Does A Partnership With No Activity Need To File Form 1065?

This is a common question we see, especially for startups and newly formed partnerships that might not be operational yet.

IRS Instructions for Form 1065 (2023) states:

“A domestic partnership with no income, deductions, or other activity for the tax year is not required to file a Form 1065 for that year.”

It might sound simple, but they don’t clearly specify what counts as an “activity.”

What’s Considered an “Activity”?

Even if there is no income or expenses, holding assets (such as the building, equipment, or bank accounts) may be considered activity. Why?

• Depreciation may be required (for real estate)
• Bank accounts may earn interest
• Ownership of assets implies possibly tax or reporting responsibilities

So while your partnership may not have made any money, just owning something could be enough to require filing.

IRS Legal Interpretation

The IRS Chief Counsel issued a memo in 2011 stating:

“The mere holding of assets by a partnership constitutes activity sufficient to require the filing of a Form 1065.”

While this isn’t a binding law, it reflects how the IRS will likely approach the issue in possible audits or litigation.

Our Recommendation

Even if your partnership isn’t bringing income or expenses, if it held any assets or had any transactions, it’s generally safer–and often advisable–to file a “zero return” (Form 1065 showing no activity).

Filing also keeps the partners in the loop and maintains clear compliance records. It’s better to file than risk a penalty later.