Form 541 - Partnerships - Department Of Treasury Internal Revenue Service

Year

Months Interest

52-53-week tax year. A partnership can use a

during any part of the tax year for each month (or

End

Year

Profits

tax year other than its required tax year if it

part of a month) the return is late or incomplete,

11/30:

End

Interest Deferral Deferral

elects a 52-53-week tax year that ends with

up to 5 months.

reference to its required tax year or a tax year

The penalty will not be imposed if the part-

Rose . .

12/31

0.5

elected under section 444 (discussed earlier).

nership can show reasonable cause for its fail-

See 52-53-Week Tax Year under Fiscal Year in

Irene . .

11/30

0.5

-0-

ure to file a complete or timely return. Certain

Publication 538 for information on the

small partnerships (with 10 or fewer partners)

Total Deferral . . . . . . . . . . . . . .

0.5

52-53-week tax year.

meet this reasonable cause test if:

1) All partners are individuals (other than

Special de minimis rule. If the tax year that

nonresident aliens), estates, or C corpora-

results in the least aggregate deferral produces

Partnership Return

tions,

an aggregate deferral that is less than 0.5 when

compared to the aggregate deferral of the cur-

(Form 1065)

2) All partners have timely filed income tax

rent tax year, the partnership’s current tax year

returns fully reporting their shares of the

is treated as the tax year with the least aggre-

partnership’s income, deductions, and

Every partnership that engages in a trade or

gate deferral.

credits, and

business or has gross income must file an infor-

When determination is made. Generally,

mation return on Form 1065 showing its income,

3) The partnership has not elected to be sub-

determination of the partnership’s required tax

deductions, and other required information. The

ject to the rules for consolidated audit pro-

year under the least aggregate deferral rules is

partnership return must show the names and

ceedings (explained later under Partner’s

made at the beginning of the partnership’s cur-

addresses of each partner and each partner’s

Income or Loss, in the discussion under

rent tax year. However, the IRS can require the

distributive share of taxable income. The return

Reporting Distributive Share).

partnership to use another day or period that will

must be signed by a general partner. If a limited

The failure to file penalty is assessed against

more accurately reflect the ownership of the

liability company is treated as a partnership, it

the partnership. However, each partner is indi-

partnership.

must file Form 1065 and one of its members

vidually liable for the penalty to the extent the

must sign the return.

Procedures. A partnership can get an auto-

partner is liable for partnership debts in general.

A partnership is not considered to engage in

matic approval to change to a required tax year

a trade or business, and is not required to file a

If the partnership wants to contest the pen-

by filing Form 1128 with the Service Center

Form 1065, for any tax year in which it neither

alty, it must pay the penalty and sue for refund in

where it files its federal income tax returns. The

receives income nor pays or incurs any ex-

a U.S. District Court or the U.S. Court of Federal

partnership should write “FILED UNDER REV.

penses treated as deductions or credits for fed-

Claims.

PROC. 2002 – 38” at the top of page 1 of Form

eral income tax purposes.

1128 and file it by the due date (including exten-

See the instructions for Form 1065 for more

Failure to furnish copies to the partners.

sions) for filing the short period tax return.

information about who must file Form 1065.

The partnership must furnish copies of Schedule

K – 1 (Form 1065) to the partners. A penalty for

Short period return. When a partnership

Due date. Form 1065 generally must be filed

each statement not furnished will be assessed

changes its tax year, a short period return must

by April 15 following the close of the

against the partnership unless the failure to do

be filed. The short period return covers the

partnership’s tax year if its accounting period is

so is due to reasonable cause and not willful

months between the end of the partnership’s

the calendar year. A fiscal year partnership gen-

neglect.

prior tax year and the beginning of its new tax

erally must file its return by the 15th day of the

year.

4th month following the close of its fiscal year.

Trust fund recovery penalty. A person re-

If a partnership changes to the tax year re-

If a partnership needs more time to file its

sponsible for withholding, accounting for, or de-

sulting in the least aggregate deferral, it must file

return, it should file Form 8736 by the regular

positing or paying withholding taxes who willfully

a Form 1128 with the short period return show-

due date of its Form 1065. The automatic exten-

fails to do so can be held liable for a penalty

ing the computations used to determine that tax

sion is 3 months.

equal to the tax not paid.

year. The Form 1128 should also be attached to

If the partnership has made a section 444

the partnership tax return. The short period re-

election to use a tax year other than a required

“Willfully” in this case means voluntarily, con-

turn must indicate at the top of page 1, “FILED

year, an automatic extension of time for filing a

sciously, and intentionally. Paying other ex-

UNDER SECTION 1.706 – 1.”

return will run concurrently with any extension of

penses of the business instead of the taxes due

time allowed by the section 444 election. The

is considered willful behavior.

Exceptions to Required

filing of an application for extension does not

A responsible person can be a partner, an

extend the time for filing a partner’s personal

Tax Year

employee of the partnership, or an accountant.

income tax return or for paying any tax due on a

This may also include someone who signs

partner’s personal income tax return.

There are certain exceptions to the required tax

checks for the partnership or otherwise has au-

If the due date for filing a return falls on a

year rule.

thority to cause the spending of partnership

Saturday, Sunday, or legal holiday, the due date

funds.

is extended to the next business day.

Business purpose tax year. If a partnership

establishes an acceptable business purpose for

Other penalties. Criminal penalties can be

Schedule K – 1 due to partners. The partner-

having a tax year different from its required tax

imposed for willful failure to file, tax evasion, or

ship must furnish copies of Schedule K – 1 (Form

year, the different tax year can be used. Admin-

making a false statement.

1065) to the partners by the date Form 1065 is

istrative and convenience business reasons

required to be filed, including extensions.

Other penalties can be imposed for the fol-

such as the deferral of income to the partners

lowing actions.

are not sufficient to establish a business pur-

•

pose for a particular tax year.

Not supplying a taxpayer identification

Penalties

See Business Purpose Tax Year in Publica-

number.

tion 538 for more information.

•

Not furnishing information returns.

To help ensure that returns are filed correctly

•

Section 444 election. A partnership can elect

Underpaying tax due to a valuation mis-

and on time, the law provides penalties for fail-

under section 444 of the Internal Revenue Code

statement.

ure to do so.

to use a tax year different from its required tax

•

Not furnishing information on tax shelters.

year. Certain restrictions apply to this election.

Failure to file. A penalty is assessed against

•

In addition, the electing partnership may be re-

Promoting abusive tax shelters.

any partnership that must file a partnership re-

quired to make a payment representing the

turn and fails to file on time, including exten-

value of the extra tax deferral to the partners.

However, certain penalties may not be im-

sions, or fails to file a return with all the

posed if there is reasonable cause for noncom-

See Section 444 Election in Publication 538

information required. The penalty is $50 times

pliance.

for more information.

the total number of partners in the partnership

Page 5

Form 541 - Partnerships - Department Of Treasury Internal Revenue Service - 2002 Page 5

Related Articles

Related forms

Related Categories