Partnership Without an LLC: Do We Have to File Form 1065?

Are we a partnership without an LLC or a written agreement?

Generally yes. Two or more people who carry on a business together and divide the profit are a partnership for federal tax, whether or not they formed an LLC, registered with the state or signed anything. The tax code defines a partnership to include any "joint venture, or other unincorporated organization" carrying on a business (26 USC 761(a)). Whether a separate entity exists is a question of federal tax law and "does not depend on" recognition under state law (Reg. 301.7701-1(a)).

The IRS describes a partnership as two or more persons who each contribute money, property, labor or skill and each expect to share in the profits and losses, "whether or not a formal partnership agreement is made" (Form 1065 instructions). A partnership agreement can be oral (Publication 541).

The cost-sharing and rental rows come from Reg. 301.7701-1(a)(2) and Publication 541. Partnership status turns on all the facts, so a mixed case (one of you is paid a fixed fee, or you share some jobs but not others) needs a closer look.

A case stops being a simple fix when more than one year has gone by unfiled, a partner is leaving, the profit was not split evenly, one partner put in much more money, a partner lives outside the US, a bank or buyer is asking for partnership returns, or no books were kept. Gather the business bank statements for every year, a list of who paid in what (money, equipment, vehicles), how the profit was actually split each year, and each partner's returns for those years.

What does a general partnership file? Form 1065 and K-1s

The partnership files Form 1065, an information return, and gives each partner a Schedule K-1 showing their share. The partnership itself pays no income tax; each partner reports their K-1 share on their own Form 1040 (IRS: Partnerships). Every domestic partnership must file unless it had no income and no expenses treated as deductions or credits for the year (Form 1065 instructions). A partner signs the return (Publication 541).

A general partner's share of the business income counts as net earnings from self-employment (26 USC 1402(a)), so each partner generally pays self-employment tax of 15.3% on 92.35% of it, with the Social Security part stopping once wages and self-employment earnings reach $184,500 (IRS; Form 1040-ES). Partners are not employees and should not get a W-2 (IRS: Partnerships). How income, basis and capital accounts flow through is covered in how partnerships are taxed.

California requires Form 565 from a partnership doing business in the state or with California-source income (FTB). New York requires Form IT-204 if any partner is a New York resident or the partnership has New York-source income (NY instructions). Both charge their own monthly late penalty per partner, and California does not follow the federal small-partnership relief (FTB). Check your own state's rule.

We filed Schedule Cs instead of a 1065: is that wrong?

If you are a partnership, yes. Schedule C is for a business you operated "as a sole proprietor" (Schedule C instructions); a partnership's income belongs on Form 1065, with each partner's share on a K-1. That holds whether you each reported half or one of you reported the whole business and paid the other a share. Splitting the profit across two Schedule Cs may produce about the same income and self-employment tax, but the partnership return is still unfiled, and the late-filing penalty runs per partner per month whether or not any tax is owed (26 USC 6698).

Only married couples have a way to replace Form 1065 with Schedule C (below); siblings, a parent and adult child, or friends do not. For the steps to correct past returns, see an LLC that filed the wrong return type; the returns involved are the same.

When is Form 1065 due, and what is the late-filing penalty per partner?

A calendar-year partnership's Form 1065 is due March 15, moved to the next business day when it falls on a weekend or holiday. Form 7004, filed by that date, extends the filing deadline by 6 months (Form 1065 instructions; Form 7004 instructions). A late return also loses one election: opting out of the centralized partnership audit rules on Schedule B-2, which only a timely return, extensions included, can make (Form 1065 instructions).

The monthly amount is in 26 USC 6698 and indexed each year; a late return uses the amount for the year it was due (Revenue Procedure 2025-32; earlier years from that year's Form 1065 instructions):

Relief may be available. Revenue Procedure 84-35 can cover a partnership of 10 partners or fewer individual partners (spouses filing jointly count as one) if, among other conditions, every partner reported their share on a timely return (IRS). First Time Abate, which you must request and which covers earlier years, and the Automatic Exemption from Penalty, which the IRS applies on its own to returns for tax year 2025 and later, both need the three prior years filed on time with no penalties, or with no return required, so an earlier unfiled year can block them (IRS: administrative relief; IRS procedural update). Do not attach an explanation to the late return (Form 1065 instructions). Whether two Schedule Cs count as reporting your shares, and how to ask, are in late partnership return penalty relief.

Do we need an EIN for the partnership, separate from our SSNs?

Yes. Form 1065 needs the partnership's own employer identification number, and the IRS says not to show an SSN as an EIN on returns (Form 1065 instructions; Form SS-4 instructions). A sole proprietor who "enters into a partnership" needs a new EIN, even if they already have one for their own business (SS-4 instructions; IRS: Do you need a new EIN?).

Apply online or with Form SS-4; the EIN is free. Line 11 of Form SS-4 asks for the date the business started or, if the form of ownership changed, the date the new entity began (SS-4 instructions). For a partnership nobody registered, that is generally when you began running the business together and sharing the profit, not the day you apply.

Married couple in business together: Form 1065 or Schedule C?

A married couple who jointly own and run an unincorporated business are generally partners and must file Form 1065. They can instead elect qualified joint venture treatment if they are the only owners, file a joint return and both materially participate (each is involved in running it on a regular, continuous and substantial basis, 26 USC 469(h)), and the business is not held in an LLC or other state-law entity. Each spouse then files a Schedule C and Schedule SE for their own share (Form 1065 instructions; IRS).

The election is made by filing the joint return that way. It cannot be revoked without IRS consent, but it lapses for any year the couple stops meeting the conditions, and a later year needs a new election (IRS). Spouses who wholly own the business as community property, as in Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington or Wisconsin (Publication 555), can instead choose to treat it as a sole proprietorship and report all of it on one spouse's Schedule C (Schedule C instructions). If one spouse has been reporting the whole business outside these two routes, only that spouse earns Social Security credit on it; see spouse- and family-owned LLCs.

Does forming an LLC now fix the past years?

No. An LLC is created by filing articles of organization with the state (Form 1065 instructions) and covers the business only from then on, so the years you ran it as a general partnership still need their Forms 1065. A two-member LLC is itself taxed as a partnership by default unless it elects to be taxed as a corporation (IRS: LLC), so the return type usually stays the same after the LLC is formed.

On the EIN, converting a partnership into an LLC classified as a partnership does not end the partnership, and the LLC can keep using its number (Publication 541; IRS: Do you need a new EIN?). A partnership ends only when none of its business is still carried on by any of its partners in a partnership (26 USC 708(b)(1)), so when the same partners move the same business into their LLC, the EIN generally stays. A new EIN fits when the old partnership really ends and a different one begins. For the state filing itself, see how to form an LLC.

What personal liability does a general partnership carry?

A general partner is personally liable for the partnership's debts; the same IRS instructions note that, unlike a partnership, no LLC member is personally liable for the LLC's debts (Form 1065 instructions). That includes an unpaid federal penalty assessed against the partnership, such as the late-filing penalty: the IRS treats general partners as generally liable for partnership debts under state law (IRM 5.17.7), and it generally has 10 years after assessment to collect (26 USC 6502). How far an LLC's protection reaches is set by each state's law, so ask a lawyer in your state; the tax return does not change it.

How do we fix it, and in what order?

1. Agree on the facts. The start date, who put in what, and how the profit was split each year. These drive every return that follows.
2. Get the partnership's EIN.
3. File each missing Form 1065 with a K-1 for each partner, plus any state partnership return. If capital accounts were never tracked, see rebuilding partnership capital accounts.
4. Review each partner's own returns that reported the business on Schedule C, and correct them on Form 1040-X where needed so they match the K-1s (how).
5. Answer any penalty notice with a relief request (relief options).
6. Put the profit split in writing. Partners can change the agreement for a year only until that year's return due date, not counting extensions, so a new agreement cannot rewrite a year already past that date; where it is silent, state law fills the gap (Publication 541). For an uneven split, see splitting ownership between partners.
7. Then decide whether to form an LLC.

Example

These examples are illustrative; figures are in US dollars.

Two friends with a moving business

Two friends run a moving business with no LLC, make $120,000 profit a year, split it evenly and each file a Schedule C for $60,000. The facts point to a partnership. Both missing returns are filed in the same month:

• Year 1 (return due in 2025): filed 20 months late; the penalty stops at 12 months: 2 partners × 12 × $245 = $5,880.
• Year 2 (return due in 2026): filed 8 months late: 2 × 8 × $255 = $4,080.

Late K-1s can add a separate per-K-1 penalty. Year 1 was the partnership's first, so it may qualify for First Time Abate; Year 2 generally does not, because Year 1 was filed late. They get an EIN, file both Forms 1065 with two K-1s each showing $60,000, and check which relief route fits when the notices arrive.

Two designers who share an office

Two designers split $24,000 of yearly rent evenly, but each bills their own clients and keeps their own fees. That is cost sharing, not a partnership, so each keeps filing a Schedule C. If they begin pooling fees and dividing the profit, the answer changes.

A married couple's bakery

A couple in a state without community property who file jointly both work in their bakery, with no LLC, and earn $80,000 profit. By default they file Form 1065 with two K-1s of $40,000. If both elect qualified joint venture treatment, each files a Schedule C and Schedule SE for $40,000 instead, and both earn Social Security credit.

Different for you?

• Two or more years of split Schedule Cs, or a penalty notice: see late partnership return penalty relief and get business tax help.
• No books for the missing years, only bank statements: the late returns have to be built from rebuilt records; see rebuilding books from bank statements and get catch-up bookkeeping.
• A bank, lender or buyer is asking for partnership returns: those returns do not exist until the missing years are filed; get business tax help.
• A partner is leaving: the partnership may end, with a final Form 1065 due the 15th day of the 3rd month after the month the partnership ends; the tax side is covered in when a two-owner LLC goes down to one. With unfiled years too, get business tax help.
• You already have an LLC that filed Schedule Cs: see an LLC that filed the wrong return type.
• One partner funds and the other works: see splitting ownership between partners.
• You co-own a rental rather than run a business: see co-owned rentals: Schedule E or a partnership return.
• A partner lives outside the US: see a company with a foreign co-owner.
• You are deciding whether to file yourselves: see whether you need a CPA for Form 1065.