What State to Declare Partnership Residency

[curio1]

Hi! I am looking to create an online partnership with the IRS in order to submit Form 1065 next year - my partner and I are both residents of Texas, but are currently traveling abroad and will not likely be back in Texas in the near future. 

When creating the partnership, would it be alright to use my previous house's address to receive the 'no state income tax' benefit from Texas (that is owned by a friend)? Alternatively, I could use my parent's home address which will be the mailing address, however, we wouldn't receive the tax benefits. Thanks!

[Anonymous_ · Accepted solution]

General partnerships are treated as pass-through entities for federal income tax purposes. As a result, it makes little difference to the IRS as to which state the partnership is located (or "headquartered"); general partnerships are not taxed at the (entity) partnership level.

Some states require partnerships (even general partnerships) to be registered with the state and virtually all states require registration if the partnership will use an assumed name (aka a DBA). 

Regardless, you might want to consult with local legal counsel if a formal partnership agreement is to be drafted.

[rjs]

As I said in my reply to your other question, it seems to me that you should not be forming a partnership at all. But if you do, keep in mind that if the IRS needs to get in touch with you for any reason they are going to mail a notice to the address on your most recently filed tax return. Make sure that you will be able to quickly access and respond to any notices. There is usually a limited amount of time to respond.

Also, forming a partnership in another state will probably not only require you to file a partnership tax return in that state every year, as long as the partnership exists, but also require both of you to file individual income tax returns in that state every year.

If you do form a partnership, have the partnership agreement drafted by a lawyer in the state where the partnership is located. You need a written partnership agreement.

[curio1]

That's good to know, thanks! It sounds like it'll probably be easier to just create a partnership where I'll have the easiest access to mail, if the location doesn't impact taxes - I'll definitely be contacting legal counsel just to make sure I don't do anything incorrectly. Thanks for your help!