How to Fill Out Form 1065 with No Income

Filing a tax return for a partnership that generated zero income can seem like unnecessary paperwork, but it’s a critical compliance step. The IRS requires most domestic partnerships to file an annual return regardless of income or activity levels. This guide explains why this filing is mandatory and provides a detailed walkthrough of how to complete Form 1065, U.S. Return of Partnership Income, when your partnership has nothing to report.

Why You Must File a Zero-Income Form 1065

Many partners assume that no income means no tax form. However, skipping this filing can lead to significant penalties and future administrative headaches. Here are the primary reasons why filing a "zero return" is non-negotiable for most partnerships.

1. It's an IRS Requirement

The U.S. tax code is firm on this point. According to the IRS instructions for Form 1065, "every domestic partnership must file Form 1065, unless it neither receives income nor incurs any expenditures treated as deductions or credits for federal income tax purposes." While this exception exists, most partnerships incur some minor formation costs or have a "paper" existence that officially brings them into the filing requirement. The safest and most prudent course of action is always to file the return. This act of filing informs the IRS that your partnership exists and is aware of its compliance obligations, even in a year with no activity.

2. To Avoid Significant Financial Penalties

The cost of ignoring Form 1065 is steep. Under Internal Revenue Code Section 6698, the IRS can impose a "failure to file" penalty for each month (or part of a month) that the return is late. This penalty is calculated on a per-partner basis. For tax years beginning in 2023, the penalty is $220 per partner, per month, for up to 12 months. For a partnership with just two partners, failing to file for a year could result in a penalty of $5,280 ($220 x 2 partners x 12 months). Filing a zero-income return completely circumvents this risk.

3. To Start the Statute of Limitations

Filing a tax return officially starts the clock on the statute of limitations. This is the period during which the IRS can audit your return or assess additional taxes. Generally, this period is three years from the date you file the return. If a return is never filed, the statute of limitations never begins to run. This means the IRS can theoretically come back and audit that "zero income" year five, ten, or even twenty years later. Filing the return provides an end date to this lookback period, officially closing the book on that tax year and offering you long-term peace of mind.

4. To Maintain Good Standing

Consistent compliance is crucial for the long-term health of your business. Having a clean, unbroken record of timely filed tax returns makes it easier to secure financing, bring on new partners, or go through due diligence during a potential sale. A missing return shows up as a red flag in any business review process. Moreover, many states require partnerships to be in good standing with the IRS to maintain their state registration.

Gathering Your Information (Even with Nothing to Report)

While you won't have financial statements, you still need basic organizational information to complete Form 1065 accurately.

• Partnership Name and Address: The full legal name and principal business address of the partnership.
• Employer Identification Number (EIN): Your partnership's unique nine-digit tax ID number. If you haven't received one, you must apply for an EIN before filing.
• Date of Business Start: The month, day, and year the partnership was officially formed.
• Business Activity Code: A six-digit code from the North American Industry Classification System (NAICS) that best describes your business activity. You can find a list of these codes in the Form 1065 instructions.
• Partner Information: For each partner, you will need:
  • Full name and mailing address.
  • Social Security Number (SSN) or EIN.
  • Ownership percentage (must total 100%).
  • Information on any capital contributions made during the year (even if the business had no income).

Step-by-Step Guide to Completing a Zero-Income Form 1065

When there's no financial activity, your primary focus is on accurately completing the entity's demographic information and correctly preparing the partner-specific schedules.

Page 1: Basic Information and Zero Balances

The first page of Form 1065 is where you establish the partnership's identity and report the lack of financial activity.

• Items A-H: Fill in the basic details at the top of the form, including your partnership's name, address, EIN, business activity code (Item C), and total assets (Item F). For total assets, if there was no activity and partners didn't contribute capital, this can be 0.
• Lines 1a to 21 (Income and Deductions): This is the simplest part. You will enter 0 or leave blank as appropriate for every line in the "Income" and "Deductions" sections. The form instructions prefer a 0. Do not just guesstimate or leave things ambiguous. The goal is to clearly report zero activity.
• Line 22 (Ordinary Business Income or Loss): This line will automatically be 0. The signature line at the bottom of the page must be signed by one of the general partners.

Schedule B: Other Information Section

Schedule B is a series of "yes" or "no" questions about the partnership's structure and activities. Even with no income, these questions must be answered correctly.

• Question 1: Indicate the type of entity (e.g., general partnership, LLC, limited partnership).
• Question 2: Provide details about each partner who owns 20% or more of the partnership.
• Question 4: Check whether the partnership meets all four conditions that allow it to be exempt from completing Schedules L, M-1, and M-2 (common for small, inactive partnerships). If your total receipts AND total assets are under $250,000, you likely qualify.
• Foreign Partnerships and Accounts: Pay close attention to questions related to foreign partners, foreign bank accounts, or foreign activities. These still require accurate answers.

Failing to answer these questions accurately can lead to the IRS rejecting the return, which negates the benefits of filing in the first place.

Schedule K and an Important Note on Schedule K-1

This is perhaps the most important part of a partnership return, even with no income.

• Schedule K: Partners' Distributive Share Items: This schedule summarizes the income, deductions, and credits passed through to all partners. On a zero-income return, all lines on Schedule K will also show 0.
• Schedule K-1: Partner's Share of Income, Deductions, Credits, etc.: Every single partner must receive a Schedule K-1. This form reports each partner's individual share of the partnership's financial results. In this case, it will report zeroes but is still mandatory.
  • Part II (Partner Information): Include the partner’s name, address, SSN or EIN, and ownership percentages. This data must be perfect.
  • Box L (Partner’s Capital Account): This section needs to be completed accurately. If partners made an initial capital contribution to form the partnership, that amount would be reflected here. The beginning capital amount would be zero, capital contributed would be their contribution, and the ending capital amount would be the same as their contribution since there were no profit/loss allocations or withdrawals.
  • Boxes 1-20: These will all be reported as 0 as they reflect the operational results of the partnership.

Distributing K-1s ensures that each partner has the necessary documentation for their own personal tax return (Form 1040), proving the partnership had no income to pass through.

Filing Deadlines and Procedures

Knowing the deadlines and proper procedures ensures your return is accepted and timely.

Deadline to File

For calendar-year partnerships, the filing deadline for Form 1065 is March 15th of the following year. If this date falls on a weekend or holiday, the due date is moved to the next business day.

Applying for an Extension

If you need more time, you can file Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns. This grants an automatic six-month extension, moving the filing deadline to September 15th. It is important to note that this is an extension to file, not to pay. However, with a zero-income return, no tax is due anyway.

E-Filing vs. Paper-Filing

The IRS requires partnerships with more than 100 partners to file electronically. For smaller partnerships, you have a choice. E-filing through accredited professional tax software (like Drake Tax or ProSeries) is widely recommended because it provides an immediate confirmation receipt and typically results in fewer processing errors.

If you choose to mail a paper return, ensure you send it via certified mail with a return receipt requested to have definitive proof of your timely filing.

Final Thoughts

Filing Form 1065 for a partnership with no income is a preventive measure. It satisfies IRS compliance rules, protects against severe penalties, preserves partnership-level tax elections, and starts the clock on the statute of limitations. It is a necessary administrative step that ensures your business remains in good standing from day one.

Compliance, even for straightforward scenarios like a zero-income return, requires attention to detail. Nuanced questions about partner capital accounts, state-specific partnership filing requirements, or the tax implications of formation costs can quickly become time-consuming. We built Feather AI to give tax professionals instant, citation-backed answers to these very questions, turning tedious research into a quick query and leaving you more time for strategic client guidance.