Answers · Partnerships · Form 1065
Does a Partnership Pay Federal Income Tax?
Partnership ordinary income generally passes through and is taxed to partners, even without matching cash distributions.
This question is answered in full on the main page for it.
How it works
The rule, and what it turns on.
Separately stated items retain their character. Specialized regimes can create partnership-level payments, so “partnerships never pay tax” is overbroad.
Example
$100,000 retained partnership profit can still cause a 50% partner to report $50,000 taxable share.
Common mistakes
What we see go wrong, and what we do instead.
- Using distributions as taxable income.
A better approach
- Plan tax distributions in the agreement/cash flow.
Authority
Where this comes from, so you can check it.
IRC §§701-704.
Relevant case law
United States v. Basye, 410 U.S. 441 (1973) - partners are generally taxed on distributive shares even when cash is
not currently distributed.
Educational information, not individualized tax advice. Treatment depends on your facts, entity classification and tax year, and IRS instructions change. Confirm your own position with us before relying on it. Mint Associates does not provide legal services.
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