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1065 created pre Covid never filed return

michele
Level 7

New Client comes in to file personal and upon talking tells us he created a partnership pre Covid  2 partners. Had no activity until 2022  and 2023 which were all expenses. Thinking they did not have to file a return since they were in a development stage of a product. Can this partnership just be closed with 0 income and 0 expenses. The penalties for 5-6 of not filing would be more than the few expenses  less than 20,000 which was capital that they both put in.

 

thx for your thoughts

Michele

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6 Comments 6
George4Tacks
Level 15

https://www.irs.gov/faqs/small-business-self-employed-other-business/entities/entities-4

  • A domestic partnership must file an information return, unless it neither receives gross income nor pays or incurs any amount treated as a deduction or credit for federal income tax purposes.

Answers are easy. Questions are hard!
joshuabarksatlcs
Level 10

 

I don't know how the partnership can be "closed with 0 income and 0 expense."  Even if the partners had resolved to close/dissolve the partnership in its initial year, Form 1065 still should have been filed for the initial/final year - and the late filing penalty would still have been applicable for the year.

 

That said, check if the IRS First-Time Penalty Abatement administrative waiver is still in force.

https://www.irs.gov/payments/penalty-relief-due-to-first-time-abate-or-other-administrative-waiver

The related provisions used to be prescribed in IRM 20.1.1.3.3. and IRM 20.1.1.3.3.6. 

I haven't handled a similar issue lately and my info may not be up-to-date.  

 

California R&TC Section 19132.5 also allows for a First-Time Penalty Abatement, in case it's a CA partnership.

 

Hope this helps.


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joshuabarksatlcs
Level 10

I guess I was ahead of myself regarding a partnership with "0 income and 0 expenses":

 

Per Form 1065 instructions:

Who Must File
Domestic Partnerships
Except as provided below, every domestic partnership must file Form 1065, unless it neither receives income nor incurs any expenditures treated as deductions or credits for federal income tax
purposes.

 


I come here for kudos and IRonMaN's jokes.
PATAX
Level 15

New clients, new pita problems. One of the reasons I don't want new clients and rarely accept them, I have plenty of work with the clients I have now (some are pita, most are good).

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sjrcpa
Level 15

Were these expenses Organization costs and Start up costs only?

And the business never really started?

If yes, maybe they do meet the not having to file criteria.

And yes, they can dissolve it any time they want.

Is it really a Partnership? Or an LLC?

The more I know, the more I don't know.
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michele
Level 7

It was a 2 member llc. They used the money to try to develop a prototype they were going to sell and it really didn’t work

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