Form IL-1065 is the Partnership Replacement Tax Return for businesses operating as partnerships in Illinois. This form is used to report the income, deductions, and tax liability of partnerships, including limited partnerships, limited liability partnerships (LLPs), and limited liability companies (LLCs) taxed as partnerships. The IL-1065 must be filed annually by partnerships doing business in Illinois to report both their income and the replacement tax they owe to the state. This tax return is for partnerships that operate in Illinois for tax years ending between December 31, 2024, and December 31, 2025. The form also includes sections for reporting various business activities, deductions, apportionment of income, and credits available to partnerships.
How to File Form IL-1065
- Prepare Your Financial Documents: Gather all necessary records of income, expenses, deductions, and credits for your partnership.
- Complete the Form IL-1065: Use the figures from your financial records to complete the form.
- Attach Required Schedules: Depending on your business activities, you may need to attach additional schedules such as Schedule M (for business deductions), Schedule 80/20 (for related-party expenses), or Schedule 1299-A (for investment credits).
- File the Form: Submit the completed form by the due date of your return, which is typically the 15th day of the third month after the end of your fiscal year.
How to Complete Form IL-1065
Step 1: Identify Your Partnership
- A: Business Name
- Enter the complete legal name of your partnership as it appears on official documents. If there has been a name change, check the box provided.
- B: Mailing Address
- Enter the partnership’s mailing address, including the street address, city, state, and ZIP code.
- C: First or Final Return
- Check the appropriate box if this is your first return or a final return. If this is a final return, enter the date of termination of the partnership.
- D: Date Sold and New Owner’s FEIN
- If the partnership was sold, provide the date of sale and the FEIN of the new owner.
- E: Apportionment Formulas
- Check the applicable box(es) based on your business type (e.g., financial organizations, transportation companies, sales companies, etc.).
- F: Investment or Publicly-Traded Partnership
- Check the box if your partnership is classified as an investment partnership or publicly-traded partnership.
- G: IRC §761 Election
- Check this box if your partnership has made an election under IRC Section 761 to exclude certain partnerships from tax treatment.
- H: 52/53 Week Filer
- If your partnership uses a 52/53 week accounting period, check this box.
- I: Pass-through Entity (PTE) Tax
- If your partnership elects to file and pay the Pass-through Entity Tax, check this box.
- J: Annualized Income and Form IL-2220
- If you are annualizing your income on Form IL-2220, check this box and enter the amount being paid.
- K: Federal Employer Identification Number (FEIN)
- Enter the FEIN of your partnership.
- L: Unitary Business Group
- Check the box if your partnership is a member of a unitary business group and attach Schedule UB.
- M: NAICS Code
- Enter the partnership’s NAICS code, which identifies the type of business activity.
- N: Accounting Records Location
- Enter the city, state, and ZIP code where your partnership’s accounting records are kept.
- O: Business Income Election
- If you are electing to treat all nonbusiness income as business income, check this box.
- P: Federal Forms Attached
- Check the box and attach relevant federal forms such as Form 8886 or Schedule M-3 if applicable.
- Q: Form IL-4562
- Check this box if you are attaching Form IL-4562 (for depreciation).
- R: Schedule M (for Businesses)
- Check this box if you are attaching Illinois Schedule M.
- S: Schedule 80/20
- Check this box if you are attaching Schedule 80/20.
- T: Schedule 1299-A
- Check this box if you are attaching Schedule 1299-A for credits.
- U: Public Law 86-272 Protection
- Check this box if your business activity is protected under Public Law 86-272 (concerning state tax exemptions for out-of-state businesses).
- V: Subgroup Schedule
- Check this box if you are attaching a Subgroup Schedule.
Step 2: Figure Your Ordinary Income or Loss
- Line 1: Ordinary income or loss, or equivalent from federal Schedule K
- Enter the ordinary income or loss amount from federal Schedule K.
- Line 2: Net income or loss from all rental real estate activities
- Enter net income or loss from rental real estate activities.
- Line 3: Net income or loss from other rental activities
- Enter net income or loss from other rental activities.
- Line 4: Portfolio income or loss
- Report income or loss from portfolio activities like interest, dividends, or capital gains.
- Line 5: Net IRC Section 1231 gain or loss
- Report any net gain or loss from IRC Section 1231 property, typically relating to business property used for over a year.
- Line 6: All other items of income or loss that were not included in the computation of income or loss on Page 1 of federal Form 1065
- Report other income or loss that doesn’t fall under the categories above.
- Line 7: Add Lines 1 through 6
- This is your total ordinary income or loss.
Step 3: Figure Your Unmodified Base Income or Loss
- Line 8: Charitable contributions
- Enter charitable contributions made by the partnership.
- Line 9: Expense deduction under IRC Section 179
- Report the deduction for property expenses under IRC Section 179.
- Line 10: Interest on investment indebtedness
- Report interest expenses on investment indebtedness.
- Line 11: All other items of expense that were not deducted in the computation of ordinary income or loss on Page 1 of federal Form 1065
- Enter any other expenses not already included in the ordinary income/loss.
- Line 12: Add Lines 8 through 11
- Total these expenses.
- Line 13: Subtract Line 12 from Line 7
- This is your unmodified base income or loss.
Step 4: Figure Your Income or Loss
- Line 14: Enter your unmodified base income or loss from Line 13
- Carry the unmodified base income or loss from Step 3, Line 13.
- Line 15: State, municipal, and other interest income excluded from Line 14
- Enter interest income from state, municipal, or other tax-exempt sources.
- Line 16: Illinois taxes deducted in arriving at Line 14
- Enter any Illinois state taxes deducted in calculating the unmodified base income.
- Line 17: Illinois Special Depreciation addition
- If applicable, include the Illinois Special Depreciation (attach Form IL-4562).
- Line 18: Related-party expenses addition
- Report any related-party expenses (attach Schedule 80/20).
- Line 19: Distributive share of additions
- Report additions to income from partners, using Schedule(s) K-1-P or K-1-T.
- Line 20: Guaranteed payments to partners from federal Form 1065
- Report guaranteed payments made to partners, as shown on federal Form 1065.
- Line 21: The amount of loss distributable to a partner subject to replacement tax
- Report any loss distributable to a partner that is subject to replacement tax (attach Schedule B).
- Line 22: Other additions
- Include other income additions not already listed (attach Schedule M for businesses).
- Line 23: Add Lines 14 through 22
- This gives you your total income or loss after additions.
Step 5: Figure Your Base Income or Loss
- Line 24: Interest income from U.S. Treasury or other exempt federal obligations
- Enter interest income from federal obligations, which is exempt from Illinois tax.
- Line 25: August 1, 1969, valuation limitation amount
- Report the valuation limitation amount based on Schedule F if applicable.
- Line 26: Personal service income or reasonable allowance for compensation of partners
- Include income related to personal services or compensation for partners.
- Line 27: Share of income distributable to a partner subject to replacement tax
- Include income from a partner who is subject to replacement tax (attach Schedule B).
- Line 28: River Edge Redevelopment Zone Dividend subtraction
- Enter any dividend subtraction from the River Edge Redevelopment Zone (attach Schedule 1299-A).
- Line 29: High Impact Business Dividend subtraction
- Enter any High Impact Business Dividend subtraction (attach Schedule 1299-A).
- Line 30: Illinois Special Depreciation subtraction
- Report the subtraction for Illinois Special Depreciation (attach Form IL-4562).
- Line 31: Related-Party Expenses subtraction
- Report subtractions for related-party expenses (attach Schedule 80/20).
- Line 32: Distributive share of subtractions
- Include subtractions for distributive share of income from partners (attach Schedule(s) K-1-P or K-1-T).
- Line 33: Other subtractions
- Include other subtractions not already listed (attach Schedule M for businesses).
- Line 34: Total subtractions
- Add Lines 24 through 33 for your total subtractions.
- Line 35: Base income or loss
- Subtract Line 34 from Line 23 to arrive at your base income or loss.
Step 6: Figure Your Income Allocable to Illinois
- Line 36: Nonbusiness income or loss
- Report any nonbusiness income or loss from Schedule NB.
- Line 37: Business income or loss included in Line 35 from non-unitary partnerships
- Report business income or loss from non-unitary partnerships, trusts, or S corporations.
- Line 38: Add Lines 36 and 37
- This gives the total of business and nonbusiness income.
- Line 39: Business income or loss
- Subtract Line 38 from Line 35 to determine business income or loss.
- Line 40: Total sales everywhere
- Report total sales made by your partnership, both inside and outside Illinois.
- Line 41: Total sales inside Illinois
- Report the total sales made within Illinois.
- Line 42: Apportionment factor
- Calculate the apportionment factor by dividing Line 41 by Line 40. Round to six decimal places.
- Line 43: Business income or loss apportionable to Illinois
- Multiply Line 39 by Line 42 to determine the income or loss apportioned to Illinois.
- Line 44: Nonbusiness income or loss allocable to Illinois
- Report nonbusiness income or loss allocable to Illinois (attach Schedule NB).
- Line 45: Business income or loss apportionable to Illinois from non-unitary partnerships
- Report income or loss from non-unitary partnerships that is apportionable to Illinois.
- Line 46: Base income or loss allocable to Illinois
- Add Lines 43, 44, and 45 to arrive at the base income or loss allocable to Illinois.
Step 7: Figure Your Net Income
- Line 47: Base income or net loss from Step 5, Line 35, or Step 6, Line 46
- Carry over the base income or net loss from Step 5 or Step 6.
- Line 48: Illinois net loss deduction
- If applicable, apply the Illinois net loss deduction. If Line 47 is zero or negative, enter zero.
- Line 49: Income after NLD
- Subtract Line 48 from Line 47 to determine income after the net loss deduction.
- Line 50: Enter the amount from Step 5, Line 35
- Carry over the amount from Step 5, Line 35.
- Line 51: Divide Line 47 by Line 50
- This figure cannot be greater than one. Round to six decimal places.
- Line 52: Exemption allowance
- Enter the exemption allowance if applicable.
- Line 53: Net income
- Subtract Line 52 from Line 49 to determine your net income.
Step 8: Figure Your Net Replacement Tax
- Line 54: Replacement tax
- Multiply Line 53 by 1.5% (.015) to calculate the replacement tax.
- Line 55: Recapture of investment credits
- Enter any recapture of investment credits (attach Schedule 4255).
- Line 56: Replacement tax before investment credits
- Add Lines 54 and 55 for total replacement tax before investment credits.
- Line 57: Investment credits
- Enter any applicable investment credits (attach Form IL-477).
- Line 58: Net replacement tax
- Subtract Line 57 from Line 56. If negative, enter zero.
Step 9: Figure the Taxes, Withholding, and Penalty You Owe
- Line 59: Withholding
- Report withholding on behalf of partners (attach Schedule B).
- Line 60: Pass-through entity income
- Report income from the pass-through entity.
- Line 61: Pass-through entity tax
- Report any pass-through entity tax due.
- Line 62: Total net replacement tax, withholding, and pass-through entity tax you owe
- Add Lines 58, 59, and 61 for total taxes owed.
- Line 63: Underpayment of estimated tax penalty
- If applicable, enter any penalty from Form IL-2220.
- Line 64: Total taxes, withholding, entity tax, and penalty
- Add Lines 62 and 63.
Step 10: Figure Your Refund or Balance Due
- Line 65: Payments
- Report any previous overpayments or total payments made.
- Line 66: Total payments
- Add Lines 65a through 65d for total payments.
- Line 67: Overpayment
- If Line 66 is greater than Line 64, subtract Line 64 from Line 66.
- Line 68: Amount to be credited forward
- If applicable, report the amount to be credited forward to next year.
- Line 69: Refund
- Subtract Line 68 from Line 67 to determine the refund.
- Line 70: Complete to direct deposit your refund
- Provide your bank routing and account number for direct deposit.
- Line 71: Tax Due
- If Line 64 is greater than Line 66, subtract Line 66 from Line 64 to determine the amount due.