My sister and I set up a two Member NJ LLC for estate planning reasons. The only asset is a small vacation home that was owned by our now deceased parents. It is not a business and the house is only used about 30 days a year by immediate family members (our siblings, our kids and grand kids). The LLC does not (and never will) have any income or deductible expenses. My sister and I did open a checking account for the house expenses and periodically make joint deposits to cover the annual expenses for real estate taxes, utilities, insurance, repairs, etc. IT IS NOT AND NEVER WILL BE A BUSINESS.

Because we are a partnership (and NOT a domestic partnership), the IRS told me that we must file an annual Form 1065 and two Form 1065 Schedule K-1s even though everything will be $0. Is that correct?

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Here are two cut and pastes from my Google searches...

1. "Filing requirements for an LLC partnership... An LLC partnership is considered a pass-through entity and must file an informational partnership tax return on Form 1065 unless it did not receive any income during the year AND did not have any expenses that it will claim as deductions or credits".

2. Do I have to file an LLC partnership return if there is no activity?
"If an LLC elects to be treated as a partnership for tax purposes, and the business did not generate any income during the taxable year, it is generally not necessary to file a tax return, unless there are business expenses to be treated as credits or deductions".