Form 1065 and K-1: the LLC with members from Europe

To the IRS, an LLC with two or more members is a partnership. It pays no federal income tax itself, but it reports its profit on Form 1065, allocates it to the members on Schedule K-1 and withholds tax for its foreign members, even if it distributes nothing.

Two founders from Munich and Zurich, an LLC in Texas, a warehouse in Houston: to the IRS, that is a partnership. The company pays no federal income tax; its profit is taxed at the level of the members. Even so, it has more obligations than some corporations. Every year it files a return that assesses no tax but contains every number. It reports each member's share to that member. And it withholds tax for its members from Europe, as if it were their employer.

This guide looks at Form 1065 from the perspective of an LLC whose members live wholly or partly in Europe: when the obligation arises, what goes into the return, how Section 1446 withholding works and what the members file themselves. It is part of our guide to the tax obligations of your US company.

1When your LLC is a partnership

Under the Treasury Regulations, an LLC formed under state law is classified as a partnership by default as soon as it has two or more members. With Form 8832 it can elect to be treated as a corporation instead; it then reports its profit on Form 1120, and Form 1065 no longer applies. Without that election, it has the same obligations as any other partnership.

The member count is what matters. If a second member buys into a single-member LLC, the disregarded entity becomes a partnership from that day on, with a new return and usually a new EIN. Conversely, a partnership that loses all but one member becomes a disregarded entity. The switch happens without any application and without notice from the IRS, purely through the change in membership.

The filing obligation starts early. A partnership must file Form 1065 unless it had neither income nor expenses during the year that count as a deduction or credit for tax purposes. A first year with nothing but formation costs is enough. Our guide to the LLC tax return compares how an LLC files depending on its structure.

2Deadline, extension and e-filing

Form 1065 is due on the 15th day of the third month after the end of the tax year. For most LLCs the tax year is the calendar year, so the deadline is March 15. If that day falls on a weekend or holiday, the next business day applies; for 2025 that was March 16, 2026. By filing Form 7004 before the original deadline, the partnership extends its filing date.

With members from Europe, the extension often makes sense, because their own returns build on the partnership's numbers and their accounts at home follow different deadlines. But it only postpones the filing of Form 1065. The Section 1446 installments are not affected.

Since 2024, a partnership must e-file if it files ten or more returns of any kind during the year, including information, payroll and excise tax returns. With more than 100 partners, e-filing is always mandatory. A small LLC without employees may still file on paper, but e-filing is the usual route. The table shows all forms and their deadlines.

3What goes into the return: Form 1065, K-1, K-2 and K-3

Form 1065 itself is the partnership's profit calculation: revenue, cost of goods sold, operating expenses, the result from the business. Every partnership also completes Schedule K, the total of all items allocated to the members, broken down by type: business income, rental income, interest, capital gains. The IRS requires every line to be completed; writing "see attached" instead of a number can count as an incomplete return.

Schedule K-1 breaks Schedule K down for each individual member. One copy goes to the IRS with the return, one to the member. For a member from Europe, the K-1 is the most important document of the year: it shows what profit they must report in the US, and their accountant at home needs it for the return in their country of residence.

If the partnership has items of international relevance, Schedules K-2 and K-3 are added; exactly when is set out in separate IRS instructions for these two schedules. Certain partnerships qualify for an exception, the Domestic Filing Exception; anyone using it must notify the members before filing Form 1065. Form 1065 asks explicitly in Schedule B whether the company had foreign members, and a yes leads straight to the next obligation: withholding.

4When the members live in Europe

The law contains a short rule with a big impact. Under Section 875, a nonresident alien or foreign corporation is treated as engaged in a US trade or business if the partnership it holds an interest in conducts a business there. So you don't have to work in the US yourself. It's enough that the LLC does.

As a result, your share of the profit is effectively connected income, and you report it in the US yourself. As an individual without US residence, you file Form 1040-NR; without US wages subject to withholding, it is due by June 15 of the following year. If your company at home is a member, it files Form 1120-F as a foreign corporation. In both returns, the tax the LLC withheld for you is credited.

One misconception is stubborn: that US social security taxes apply to a European member's share of the profit. Under US law, nonresident aliens are not subject to self-employment tax unless a social security agreement assigns them to the US system. Income tax on the profit share is unaffected. Whether and how your country of residence also taxes that share is decided under its own law and the tax treaty.

5Section 1446 withholding: 37 or 21 percent, with or without distributions

So that the IRS doesn't have to collect foreign members' tax through their own returns, Section 1446 requires the partnership to withhold it in advance. The base is the effectively connected taxable income allocable to the foreign members under the partnership agreement. The rate is the highest tax rate for each group: 37 percent for individuals, 21 percent for corporations. If a member can claim a lower rate on certain income, the partnership may in some cases take it into account.

The key point is what doesn't count: distributions. The Form 1065 instructions say so explicitly: withholding applies regardless of distributions. An LLC that keeps all its profit for the next warehouse must still pay tax to the IRS for its European members, out of its own cash. If you don't plan for that, you'll face a cash gap on April 15.

Payment is made in four installments with Form 8813, on the 15th day of the fourth, sixth, ninth and twelfth months of the tax year, so for a calendar year on April 15, June 15, September 15 and December 15. The partnership calculates the installments under the rules for corporate estimated tax payments. After year end, it settles up with Form 8804 and issues a Form 8805 for each foreign member. Both are due on the 15th day of the third month, or for partnerships that keep their books outside the US, on the 15th day of the sixth month, and they go to the IRS separately from Form 1065.

For each foreign member, the partnership must provide a US taxpayer number so the IRS credits the withholding correctly: an SSN or ITIN for individuals, an EIN for entities. The member attaches their Form 8805 to their own return and claims credit for the withholding. If more was withheld than the tax owed, the IRS refunds the difference on assessment.

6Partnership Representative and audits

Partnerships are subject to their own centralized audit procedure, the Centralized Partnership Audit Regime. For this procedure, every partnership must designate a Partnership Representative on its Form 1065. The representative has sole authority to act for the partnership before the IRS, and their decisions bind the company and all its members.

This is the requirement that trips up members based in Europe: the Partnership Representative must have a substantial presence in the US (the statutory term is "substantial presence"). If the representative is an entity, it also needs a natural person as Designated Individual who has that same presence. So an LLC whose members all live in Europe needs someone in the US it can trust with this role. The designation is made anew each year on Form 1065, and it can be revoked with Form 8979.

Smaller partnerships can opt out of this regime, each year again, with a timely filed return and Schedule B-2. This is available with no more than 100 eligible partners: individuals, C corporations, S corporations, estates of deceased partners, and foreign entities that would be treated as C corporations if they were domestic. A foreign corporation as a member therefore does not rule out the election. It is ruled out if any partner is itself a partnership, a trust or a disregarded entity.

7Penalties

The penalty for a late Form 1065 is one of the few in US tax law that is not tied to any tax, because the partnership owes none. For returns covering 2025, it is $255 for each month or part of a month the return is late, up to twelve months, multiplied by the number of people who were partners during the year. The same penalty applies to a return that is missing required information. An LLC with three members that files six months late therefore owes eighteen monthly amounts.

On top of that comes the penalty for every Schedule K-1 that reaches a partner late, not at all, or with incorrect information. Form 8805 is subject to the information return penalties separately, and a partnership that mistakenly treats a foreign partner as domestic and therefore withholds nothing is itself liable for the tax, plus penalties and interest.

For late-filing penalties, the law offers a way out: reasonable cause. The IRS points out that the partnership should send its explanation only once it has received a penalty notice, not attach it to the return. How to read and respond to such a notice is covered in the guide to letters from the IRS.

8The states

Form 1065 is the federal return. The states have their own rules. Florida requires an LLC treated as a partnership to file its own information return as soon as one of its members is a corporation, and the corporation itself files a corporate income tax return there. Texas expressly levies its franchise tax on partnerships too, if they are formed in Texas or do business there. Delaware follows the LLC's federal classification for its own taxes and charges every Delaware LLC the annual tax; more on this in the guide to the Delaware franchise tax.

In short

• A US LLC with two or more members is a partnership by default and files Form 1065 every year with one Schedule K-1 per member, by March 15 for calendar-year LLCs.
• If it runs a business in the US, every foreign member is treated as doing business there and files their own return: Form 1040-NR as an individual, Form 1120-F as a corporation.
• The LLC withholds 37 percent (individuals) or 21 percent (corporations) on the foreign members' US profit, regardless of distributions, in four installments with Form 8813, reconciled with Forms 8804 and 8805.
• The partnership needs a Partnership Representative with a substantial presence in the US, unless it opts out of the centralized audit regime.
• A late Form 1065 costs $255 per month per member.

How we help you

• LLC and LP Tax ReturnForm 1065 and K-1 for your LLC or LP.
• Apply for an EINYour company's US tax ID, applied for by us.
• Withholding taxW-8 forms, withholding and treaty benefits, done right.
• Your US Tax ReturnForm 1040 or 1040-NR, handled in English.
• US Tax ConsultationYour US tax question, answered by people who know both sides.
• Form a Limited PartnershipThe US LP for structures with a general partner and limited partners.