Form 1065: Why Partnerships Need to Pay Attention

If you think filing a partnership return on Form 1065 isn’t risky, it’s time to think again. The IRS has made significant changes in how it approaches partnerships, and mistakes are more likely than ever to trigger penalties, disputes, or audits. At Kamish & Associates, we want our clients to understand what’s changing and why it matters.

Why This Matters Now

Partnerships are complex by nature, and disagreements between partners often spill over into tax matters. At the same time, the IRS has been quietly strengthening its ability to track compliance. That combination makes now the right time to take a closer look at how partnership returns are prepared and reviewed.

Key Changes Every Partnership Should Know

1. Form Changes Over Time

• 2004: Schedule K-1 was overhauled with new codes.

• 2020: Partner capital accounts must be reported on a tax basis (not GAAP or book).

• 2021: New Schedules K-2 and K-3 were introduced for international reporting.

These changes give the IRS much more visibility into partnership activity, and e-filing makes it easier for them to flag inconsistencies.

2. Audit Rules Under the Bipartisan Budget Act (BBA)The BBA rules changed how both voluntary and involuntary adjustments are made to partnership returns.

• Amendments now require Form 8082 (AAR), which adds complexity.

• Errors under the BBA can be more expensive to correct than in the past, which increases the risk that blame falls on the preparer.

  
  

3. Technical ShiftsThe IRS and Treasury continue to release regulations, like the 2024 rules on recourse debt, that add new layers of technical compliance.

4. Tactical Shifts at the IRSThe IRS has reorganized how it audits partnerships, combining expertise across divisions and creating dedicated counsel for passthroughs. This means exams are likely to become more consistent and more frequent.

Risks Beyond the IRS: Partner Disputes

Even when the IRS isn’t involved, disagreements between partners can create risk. Issues like:

• How liquidation proceeds should be distributed.

• Whether allocations are being applied correctly.

• Whether all partners are given equal visibility into tax filings.

These disputes can easily turn into liability claims against the CPA who prepared the return, making accurate reporting and clear communication essential.

How Partnerships Can Get Ahead of Risk

At Kamish & Associates, we recommend partnerships take the following steps:

• Review Partnership Agreements: Always provide your CPA with the most recent, executed agreement (including amendments). Allocations should reflect the agreement, not assumptions.

• Understand Complexity: If your partnership has foreign partners, noncash contributions, or complex allocations, recognize the higher risk and make sure your CPA has the right expertise.

• Plan for BBA Compliance: If your partnership is subject to the BBA, understand how amendments and audits will now work.

• Improve Partner Communication: Ensure all partners are included in major planning discussions and have a chance to review returns before filing. This reduces disputes later.

  
  

Final Thoughts

The IRS is no longer turning a blind eye to partnerships. Structural changes, new forms, and evolving audit tactics make Form 1065 compliance more important than ever. Combined with the financial stakes of partner disputes, the risks are too high to ignore.

At Kamish & Associates, we specialize in helping partnerships navigate these changes with accuracy, transparency, and confidence. If your partnership needs a fresh look at compliance and planning, now is the time to act.