mitigation Financial Assistance Program are excluded from gross income for tax years 2024–2029. Federal wildfire relief exclusions generally do not apply in California.
Elective Pass-Through Entity (PTE) Tax
For tax years 2021–2025, partnerships may elect to pay a 9.3% PTE tax on qualified net income, allowing partners to claim a credit that may help bypass the federal SALT deduction cap. The election must be made on a timely filed original return and cannot be revoked.
Filing and Schedule K-1 Requirements
Partnerships must issue a California Schedule K-1 (565) to each partner. Ownership percentages must appear in decimal form to four places. Returns prepared with tax software must be e-filed. California conforms to federal partnership rules only through January 1, 2015, so state adjustments remain essential.
Step-by-Step (High Level)
Step 1: Gather Documentation
Collect financial statements, federal return information, and records of partner allocations. Include documents needed to calculate California adjustments for depreciation, credits, and state-specific limitations.
Step 2: Complete Federal Form 1065
Prepare your federal return first. Form 565 relies on federal figures before applying California differences. This ensures consistency when allocating income and preparing K-1s.
Step 3: Enter Partnership Information
List identifying details such as FEIN, Secretary of State file number, address, business activity, accounting method, and total assets. Complete all questions on Side 2 relating to ownership changes, transactions, and operations.
Step 4: Report Income and Deductions
Provide gross receipts, cost of goods sold, ordinary income or loss, and applicable deductions. Adjust federal numbers for California rules, especially for depreciation and items disallowed at the state level.
Step 5: Complete Schedule K and Prepare K-1s
Allocate each tax item among partners and ensure totals reconcile. Prepare a separate Schedule K-1 (565) for every partner, reflecting precise ownership percentages and correct entity information.
Step 6: Calculate Taxes and Payments
Enter the $800 annual tax if applicable. Report prior payments or withholding and determine whether additional tax is due. Use tax is reported separately from income tax obligations.
Step 7: Sign and File
A general partner must sign the return. E-file if prepared with software. If mailing a paper return, send it to the correct Franchise Tax Board address based on payment type.
Common Mistakes and How to Avoid Them
- Missing signatures — Ensure a general partner and preparer (if applicable) sign before filing
- Incomplete or missing K-1s — Attach a California K-1 for each partner using correct identification
- Reconciliation errors — Confirm K-1 totals match Schedule K line by line
- Incorrect ownership percentages — Use decimals to four places, never fractions or symbols
- Using federal numbers without California adjustments — Apply state differences for 2024 rules
- Filing the wrong form — LLCs usually file Form 568, not Form 565
- Not marking final returns — Check the proper box and include explanations when terminating
What Happens After You File
The Franchise Tax Board processes the return, applies payments, and may request clarification. Partners use their Schedule K-1 amounts to report individual income tax obligations, including California-source income.
California generally has four years from the later of the filing date or due date to assess additional income tax. If the IRS audits the federal return, the state period stays open until six months after federal adjustments are finalized. Keep copies of all returns, K-1s, and supporting documents for at least four years, and retain basis records indefinitely. Penalties may apply for late filing, late payment of the annual tax, or withholding failures for nonresident partners.
FAQs
Do LLCs classified as partnerships file Form 565?
Most LLCs taxed as partnerships file Form 568. Nonregistered foreign entities not doing business in California but earning California-source income may need Form 565 instead.
Do registered LPs and LLPs file even without California income?
Yes. Registration alone triggers the requirement to file Form 565 and pay the annual tax unless the entity qualifies for limited reduced filing rules.
Is the $800 annual tax deductible?
No. The annual tax cannot be deducted as a partnership expense or allocated to partners.
What if we need to amend our return?
Mark the “Amended return” box, issue amended K-1s, and attach a statement explaining all corrections. Federal adjustments must be reported to California within six months.
Are there special 2024 rules for oil and gas partnerships?
Yes. California now disallows intangible drilling costs and percentage depletion for oil and gas, and only allows carryover of prior Enhanced Oil Recovery Credits.
For the official form and instructions, visit the California Form 565 page.
