Do I Need to File Form 1065 If No Income?

Form 1065, U.S. Return of Partnership Income, is an informational return for domestic partnerships to report financial activities like income, gains, losses, deductions, and credits to the IRS. Partnerships are “pass-through” entities, so the business itself does not pay income tax. Instead, profits and losses pass to the partners, who report them on their personal tax returns. This raises a common question: is filing Form 1065 necessary if the partnership had no income?

General Filing Requirements for Form 1065

The Internal Revenue Service (IRS) requires every domestic partnership engaged in a trade or business, or that has any gross income, to file Form 1065. This filing obligation applies even if the partnership’s income is minimal. This allows the IRS to track the partnership’s financial activities and verify partners’ reporting.

For tax purposes, the definition of a “partnership” is comprehensive, including entities like general partnerships, limited partnerships, and most multi-member limited liability companies (LLCs). An LLC with at least two members is automatically classified as a partnership for federal income tax purposes. This is unless it formally elects to be treated as a corporation by filing Form 8832.

The deadline for filing Form 1065 is the 15th day of the third month after the end of the partnership’s tax year. For partnerships that operate on a calendar year (January to December), the due date is March 15. Failing to meet this deadline can lead to significant penalties.

The Exception for No Financial Activity

While the filing requirement is broad, the IRS provides a narrow exception. A domestic partnership is not required to file Form 1065 if it had no income and incurred no expenditures treated as deductions or credits for the tax year. This is not about having zero net profit; it is about having absolutely zero financial transactions.

To qualify, the partnership must have been completely dormant. This means no sales, no interest earned, and no expenses paid, not even minor ones like bank fees or state registration costs. The presence of any financial transaction, regardless of how small, negates this exception and requires the partnership to file a return.

Many new or inactive partnerships mistakenly believe they qualify for this relief. For instance, a partnership formed late in the year may have incurred organizational costs. A partnership that is winding down might still hold a bank account that earns a few dollars of interest. These activities would not meet the “no financial activity” test, so the practical application of this exception is limited.

Penalties for Failure to File

Failing to file Form 1065 by the deadline when required can result in substantial penalties. The IRS calculates the failure-to-file penalty based on the number of partners and the duration of the delay. The penalty is assessed for each month or part of a month the return is late, for a maximum of 12 months.

The penalty amount is adjusted for inflation. For returns due in 2025, the penalty is $245 per partner for each month the filing is late. For example, a partnership with four partners that files its return six months late could face a penalty of $5,880.

There are also separate penalties for failing to furnish the required Schedule K-1 to each partner on time, which can be up to $330 per schedule. The IRS may waive these penalties if the partnership can demonstrate “reasonable cause” for the failure to file. Establishing reasonable cause requires showing that the partnership exercised ordinary business care but was still unable to file on time due to circumstances beyond its control.

Completing a Form 1065 With No Income

For partnerships that do not qualify for the filing exception and must submit a return, the process is to complete a “zero return.” This involves providing all the required identifying information for the partnership and its partners. You will also report zero financial activity.

The first page of Form 1065 requires basic information like the partnership’s name, address, and Employer Identification Number (EIN). You must also provide the business activity code and the date the business started. On all lines for financial data, such as gross receipts or deductions, you will enter “0.” Be sure to check applicable boxes, such as “Initial return” or “Final return.”

Even with no income or deductions, the partnership must issue a Schedule K-1 to each person who was a partner during the year. This form reports each partner’s share of the partnership’s financial items. For a zero return, all financial lines on the Schedule K-1 will also be filled with zeros, providing partners with the necessary documentation for their own tax returns.