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Lev, Tax Advisor
Category: Tax
Satisfied Customers: 29577
Experience:  Taxes, Immigration, Labor Relations
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If a partnership income tax return (1065 return) is filed

Customer Question

If a partnership income tax return (1065 return) is filed with the IRS. Is a Texas franchise tax return also required to be filed?
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.

Hi and welcome to our site!

The TX franchise tax does not apply to general partnerships directly and solely owned by natural persons (except the tax does apply to all limited liability partnerships).

Expert:  Lev replied 1 year ago.

See here

TTC(###) ###-####b)(2).

A general partnership directly and entirely owned by natural persons is not a taxable entity.

In this case - no need to file the Texas franchise tax return.

Customer: replied 1 year ago.
If a partnership files form 1065 with the IRS, can the same partnership be filed as a subchapter S with the state of Texas?
Expert:  Lev replied 1 year ago.

TX follows federal laws and regulations.
If the entity elected to be classified as S-corporation for federal tax purposes - it will be treated as such for state tax purposes.

There is NO separate S-corporation election on the state level.

Customer: replied 1 year ago.
The reason I'm asking is that I do some bookkeeping for an individual, and some one else files the tax returns. The tax preparer files a 1065 with the Fed and a franchise tax return with the state of Texas. I don't understand the rational for this filing process. I thought that if a partnership tax return was filed with the IRS, then a the franchise tax return did not have to be filed with the state of Texas. Am I missing something?
Expert:  Lev replied 1 year ago.

You are correct with assumptions that
- it is a general partnership - not a limited partnership.

- only natural persons are partners - not corporations, trusts. or other partnerships,etc.

If any of these not true - the partnership is subject to the Texas franchise tax.