Instructions for IRS Form 1065-B "U.S. Return of Income for Electing Large Partnerships"

This document contains official instructions for IRS Form 1065-B, U.S. Return of Income for Electing Large Partnerships - a tax form released and collected by the Internal Revenue Service (IRS), a subdivision of the U.S. Department of the Treasury. An up-to-date fillable IRS Form 1065-B is available for download through this link.

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Download Instructions for IRS Form 1065-B "U.S. Return of Income for Electing Large Partnerships"

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2017
Department of the Treasury
Internal Revenue Service
Instructions for Form 1065-B
U.S. Return of Income for Electing Large Partnerships
Contents
Page
January 1, 2017, and ending on or after
Section references are to the Internal Revenue Code
unless otherwise noted.
December 13, 2017, if a foreign partnership
Specific Instructions . . . . . . . . . . . .
14
wholly owns a domestic DE, the domestic
Contents
Page
Part I. Taxable Income or
DE is treated as a domestic corporation
Loss From Passive Loss
What's New . . . . . . . . . . . . . . . . . .
1
separate from its owner (the foreign
Limitation Activities . . . . . . .
14
Reminders . . . . . . . . . . . . . . . . . . .
2
partnership) for the limited purposes of the
Part II. Taxable Income or
Photographs of Missing Children . . . .
2
requirements that apply to certain
Loss From Other
The Taxpayer Advocate Service Is
foreign-owned domestic corporations under
Activities . . . . . . . . . . . . . .
20
Here To Help You . . . . . . . . . . .
2
section 6038A. See the Instructions for Form
Schedule B. Other
How To Get Forms and
5472 for additional information about
Information . . . . . . . . . . . .
22
Publications . . . . . . . . . . . . . . .
2
reporting required by the domestic DE.
Schedule D. Capital Gains
Address change for filing returns. The
General Instructions . . . . . . . . . . . . .
2
and Losses . . . . . . . . . . . .
22
filing address for partnerships located in
Purpose of Form . . . . . . . . . . . .
2
Schedules K and K-1.
some states has changed. See
Where To
Electing Large Partnership
Partners' Shares of
File, later.
(ELP) Status
. . . . . . . . . . . .
2
Income, Credits,
Form 8975. Certain U.S. persons that are
Deductions, etc. . . . . . . . . .
26
Definitions . . . . . . . . . . . . . . . .
2
the ultimate parent entity of a U.S.
Termination of the
Specific Instructions for
multinational enterprise group with annual
Schedules K and K-1 . . . . . .
26
Partnership . . . . . . . . . . . . .
3
revenue for the preceding reporting period of
Electronic Filing . . . . . . . . . . . .
3
Analysis of Net Income
$850 million or more are required to file Form
(Loss) . . . . . . . . . . . . . . . .
36
When To File . . . . . . . . . . . . . .
3
8975. Form 8975 and its Schedules A (Form
Schedule L. Balance Sheets
Where To File . . . . . . . . . . . . . .
3
8975) must be filed with the income tax
per Books . . . . . . . . . . . . .
37
Who Must Sign . . . . . . . . . . . . .
3
return of the ultimate parent entity of a U.S.
Schedule M-1.
multinational enterprise group for the tax
Interest and Penalties . . . . . . . . .
4
Reconciliation of Income
year in or within which the reporting period
Accounting Methods . . . . . . . . .
4
(Loss) per Books With
covered by Form 8975 ends. The first
Accounting Periods . . . . . . . . . .
5
Income (Loss) per Return . . .
37
required reporting period for an ultimate
Rounding Off to Whole
Schedule M-2. Analysis of
parent entity is the 12-month reporting period
Dollars . . . . . . . . . . . . . . . .
5
Partners' Capital
that begins on or after the first day of a tax
Accounts . . . . . . . . . . . . . .
38
Recordkeeping . . . . . . . . . . . . .
5
year of the ultimate parent entity that begins
Codes for Principal Business
Administrative Adjustment
on or after June 30, 2016. For more
Activity and Principal Product
Requests . . . . . . . . . . . . . . .
5
information, see Form 8975, Schedule A
or Service . . . . . . . . . . . . . . .
40
Other Forms, Returns, And
(Form 8975), and the instructions for Form
Index . . . . . . . . . . . . . . . . . . . . .
43
Statements That May Be
8975 and Schedule A (Form 8975).
Required . . . . . . . . . . . . . . .
6
Disaster relief. The 10% taxable income
Future Developments
Assembling the Return . . . . . . . .
7
limitation on charitable contributions has
Overview . . . . . . . . . . . . . . . . .
8
For the latest information about
been temporarily suspended for certain cash
Separately Stated Items . . . . . . .
8
developments related to Form 1065-B, its
contributions for relief efforts in certain
schedules, and its instructions, such as
disaster areas. See
Temporary suspension
Limitations . . . . . . . . . . . . . . . .
8
legislation enacted after they were
of 10%
limitation.
Elections Made by the
published, go to IRS.gov/Form1065b.
Partnership . . . . . . . . . . . . .
8
Eligible employers in certain disaster
Effect of Section 743(b)
areas can use Form 5884-A, Credits for
What's New
Basis Adjustment on
Affected Disaster Area Employers, to report
Partnership Items . . . . . . . . .
9
the employee retention credit. For more
Electing large partnerships. Public Law
Elections Made by Each
information on these and other disaster relief
114-74, Title XI, section 1101(b), repealed
Partner . . . . . . . . . . . . . . . .
9
provisions, see Pub. 976.
the electing large partnership rules for
Film, television, and live theatrical
Partner's Dealings With
partnership tax years beginning after 2017.
Partnership . . . . . . . . . . . . .
9
productions. Qualified film, television, or
Form 1065-B and its instructions will be
live theatrical productions acquired and
Contributions to the
obsolete after 2017.
placed in service after September 27, 2017
Partnership . . . . . . . . . . . . .
9
Who must sign. The partnership return
(for which a deduction would have been
Dispositions of Contributed
must be signed by a partner. Beginning in
allowable under section 181 without regard
Property . . . . . . . . . . . . . . .
9
2017, any partner of a partnership or a
to the dollar limitation or termination of the
member of a limited liability company may
Recognition of
section), are eligible for the special
Precontribution Gain on
sign the return.
depreciation allowance under section 168(k).
Certain Partnership
Principle Business Activity Codes.The
See the Instructions for Form 4562.
Distributions . . . . . . . . . . . . .
9
Principal Business Activity Codes, located at
Unrealized Receivables and
the end of these instructions, have been
The expiration date for the election to
Inventory Items . . . . . . . . . .
10
updated and revised to reflect updates to the
deduct certain costs of qualified film,
North American Industry Classification
Activities of ELPs . . . . . . . . . .
10
television, and live theatrical productions has
System (NAICS).
been extended through 2017.
Special Reporting
Foreign partnerships with wholly
Requirements . . . . . . . . . . .
11
Entertainment expenses, membership
owned domestic disregarded entities
dues, and facilities. No deduction is
Extraterritorial Income
(DEs). For tax years beginning on or after
allowed for certain entertainment expenses,
Exclusion
. . . . . . . . . . . . .
13
Mar 07, 2018
Cat. No. 25982P
2017
Department of the Treasury
Internal Revenue Service
Instructions for Form 1065-B
U.S. Return of Income for Electing Large Partnerships
Contents
Page
January 1, 2017, and ending on or after
Section references are to the Internal Revenue Code
unless otherwise noted.
December 13, 2017, if a foreign partnership
Specific Instructions . . . . . . . . . . . .
14
wholly owns a domestic DE, the domestic
Contents
Page
Part I. Taxable Income or
DE is treated as a domestic corporation
Loss From Passive Loss
What's New . . . . . . . . . . . . . . . . . .
1
separate from its owner (the foreign
Limitation Activities . . . . . . .
14
Reminders . . . . . . . . . . . . . . . . . . .
2
partnership) for the limited purposes of the
Part II. Taxable Income or
Photographs of Missing Children . . . .
2
requirements that apply to certain
Loss From Other
The Taxpayer Advocate Service Is
foreign-owned domestic corporations under
Activities . . . . . . . . . . . . . .
20
Here To Help You . . . . . . . . . . .
2
section 6038A. See the Instructions for Form
Schedule B. Other
How To Get Forms and
5472 for additional information about
Information . . . . . . . . . . . .
22
Publications . . . . . . . . . . . . . . .
2
reporting required by the domestic DE.
Schedule D. Capital Gains
Address change for filing returns. The
General Instructions . . . . . . . . . . . . .
2
and Losses . . . . . . . . . . . .
22
filing address for partnerships located in
Purpose of Form . . . . . . . . . . . .
2
Schedules K and K-1.
some states has changed. See
Where To
Electing Large Partnership
Partners' Shares of
File, later.
(ELP) Status
. . . . . . . . . . . .
2
Income, Credits,
Form 8975. Certain U.S. persons that are
Deductions, etc. . . . . . . . . .
26
Definitions . . . . . . . . . . . . . . . .
2
the ultimate parent entity of a U.S.
Termination of the
Specific Instructions for
multinational enterprise group with annual
Schedules K and K-1 . . . . . .
26
Partnership . . . . . . . . . . . . .
3
revenue for the preceding reporting period of
Electronic Filing . . . . . . . . . . . .
3
Analysis of Net Income
$850 million or more are required to file Form
(Loss) . . . . . . . . . . . . . . . .
36
When To File . . . . . . . . . . . . . .
3
8975. Form 8975 and its Schedules A (Form
Schedule L. Balance Sheets
Where To File . . . . . . . . . . . . . .
3
8975) must be filed with the income tax
per Books . . . . . . . . . . . . .
37
Who Must Sign . . . . . . . . . . . . .
3
return of the ultimate parent entity of a U.S.
Schedule M-1.
multinational enterprise group for the tax
Interest and Penalties . . . . . . . . .
4
Reconciliation of Income
year in or within which the reporting period
Accounting Methods . . . . . . . . .
4
(Loss) per Books With
covered by Form 8975 ends. The first
Accounting Periods . . . . . . . . . .
5
Income (Loss) per Return . . .
37
required reporting period for an ultimate
Rounding Off to Whole
Schedule M-2. Analysis of
parent entity is the 12-month reporting period
Dollars . . . . . . . . . . . . . . . .
5
Partners' Capital
that begins on or after the first day of a tax
Accounts . . . . . . . . . . . . . .
38
Recordkeeping . . . . . . . . . . . . .
5
year of the ultimate parent entity that begins
Codes for Principal Business
Administrative Adjustment
on or after June 30, 2016. For more
Activity and Principal Product
Requests . . . . . . . . . . . . . . .
5
information, see Form 8975, Schedule A
or Service . . . . . . . . . . . . . . .
40
Other Forms, Returns, And
(Form 8975), and the instructions for Form
Index . . . . . . . . . . . . . . . . . . . . .
43
Statements That May Be
8975 and Schedule A (Form 8975).
Required . . . . . . . . . . . . . . .
6
Disaster relief. The 10% taxable income
Future Developments
Assembling the Return . . . . . . . .
7
limitation on charitable contributions has
Overview . . . . . . . . . . . . . . . . .
8
For the latest information about
been temporarily suspended for certain cash
Separately Stated Items . . . . . . .
8
developments related to Form 1065-B, its
contributions for relief efforts in certain
schedules, and its instructions, such as
disaster areas. See
Temporary suspension
Limitations . . . . . . . . . . . . . . . .
8
legislation enacted after they were
of 10%
limitation.
Elections Made by the
published, go to IRS.gov/Form1065b.
Partnership . . . . . . . . . . . . .
8
Eligible employers in certain disaster
Effect of Section 743(b)
areas can use Form 5884-A, Credits for
What's New
Basis Adjustment on
Affected Disaster Area Employers, to report
Partnership Items . . . . . . . . .
9
the employee retention credit. For more
Electing large partnerships. Public Law
Elections Made by Each
information on these and other disaster relief
114-74, Title XI, section 1101(b), repealed
Partner . . . . . . . . . . . . . . . .
9
provisions, see Pub. 976.
the electing large partnership rules for
Film, television, and live theatrical
Partner's Dealings With
partnership tax years beginning after 2017.
Partnership . . . . . . . . . . . . .
9
productions. Qualified film, television, or
Form 1065-B and its instructions will be
live theatrical productions acquired and
Contributions to the
obsolete after 2017.
placed in service after September 27, 2017
Partnership . . . . . . . . . . . . .
9
Who must sign. The partnership return
(for which a deduction would have been
Dispositions of Contributed
must be signed by a partner. Beginning in
allowable under section 181 without regard
Property . . . . . . . . . . . . . . .
9
2017, any partner of a partnership or a
to the dollar limitation or termination of the
member of a limited liability company may
Recognition of
section), are eligible for the special
Precontribution Gain on
sign the return.
depreciation allowance under section 168(k).
Certain Partnership
Principle Business Activity Codes.The
See the Instructions for Form 4562.
Distributions . . . . . . . . . . . . .
9
Principal Business Activity Codes, located at
Unrealized Receivables and
the end of these instructions, have been
The expiration date for the election to
Inventory Items . . . . . . . . . .
10
updated and revised to reflect updates to the
deduct certain costs of qualified film,
North American Industry Classification
Activities of ELPs . . . . . . . . . .
10
television, and live theatrical productions has
System (NAICS).
been extended through 2017.
Special Reporting
Foreign partnerships with wholly
Requirements . . . . . . . . . . .
11
Entertainment expenses, membership
owned domestic disregarded entities
dues, and facilities. No deduction is
Extraterritorial Income
(DEs). For tax years beginning on or after
allowed for certain entertainment expenses,
Exclusion
. . . . . . . . . . . . .
13
Mar 07, 2018
Cat. No. 25982P
How To Get Forms and
membership dues, and facilities used in
To make the election, the partnership
connection with these activities for amounts
must have had 100 or more partners during
Publications
incurred or paid after December 31, 2017.
the preceding tax year. Thus, a partnership
See
Travel, meals, and
entertainment, later.
cannot make the election for its first tax year.
Internet. You can access the IRS website at
Capital assets. For dispositions after
The number of partners is determined by
IRS.gov
24 hours a day, 7 days a week to:
2017, certain patents, inventions, models, or
counting only persons directly holding
E-file your return — find out about
designs; secret formulas or processes; or
partnership interests, including persons
commercial tax preparation and e-file
similar property are not capital assets. See
holding through nominees. Service partners
services available free to eligible taxpayers;
What Are Capital
Assets, later.
are not counted as partners for this purpose.
Download forms, including talking tax
Service partners are those partners who
forms, instructions, and publications;
Reminders
perform substantial services in connection
Use the online Internal Revenue Code,
with the partnership's activities or who have
regulations, or other official guidance;
New due date for partnerships. For tax
performed such services in the past.
Get information on starting and operating
years beginning after 2015, the due date for
a small business;
a domestic partnership to file its Form 1065
Service partnerships are not eligible to
Order IRS products online;
has changed to the 15th day of the 3rd
make the election if substantially all of the
Research your tax questions online;
month following the date its tax year ended.
partners are:
Search publications online by topic or
Individuals performing substantial
keyword;
Photographs of Missing
services in connection with the partnership's
View Internal Revenue Bulletins (IRBs)
activities,
Children
published in the last few years; and
Personal service corporations with the
Sign up to receive local and national tax
The IRS is a proud partner with the
National
owner-employees performing the services,
news by email.
Center for Missing & Exploited Children®
Retired partners who had performed the
(NCMEC). Photographs of missing children
Tax forms and publications. The
services, and
selected by the Center may appear in
partnership can download or print all of the
Spouses of partners performing or who
instructions on pages that would otherwise
forms and publications it may need on
had performed the services.
be blank. You can help bring these children
IRS.gov/FormsPubs. Otherwise, the
home by looking at the photographs and
In addition, commodity partnerships are
partnership can:
calling 1-800-THE-LOST (1-800-843-5678) if
not eligible to make the election. Commodity
Go to
IRS.gov/OrderForms
to order and
you recognize a child.
partnerships have as their principal activity
have forms mailed to the partnership.
the buying and selling of commodities (other
The partnership should receive its order
The Taxpayer Advocate
than inventory described in section 1221(a)
within 10 business days.
(1)) or options, futures, or forwards relating
Service Is Here To Help
General Instructions
to commodities.
You
Once a partnership has made an election
Purpose of Form
What is the Taxpayer Advocate Service?
by filing Form 1065-B, this treatment on the
The Taxpayer Advocate Service (TAS) is an
return will bind the partnership and all of its
Form 1065-B is an information return used to
independent organization within the IRS
partners. The IRS, however, is not bound by
report the income, gains, losses, deductions,
that helps taxpayers and protects taxpayer
the treatment on the return. To the extent
and other information from the operation of
rights. Our job is to ensure that every
provided in future regulations, a partnership
an electing large partnership (as defined in
taxpayer is treated fairly and that you know
may cease to be treated as an ELP for a tax
section 775). An electing large partnership
and understand your rights under the
year in which the number of its partners falls
(ELP) may be required to pay certain taxes,
Taxpayer Bill of
Rights.
below 100.
such as recapture of the investment credit
What Can the Taxpayer Advocate Serv-
under section 50, but generally it passes
Definitions
ice Do For You? We can help you resolve
through any profits or losses to its partners.
problems that you can’t resolve with the IRS.
Partners must include these ELP items on
Partnership
And our service is free. If you qualify for our
their income tax or information returns.
assistance, you will be assigned to one
A partnership is the relationship between two
A regular partnership is required to
advocate who will work with you throughout
or more persons who join to carry on a trade
separately report to each partner the
the process and will do everything possible
or business, with each person contributing
partner's distributive share of any item of
to resolve your issue.
money, property, labor, or skill and each
income, gain, loss, deduction, or credit that if
expecting to share in the profits and losses
How Can You Reach Us? We have offices
separately taken into account by any partner
of the business whether or not a formal
in every state, the District of Columbia, and
would result in an income tax liability for that
partnership agreement is made.
Puerto
Rico. Your local advocate's number is
partner different from that which would result
in your local directory and at
if the item was not taken into account
The term “partnership” includes a limited
TaxpayerAdvocate.irs.gov. You can also call
separately. Unlike a regular partnership, an
partnership, syndicate, group, pool, joint
us at 1-877-777-4778.
ELP combines most items at the partnership
venture, or other unincorporated
level and passes through net amounts to
organization, through or by which any
How Can You Learn About Your Taxpay-
partners. These ELP rules override the
business, financial operation, or venture is
er Rights? The Taxpayer Bill of Rights
regular partnership tax rules to the extent
carried on, that is not, within the meaning of
describes 10 basic rights that all taxpayers
they are inconsistent with the regular
the regulations under section 7701, a
have when dealing with the IRS. Our Tax
partnership tax rules.
corporation, trust, estate, or sole
Toolkit at
TaxpayerAdvocate.irs.gov
can
proprietorship.
help you understand
what these rights mean
Electing Large Partnership
to you
and how they apply. These are your
Foreign Partnership
(ELP) Status
rights. Know them. Use them.
A foreign partnership is a partnership that is
How Else Does the Taxpayer Advocate
A partnership chooses ELP status by filing
not created or organized in the United States
Service Help Taxpayers? The TAS works
Form 1065-B instead of Form 1065. The
or under the law of the United States or of
to resolve large-scale problems that affect
election applies to the tax year for which it
any state. See Notice 2010-41 for
many taxpayers. If you know of one of these
was made and all later tax years. This
information on when a domestic partnership
broad issues, please report it to us at
election cannot be revoked without IRS
will be classified as foreign.
IRS.gov/SAMS.
consent.
-2-
General Partner
ELP's tax year ends on the date of
calendar year partnerships, the due date is
termination which is the date the ELP winds
March 15, 2018.
A general partner is a partner who is
up its affairs.
If the due date falls on a Saturday,
personally liable for partnership debts.
Sunday, or legal holiday, file by the next day
Special rules apply in the case of a
General Partnership
that is not a Saturday, Sunday, or legal
merger, consolidation, or division of a
holiday.
partnership. See Regulations section
A general partnership is composed only of
1.708-1 for details.
general partners.
Unlike regular partnerships, an ELP
is required to furnish Schedules K-1
Limited Partner
!
Electronic Filing
to its partners by the first March 15
CAUTION
A limited partner is a partner in a partnership
Generally, ELPs are required to file
following the close of the partnership's tax
formed under a state limited partnership law,
year.
electronically. However, the requirement to
whose personal liability for partnership debts
file electronically does not apply to certain
is limited to the amount of money or other
Private Delivery Services
returns, including:
property that the partner contributed or is
Bankruptcy returns, and
The partnership can use certain private
required to contribute to the partnership.
Returns with prefigured penalty and
delivery services (PDS) designated by the
Some members of other entities, such as
interest.
IRS to meet the “timely mailing as timely
domestic or foreign business trusts or limited
filing” rule for Form 1065-B. Go to
IRS.gov/
See
Rev. Proc. 2012-17
for the
liability companies that are classified as
PDS
for the current list of designated
requirements for furnishing substitute
partnerships, may be treated as limited
services.
Schedule K-1, Partner's Share of Income,
partners for certain purposes.
Deductions, Credits, etc., electronically.
The PDS can tell you how to get written
Limited Partnership
proof of the mailing date.
For more details on electronic filing us-
A limited partnership is formed under a state
ing the Modernized e-file system, see:
For the IRS mailing address to use if
limited partnership law and composed of at
Publication 3112, IRS e-file Application
you’re using PDS, go to
IRS.gov/
least one general partner and one or more
and Participation;
PDSstreetAddresses.
limited partners.
Publication 4163, Modernized e-File
Private delivery services can’t deliver
Limited Liability Partnership
(MeF) Information for Authorized IRS e-file
items to P.O. boxes. You must use
!
Providers for Business Returns;
(LLP)
the U.S. Postal Service to mail any
Publication 4164, Modernized e-File
CAUTION
item to an IRS P.O. box address.
An LLP is formed under a state limited
(MeF) Guide for Software Developers and
liability partnership law. Generally, a partner
Transmitters;
Extension of Time To File
in an LLP is not personally liable for the
Form 8453-B, U.S. Electing Large
debts of the LLP or any other partner, nor is
Partnership Declaration for an IRS e-file
If you need more time to file a partnership
a partner liable for the acts or omissions of
Return; and
return, file Form 7004 to request an
any other partner, solely by reason of being a
Form 8879-B, IRS e-file Signature
extension of time to file. File Form 7004 by
partner.
Authorization for Form 1065-B.
the regular due date of the partnership
return. Form 7004 can be electronically filed.
Limited Liability Company
For More Information on
See the Instructions for Form 7004.
(LLC)
Filing Electronically
Period Covered
An LLC is an entity formed under state law
Call the e-help Desk at 1-866-255-0654,
Form 1065-B is an information return for
by filing articles of organization as an LLC.
or
calendar year 2017 and fiscal years
Unlike a partnership, none of the members of
Visit IRS.gov/Filing.
beginning in 2017 and ending in 2018. If the
an LLC is personally liable for its debts. An
return is for a fiscal year, fill in the tax year
LLC may be classified for federal income tax
Electronic Filing Waiver
space at the top of the form.
purposes as a partnership, a corporation, or
an entity disregarded as an entity separate
If the ELP has a tax year less than 12
The IRS may waive the electronic filing rules
from its owner by applying the rules in
if the partnership demonstrates that a
months that begins and ends in 2018, see
Regulations section 301.7701-3. See Form
Partnerships Filing a 2018 Short Tax Period
hardship would result if it were required to file
8832, Entity Classification Election, for more
its return electronically. A partnership
Return in the Instructions for Form 1065. The
details.
interested in requesting a waiver of the
partnership cannot use Form 1065-B to file a
2018 short period return. Form 1065 must be
mandatory electronic filing requirement must
Note. A domestic LLC with at least two
file a written request, and request one in the
used instead.
members that does not file Form 8832 is
manner prescribed by the Ogden
Where To File
classified as a partnership for federal income
Submission Processing Center (OSPC).
tax purposes.
All written requests for waivers should be
If the partnership's principal business, office,
mailed to:
Nonrecourse Loans
or agency is located in the United States,
Internal Revenue Service
then file the return at: Department of the
Nonrecourse loans are those liabilities of the
Ogden Submission Processing Center
Treasury, Internal Revenue Service Center,
partnership for which no partner or related
e-file Team, Mail Stop 1057
Ogden, UT 84201-0007.
person bears the economic risk of loss.
Ogden, UT 84201
If the partnership's principal business,
Attn: Form 1065 e-File Waiver Request
Termination of the
office, or agency is located in a foreign
Waiver requests can also be faxed to
country or U.S. possession, then file the
Partnership
1-877-477-0575.
return at: Internal Revenue Service Center,
Contact the e-help Desk at
An ELP terminates when all its operations
P.O. Box 409101, Ogden, UT 84409.
1-866-255-0654 for questions regarding the
are discontinued and no part of any
waiver procedures process.
Who Must Sign
business, financial operation, or venture is
When To File
continued by any of its partners in a
General Partner or LLC Member
partnership. Unlike other partnerships, an
Generally, a domestic partnership must file
ELP does not terminate on the sale or
Manager
Form 1065-B by the 15th day of the 3rd
exchange of 50% or more of the partnership
month following the date its tax year ended
Form 1065-B is not considered to be a return
interests within a 12-month period. The
as shown at the top of Form 1065-B. For
unless it is signed. A partner or LLC member
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must sign the return. When a return is made
is granted. Interest is also charged from the
that must be collected or withheld are not
for a partnership by a receiver, trustee, or
due date (including extensions) to the date of
collected or withheld, or these taxes are not
assignee, the fiduciary must sign the return,
payment on the failure to file penalty, the
paid. These taxes are generally reported on:
instead of the partner or LLC member.
accuracy-related penalty, the reportable
Form 720, Quarterly Federal Excise Tax
Returns and forms signed by a receiver or
transaction underpayment penalty, and the
Return;
trustee in bankruptcy on behalf of a
fraud penalty. The interest charged is figured
Form 941, Employer's QUARTERLY
partnership must be accompanied by a copy
at a rate determined under section 6621.
Federal Tax Return;
of the order or instructions of the court
Form 943, Employer's Annual Federal Tax
Late Filing of Return
authorizing signing of the return or form.
Return for Agricultural Employees;
A penalty is assessed against the
Form 944, Employer's ANNUAL Federal
Paid Preparer's Information
partnership if it is required to file a
Tax Return; or
If a partner or an employee of the ELP
partnership return and it (a) fails to file the
Form 945, Annual Return of Withheld
completes Form 1065-B, the paid preparer's
return by the due date, including extensions;
Federal Income Tax.
space should remain blank. In addition,
or (b) files a return that fails to show all the
The trust fund recovery penalty may be
anyone who prepares Form 1065-B but does
information required, unless such failure is
imposed on all persons who are determined
not charge the partnership should not
due to reasonable cause.
by the IRS to have been responsible for
complete this section.
If the ELP receives a notice about a
collecting, accounting for, or paying over
Generally, anyone who is paid to prepare
penalty after it files the return, the ELP may
these taxes, and who acted willfully in not
the partnership return must do the following.
send the IRS an explanation and the Service
doing so. The penalty is equal to the unpaid
Sign the return in the space provided for
will determine if the explanation meets
trust fund tax. See the Instructions for Form
the preparer's signature.
reasonable-cause criteria. Do not attach an
720; Pub. 15 (Circular E), Employer's Tax
Fill in the other blanks in the “Paid
explanation when filing the return.
Guide; or Pub. 51 (Circular A), Agricultural
Preparer Use Only” area of the return (a paid
Employer's Tax Guide, for more details,
The penalty is $200 for each month or
preparer cannot use a social security number
including the definition of a responsible
part of a month (for a maximum of 12
in the “Paid Preparer Use Only” box. The
person.
months) the failure continues, multiplied by
paid preparer must use a preparer tax
the total number of persons who were
Accounting Methods
identification number (PTIN)).
partners in the partnership during any part of
Give the ELP a copy of the return in
An accounting method is a set of rules used
the partnership's tax year for which the return
addition to the copy to be filed with the IRS.
to determine when and how income and
is due.
expenditures are reported. Figure ordinary
Note. A paid preparer may sign original
If tax is due (regardless of when the
income using the method of accounting
returns or amended returns by rubber stamp,
return was required to be filed), the penalty is
regularly used in keeping the ELP's books
mechanical device, or computer software
the amount stated above plus 5% of the
and records. In all cases, the method used
program.
unpaid tax for each month or part of a month
must clearly reflect income. Generally,
Paid Preparer Authorization
the return is late, up to a maximum of 25% of
permissible methods include:
the unpaid tax. If the return is more than 60
Cash,
If the ELP wants to allow the paid preparer to
days late, the minimum penalty is $210 or
Accrual, or
discuss its 2017 Form 1065-B with the IRS,
the balance of the tax due on the return,
Any other method authorized by the
check the “Yes” box in the signature area of
whichever is smaller.
Internal Revenue Code.
the return. The authorization applies only to
Late Payment of Tax
the individual whose signature appears in the
Generally, a partnership may not use the
“Paid Preparer Use Only” section of its
An ELP that does not pay the tax shown on
cash method of accounting if (a) it has at
return. It does not apply to the firm, if any,
least one corporate partner, it has average
the return when due generally may have to
shown in the section.
annual gross receipts of more than $5
pay an addition to tax equal to
of 1% for
1
2
If the “Yes” box is checked, the ELP is
million, and it is not a farming business; or
each month or part of a month the tax is not
authorizing the IRS to call the paid preparer
(b) it is a tax shelter (as defined in section
paid, up to a maximum of 25% of the unpaid
to answer any questions that may arise
448(d)(3)). See section 448 for details.
tax. The addition to tax will not be imposed if
during the processing of its return. The ELP
the partnership can show that the failure to
Accrual method. If inventories are
is also authorizing the paid preparer to:
pay on time was due to reasonable cause
required, an accrual method of accounting
Give the IRS any information that is
and not willful neglect.
must be used for sales and purchases of
missing from its return,
Failure To Furnish Information
merchandise. However, qualifying taxpayers
Call the IRS for information about the
and eligible businesses of qualifying small
Timely
processing of its return, and
business taxpayers are excepted from using
Respond to certain IRS notices about
For each failure to furnish Schedule K-1 to a
an accrual method and may account for
math errors and return preparation.
partner when due and each failure to include
inventoriable items as materials and supplies
The ELP is not authorizing the paid
on Schedule K-1 all the information required
that are not incidental. For more details, see
preparer to receive any refund check, bind
to be shown (or the inclusion of incorrect
Form 1125-A and its instructions.
the ELP to anything, or otherwise represent
information), a $260 penalty may be
Under the accrual method, an amount is
the ELP before the IRS. If the ELP wants to
imposed with respect to each Schedule K-1
includible in income when:
expand the paid preparer's authorization,
for which a failure occurs. The maximum
1. All the events have occurred that fix
see Pub. 947, Practice Before the IRS and
penalty is $3,218,500 for all such failures
the right to receive the income, which is the
Power of Attorney.
during a calendar year.
earliest of the date:
The authorization cannot be revoked.
If the requirement to report correct
a. Payment is earned through the
However, the authorization will automatically
information is intentionally disregarded, each
required performance,
end no later than the due date (excluding
$260 penalty is increased to $530 or, if
extensions) for filing the 2018 return.
b. Payment is due to the taxpayer, or
greater, 10% of the aggregate amount of
items required to be reported. There is no
c. Payment is received by the taxpayer,
Interest and Penalties
limit to the amount of penalty.
and
Interest
Trust Fund Recovery Penalty
2. The amount can be determined with
reasonable accuracy.
Interest is charged on taxes not paid by the
This penalty may apply if certain excise,
due date, even if an extension of time to file
income, social security, and Medicare taxes
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See Regulations section 1.451-1(a) for
the tax year immediately preceding the
Tax Year Other Than a Required Tax Year.
details.
election year and attached to that return, or if
For a partnership to have this election in
applicable, to a request for an extension of
effect, it must make the payments required
Generally, an accrual basis taxpayer can
time to file that return. For more details, see
by section 7519 and file Form 8752,
deduct accrued expenses in the tax year in
Rev. Proc. 99-17, 1999-7 I.R.B. 52, as
Required Payment or Refund Under Section
which:
superseded in part by Rev. Proc. 99-49, and
7519.
All events that determine the liability have
section 475(f)(1).
occurred,
A section 444 election ends if a
The amount of the liability can be figured
partnership changes its accounting period to
Change in accounting method. Generally,
with reasonable accuracy, and
its required tax year or some other permitted
the ELP must get IRS consent to change its
Economic performance takes place with
year or it is penalized for willfully failing to
method of accounting used to report income
respect to the expense.
comply with the requirements of section
(for income as a whole or for any material
7519. If the termination results in a short tax
item). To do so, the ELP generally must file
For property and service liabilities, for
year, type or legibly print at the top of the first
Form 3115, Application for Change in
example, economic performance occurs as
page of Form 1065-B for the short tax year,
Accounting Method. See the Instructions for
the property or service is provided. There are
“SECTION 444 ELECTION TERMINATED”;
Form 3115 for more information and
special economic performance rules for
or
exceptions. Also see Rev. Proc. 2016-29,
certain items, including recurring expenses.
2016-21 I.R.B. 880 (or any successor); Rev.
See section 461(h) and the related
c. The partnership elects to use a
Proc. 2017-30, 2017-18 I.R.B. 1131; and
regulations for the rules for determining
52-53-week tax year that ends with reference
Pub. 538.
when economic performance takes place.
to either its required tax year or a tax year
elected under section 444.
Nonaccrual-experience method. Accrual
Section 481(a) adjustment. The ELP
method partnerships are not required to
may have to make an adjustment to prevent
Change of tax year. To change its tax year
accrue certain amounts to be received from
amounts of income or expenses from being
or to adopt or retain a tax year other than its
the performance of services that, on the
duplicated or omitted. This is called a section
required tax year, the ELP must file Form
basis of their experience, will not be
481(a) adjustment. The section 481(a)
1128, Application To Adopt, Change, or
collected if:
adjustment period is generally 1 year for a
Retain a Tax Year, unless the partnership is
The services are in the fields of health,
net negative adjustment and 4 years for a net
making an election under section 444.
law, engineering, architecture, accounting,
positive adjustment. However, in some
actuarial science, performing arts, or
instances, a partnership can elect to modify
Note. The tax year of a common trust fund
consulting; or
the section 481(a) adjustment period. The
must be the calendar year.
The partnership's average annual gross
partnership must complete the appropriate
receipts for the 3 prior tax years does not
lines of Form 3115 to make the election. See
Rounding Off to Whole
exceed $5 million.
the Instructions for Form 3115.
Dollars
This provision does not apply to any
Include any net positive section 481(a)
The partnership can round off cents to whole
amount if interest is required to be paid on
adjustment on Form 1065-B, Part I, line 10. If
the amount or if there is any penalty for
the net section 481(a) adjustment is
dollars on its return and schedules. If the
partnership does round to whole dollars, it
failure to timely pay the amount. For
negative, report it on Form 1065-B, Part I,
must round all amounts. To round, drop
information, see section 448(d)(5) and
line 23.
Regulations section 1.448-2. For reporting
amounts under 50 cents and increase
There are some instances when the ELP
amounts from 50 to 99 cents to the next
requirements, see the instructions for line 1a.
can obtain automatic consent from the IRS to
dollar (for example, $1.39 becomes $1 and
change to certain accounting methods. See
Percentage of completion method.
$2.50 becomes $3).
Rev. Proc. 2015-13, 2015-5 I.R.B. 419, as
Long-term contracts (except for certain real
modified, or its successor.
If two or more amounts must be added to
property construction contracts) must
figure the amount to enter on a line, include
generally be accounted for using the
Accounting Periods
cents when adding the amounts and round
percentage of completion method described
off only the total.
in section 460. See section 460 and the
An ELP is generally required to have one of
underlying regulations for rules on long-term
the following tax years.
Recordkeeping
contracts.
1. The tax year of a majority of its
The ELP must keep its records as long as
Mark-to-market accounting. Dealers in
partners (majority tax year).
they may be needed for the administration of
securities must use the mark-to-market
2. If there is no majority tax year, then
any provision of the Internal Revenue Code.
accounting method described in section 475.
the tax year common to all of the ELP's
The ELP usually must keep records that
Under this method, any security that is
principal partners (partners with an interest
support an item of income, deduction, or
inventory to the dealer must be included in
of 5% or more in the partnership profits or
credit on the partnership return for 3 years
inventory at its fair market value (FMV). Any
capital).
from the date the return is due or is filed,
security that is not inventory and that is held
3. If there is neither a majority tax year
whichever is later. It also must keep records
at the close of the tax year is treated as sold
nor a tax year common to all principal
that verify its basis in property for as long as
at its FMV on the last business day of the tax
partners, then the tax year that results in the
they are needed to figure the basis of the
year, and any gain or loss must be taken into
least aggregate deferral of income.
original or replacement property.
account in determining gross income. The
gain or loss taken into account is generally
The ELP should also keep copies of all
Note. In determining the tax year of a
treated as ordinary gain or loss. For details,
returns it has filed. They help in preparing
partnership under (1), (2), or (3) above, the
including exceptions, see section 475, the
future returns and in making computations
tax years of certain tax-exempt and foreign
related regulations, and Rev. Rul. 97-39,
when filing an amended return.
partners are disregarded. See Regulations
1997-39 I.R.B. 4.
section 1.706-1(b) for more details.
Administrative Adjustment
Traders in securities can elect to use the
4. Some other tax year, if:
mark-to-market accounting method. To
Requests
a. The ELP can establish that there is a
make the election, the ELP must file a
business purpose for the tax year; or
The procedures to follow when filing an
statement describing the election and the
amended partnership return depend on
first tax year the election is to be effective.
b. The ELP elects under section 444 to
whether the amended return is filed
The statement must be filed by the due date
have a tax year other than a required tax
electronically or on paper. The rules for
(not including extensions) of the return for
year by filing Form 8716, Election To Have a
determining when a return must be filed
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