Where Does the Buck Stop? Recent Case Condones Nonfiling of Forms 1065 and Schedules K-1

Sep 19, 2026

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Examines how penalties and filing obligations apply when a partnership fails to timely and accurately file Forms 1065 and to furnish Schedules K-1 to partners. Provides background on duties for domestic and foreign partnerships, then details civil penalties for missing Forms 1065 and for late, incomplete, or incorrect Schedules K-1 treated as payee statements. Uses a bankruptcy court case as a framework to analyze responsibility allocation and circumstances that may justify penalty mitigation through reasonable cause and responsible conduct.

LanguageEnglish

CategoryForms

FormatPDF

Pages12

Reading Time4 min

AccessFree to download

Introduction

Summary of the Relevant Law

Duty to File Forms 1065 and Schedules K-1

Penalties Related to Forms 1065

Penalties Related to Schedules K-1

Lower Penalties

Where Does the Buck Stop? Recent Case Condones Nonfiling of Forms 1065 and Schedules K-1 By HaleE. Sheppard Hale E. Sheppard examines where the buck stops when a partnership fails to file Forms 1065 and Schedules K-1 . Introduction As the world becomes more complex and globalized, we become more interdependent. The actions or inactions of one party often affect others, in some manner, at some point, to some degree. We see this regularly in the world of tax. It is particularly apparent in situations involving multi-tier structures, like a series of partnerships, where the failure by one partnership to file a timely, accurate Form HALE E. SHEPPARD, Esq., B.S., M.A., J. D., LL. M., LL. M.T. is a Shareholder in the Tax Controversy Section of Chamberlain Hrdlicka and Co-Chair of the firm’s International Tax Group. Hale specializes in tax audits, tax appeals and tax litigation. You can reach Hale by phone at (404) 658-5441 or by e-mail at hale.sheppard@ [chamberlainlaw.com](chamberlainlaw.com). 1065 ( U.S. Return of Partnership Income) with the IRS and its failure to issue timely, accurate Schedules K-1 (Partner’s Share of Income, Deductions, Credits, etc.) to the partners negatively impacts all parties further up the chain. Indeed, taxpayers deprived of tax-related data are incapable of completing their own tax returns appropriately, and the IRS cannot effectively administer the tax system. Inan effort to avoid these problems, Congress enacted significant penalties, which the IRS can waive under certain circumstances. The focus of this article, using a recent bankruptcy court case (In re Refco Public Commodity Pool, LP) as a guide, is which parties are to blame and which situations warrant penalty mitigation.1 In other words, where does the buck stop? OCTOBER–NOVEMBER 2016 © 2016 H. E. SHEPPARD 33 RECENT CASE CONDONES NONFILING OF FORMS 1065 AND SCHEDULES K-1 II. Summary of the Relevant Law A. Duty to File Forms 1065 and Schedules K-1 Generally, any person (including individuals and entities) liable for any tax must file a complete return or statement according to the forms and regulations issued by the IRS.2 When it comes to domestic partnerships, they must file Forms 1065.3 Foreign partnerships must file Forms 1065, too, but only if they have either gross income that is effectively connected with a U.S. trade or business or gross income derived from other U.S. sources.4 In addition to filing Forms 1065, partnerships generally must furnish Schedules K-1 to their partners, such that the partners have the information necessary to complete their own tax returns.5 Each Schedule K-1 must show the partner’s distributive share of income, gain, loss, deduction and/or credit from the partnership, along with any additional data required by the U.S. tax code or IRS instructions.6 B. Penalties Related to Forms 1065 There are civil penalties, of course, ifa partnership violatesits filing duties. If the partnership neglects to file a timely, accurate, complete Form 1065, then the IRS can assert a penalty under Code Sec. 6698(a). The penalty currently is calculated in the following manner: $195, multiplied by the number of partners in the partnership at any time during the relevant year, multiplied by the number of months (not to exceed 12) that the violation continues.7 Importantly, the IRS may not impose a penalty regarding missing or problematic Forms 1065 if the partnership can demonstrate that the violations were due to “reasonable cause.”8 C. Penalties Related to Schedules K-1 The IRS generally may assert penalties under Code Sec. 6722 when a taxpayer, including a partnership, files late, incomplete or incorrect “payee statements.”9 For these purposes, Schedules K-1 are considered “payee statements.”10 Ordinarily, any person that violates the filing requirements for “payee statements” must pay a penalty of $250 for each violation, with a maximum of $3 million per year.11 This penalty increases to $500 per v

FAQs

What filing duties apply to partnerships regarding Forms 1065 and Schedules K-1?

Domestic partnerships generally must file Forms 1065, and foreign partnerships must file Forms 1065 in specified U.S.-connection situations. Partnerships also must furnish Schedules K-1 so partners can complete their tax returns, showing the partner’s distributive share and required information.

How are penalties for failing to file Forms 1065 calculated, and when can they be avoided?

Civil penalties may be asserted under Code Sec. 6698(a) if the partnership neglects to file a timely, accurate, complete Form 1065. The article notes the IRS may not impose the penalty if the partnership demonstrates the violation was due to reasonable cause.

What penalty framework applies to late, incomplete, or incorrect Schedules K-1?

Penalties may be asserted under Code Sec. 6722 because Schedules K-1 are treated as payee statements. The article describes base penalty amounts, an increased penalty for intentional disregard, and special rules for reductions or waivers, including reasonable cause and the absence of willful neglect.

Sep 19, 2026

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