Partnerships report income and loss on IRS Form 1065. Each partner is responsible for reporting his share of the income or loss on his personal federal income tax return, whether the income is distributed or not. Form 1065 or Schedule K shows the partnership as a whole, whereas Schedule K-1 shows the individual partner’s separate shares and income or loss.
TL;DR (Too Long; Didn't Read)
The IRS can impose a $200 fine for each month or section of a month that a tax return is late. Penalties will also be levied in situations where individuals do not file a tax return, even if this decision is influenced by their failure to receive Schedule K-1 prior to filing.
Penalties for Delays
The Internal Revenue Service requires filing a partnership tax return or Form 1065 by the 15th of the fourth month after the end of the tax year shown at the top of the form. No tax is due with the Form 1065 or Schedule K, but the IRS imposes a penalty of $200 for each partner for each month or part of a month that the tax return is late. This penalty continues for up to five months, so it's a good idea to file on time if at all possible.
Individual Tax Return Penalties
If you fail to file your federal income tax return as a result of failure to receive Schedule K-1, you incur additional penalties. Failure to file penalties is 5 percent, and the IRS charges an additional 0.5 to 1 percent for failure to pay any taxes owed. These penalties apply for each month or part of a month the tax return is late, up to 25 percent for each penalty. Penalties have a code number; 01 is the code for filing and paying late. Partnership late filing is 32, and a missing Schedule K-1 is 33. Look for a code number if you receive a tax penalty.
Interest on Unpaid Tax
If you fail to pay your taxes on income from a partnership, you may have to pay interest on the amount unpaid. The interest rate is 5 percent beginning April 1, 2018. Interest can change by the quarter based on federal interest rate changes, and will be regularly updated on the IRS website if you need to look up current or historical rates.
Reporting Your Income
Avoid IRS penalties and interest. Report your income shown on Schedule K-1 on Schedule E, Part II. Line 27 allows carryover of any loss from a prior year that exceeds the adjusted basis of that year. Report passive income or non-passive income from Schedule K-1. The IRS requires details of losses reported on Form 8582 for passive income or Form 4562 for non-passive loss. Place the total in Line 41 of Schedule E and Line 17 of Form 1040, your Federal Individual Income Tax Return.