Do we have to file if we are just starting and have no stock purchases?
This question is often asked................

Our club just started in November. We have not bought any stocks yet. Do we still have to file a partnership income tax return.

It depends on whether you mean 'have to' or 'should'. The instructions for the federal partnership return, Form 1065, say......

Every partnership that engages in a trade or business or has gross income derived from sources in the United States must file Form 1065.

A partnership is not considered to engage in a trade or business, and is therefore not required to file, for any tax year in which it neither receives income nor incurs any expenditures treated as deductions or credits for Federal income tax purposes

Even if you have just a small amount of interest income, you are required to file. The penalty for not filing a partnership return is $50 per partner, per month, for a total of 5 months per year. So that's pretty clear. However, with the Internal Revenue Service, nothing is black and white. While partnerships are required to file under the above rules, there are certain instances where partnerships are not assessed any penalties if they can show reasonable cause for not filing...........

Certain small partnerships (with 10 or fewer partners) meet this reasonable cause test if:
  1. All partners are individuals (other than nonresident aliens), estates, or C Corporations,
  2. All partners have timely filed income tax returns fully reporting their shares of the partnership's income, deductions, and credits,
So, if you have ten or fewer members, if you have supplied each member with his/her share of all partnership income and expense items, and if you are sure that each partner will report this information on their individual return, you won't be assessed any penalty. However, if any of these conditions do not exist, you could be hit with large penalties, way out of proportion to the amounts of income involved. For instance, a 20 person partnership that hasn't filed for 3 years would incur a penalty of $15,000.

To me, the choice is obvious. FILE!!!. You have to go to all the work of computing each member's allocable share of income in either event.

Rip West
Ridgway, CO