Partnership

Statutory Reference

Definition

The Illinois Income Tax is imposed on every partnership earning or receiving income in Illinois. The tax is calculated by multiplying net income by a flat rate. The Illinois Income Tax is based, to a large extent, on the federal income tax code.

Tax rate

Partnerships pay 1.5% Personal Property Tax Replacement Income Tax (replacement tax).

Partnerships are subject to the replacement tax, but do not pay the regular Illinois income tax. Generally, income from a partnership is passed on to the partners. The partners must include this income in their federal adjusted gross income (for individuals) or federal taxable income (for other taxpayers). This is the starting point for Illinois income tax purposes and where the regular income tax is paid.

Tax base

The starting point for the Illinois Partnership Return is federal taxable income, which is income minus deductions. Next, the federal taxable income is changed by adding back certain items (e.g., state, municipal, and other interest income excluded from federal taxable income) and subtracting others (e.g., interest income from U.S. Treasury obligations). The result is “base income.”

Filing Requirements

You must file Form IL-1065, Illinois Partnership Tax Return, if you are a partnership, as defined in "Definitions to help you complete your Form IL-1065," and you have base income or loss as defined under the Illinois Income Tax Act (IITA).

If you are a partnership organized for the sole purpose of playing the Illinois State Lottery you are not required to file a Form IL-1065. Your Illinois filing period is the same as your federal filing period. In general, Form IL-1065 is due on or before the 15th day of the 4th month following the close of the tax year.

A partnership may act as an authorized agent to file returns and pay taxes for its partners. These agents must file Form IL-1023-C, Illinois Composite income and Replacement Tax Return, annually by the 15th day of the 4th month following the close of the tax year.

Investment Partnerships

For tax years ending on or after December 31, 2004, if you qualify as investment partnership, you are not required to file Form IL-1065, even if you are required to file a federal tax return (U.S. Form 1065). See Illinois Income Tax Act (IITA) Section 1501(a)(11.5) for more information. You may not amend returns that you already filed for tax years ending before December 31, 2004.

Automatic six-month extension filing

We grant you an automatic six-month extension of time to file your partnership tax return. You are not required to file Form IL-505-B, Automatic Extension Payment, in order to obtain this automatic extension. However, if you expect tax to be due, you must use Form IL-505-B to pay any tentative tax due in order to avoid interest and penalty on tax not paid by the original due date of the return. An extension of time to file your Form IL-1065 does not extend the amount of time you have to pay your Illinois tax liability.

What if I need to correct or change my return?

Corrected - If you need to correct or change your return after it has been filed, but before the automatic extension due date has passed, you must file a corrected Form IL-1065. Mark the form "CORRECTED" at the top and show the changes. Any correction made may cause a recalculation of penalties and interest.
Amended - If you need to correct or change your return after it has been filed, and the automatic extension due date has passed, you must file Form IL-1065-X, Amended Partnership Replacement Tax Return, showing the changes. Use Form IL-843, Amended Return or Notice of Change in Income, for tax years prior to 12/31/2006.

For more information refer to the IL-1065-X Instructions.