IRS Form 1065 – U.S. Return of Partnership Income

Form 1065 is an information return document issued by the IRS for specific tax purposes pertaining to business partnerships. The form, also known as the U.S. Return of Partnership Income is used to report the business’s earnings, profits, losses, deductions, credits and so forth accrued during the partnership’s operations for a particular tax year. Partners must mention business partnership items on their information returns.

What is a business partnership? The IRS recognizes a relatio­­nship between two or more people who come together to conduct a trade or business as a business partnership. The partnership may or may not be bound by a formal partnership agreement; however each partner contributes to capital, assets, labor or expertise relevant to the operations of the business.

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Partners must also agree to share in the profits and losses of the business. On the contrary, if an enterprise collaborates mainly to share in operating expenses or on the other hand, co-owns property with the intention of maintaining the facility without specializing in the provision of services to the tenants, it will not be characterized as a business partnership.
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Who is it for?

Schedule D (Form 1065) is for all domestic taxpaying partnerships who must report their partnership income to IRS. It is obligatory on Limited Liability Companies (LLCs) that are classified as partnerships under the Internal Revenue Code to file Form 1065 too. Religious and other consecrated establishments that qualify as tax-exempt must also file Form 1065 to report any taxable income. Moreover, spouses jointly owning and operating unincorporated businesses, thereby sharing in the profits and losses, are duty-bound to file Form 1065. A foreign partnership however, will only be liable to file Form 1065 if it satisfies the following two conditions.

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i. Reaps an aggregate income that is connected with the management of a trade or business within the United States or

ii. Acquires gross income from sources within the United States even if the business is placed outside of the United States or its members are foreign nationals.