California Form 565 vs. 568: What’s the Difference?

In California, business entities structured as partnerships and limited liability companies (LLCs) face specific state tax filing requirements. The primary documents for these entities are Form 565, the Partnership Return of Income, and Form 568, the Limited Liability Company Return of Income. While both forms report annual financial information to the Franchise Tax Board, they are not interchangeable. The correct form is determined by the business’s legal structure, and each carries distinct financial obligations.

Understanding Form 565 for Partnerships

Form 565 is the state income tax return for entities legally structured as partnerships. This includes general partnerships, limited partnerships (LPs), and limited liability partnerships (LLPs). These businesses file Form 565 annually to report their financial activities, such as income and deductions, to the California Franchise Tax Board.

Partnership taxation is based on the pass-through principle, meaning the entity itself does not pay income tax. Instead, the net profit or loss is passed through to the individual partners. The partnership uses Form 565 to calculate its total earnings and allocate shares among partners according to their ownership agreement.

The partnership prepares a Schedule K-1 (565) for each partner, which details their specific share of income, deductions, and credits. Partners use this information to report the income or loss on their personal California income tax returns.

While the partnership’s income tax liability passes through to its partners, certain partnerships are subject to an annual tax. Limited partnerships (LPs) and limited liability partnerships (LLPs) must pay an $800 annual tax. General partnerships do not pay this entity-level tax.

Understanding Form 568 for Limited Liability Companies

Form 568, the Limited Liability Company Return of Income, is the required filing for any LLC organized, registered, or doing business in California. This form is used regardless of whether the LLC is managed by one or multiple members, or is classified as a disregarded entity for federal tax purposes.

Nearly every LLC subject to California’s jurisdiction must pay an annual, flat-rate tax of $800. This payment is a franchise tax for the privilege of doing business in the state and is due regardless of whether the LLC generates income or is profitable.

In addition to the annual tax, LLCs may be subject to a separate LLC fee. This fee is variable and is calculated based on the LLC’s total California-sourced gross income. The fee is structured in tiers, so the amount owed increases as income crosses certain thresholds.

For LLCs taxed as partnerships, Form 568 also serves a pass-through reporting function. The LLC provides each member with a Schedule K-1 (568), detailing their share of profits and losses to be reported on their personal state tax returns.

Core Distinctions in Filing Obligations

Entity Structure

The primary determinant for choosing between Form 565 and Form 568 is the legal entity type registered with the California Secretary of State. Form 565 is exclusively for business structures legally defined as partnerships. Conversely, Form 568 is designated for any entity legally formed as a Limited Liability Company. Filing the incorrect form can lead to compliance issues.

Tax and Fee Obligations

The main financial distinction lies in the associated taxes and fees. While some partnerships filing Form 565 pay an $800 annual tax (LPs and LLPs), general partnerships do not. Importantly, no partnership is subject to a fee based on gross receipts.

In contrast, all LLCs filing Form 568 face the mandatory $800 annual franchise tax, which must be paid even if the LLC has no business activity. Furthermore, LLCs are also subject to the potential LLC fee based on total California income, which does not apply to any partnership.

Filing Requirements for Corporate-Taxed LLCs

An LLC can elect to be taxed as either an S Corporation or a C Corporation for income tax purposes. In this scenario, the LLC must file a corporate tax return, either Form 100S for S Corporations or Form 100 for C Corporations, to report its income and calculate its income tax liability.

Even after filing a corporate return, the LLC must still file Form 568. The purpose of this second filing is to pay the required annual LLC tax and any applicable LLC fee based on its gross receipts. This dual filing requirement does not exist for partnerships.