Partnership and LLC tax treatment definition

Partnerships and LLCs are treated as pass-through entities rather than tax-paying entities.

Income, deductions, gains, losses and tax credits pass through to their owners. The owners report these amounts on their individual returns.

While these are not tax-paying entities, they are tax-filing entities, and must file an information return IRS Form 1065 to report the total pass-through amounts. The entity also completes Schedule K-1 of Form 1065 for the IRS and each owner indicating their allocable shares of partnership/LLC amounts.