Do Husband and Wife LLCs Have to File Form 1065? Tax Filing Rules Explained
A frequent question from married business owners is whether their LLC must file Form 1065. The answer, as most times in tax law and planning, it depends.
The result differs depending on whether the spouses operate:
- A jointly conducted unincorporated trade or business not held through a state law entity,
- A state law LLC, and
- Whether they reside in a community property state.
General Rule Under the Internal Revenue Code
IRC § 7701(a)(2) defines a partnership as an unincorporated organization through which a business is carried on that is not classified as a corporation. Under IRC § 701, partners, not the partnership, are subject to income tax. However, IRC § 6031(a) requires every partnership to file an annual information return on Form 1065 unless an exception applies.
Under Treas. Reg. § 301.7701-3(b)(1)(i), a domestic eligible entity with two or more members defaults to partnership classification unless it elects corporate treatment. Accordingly, a husband and wife LLC formed under state law is treated as a two member entity for federal tax purposes unless a specific federal rule applies.
Qualified Joint Venture Election — IRC § 761(f)
IRC § 761(f) provides a statutory exception known as the Qualified Joint Venture election. If:
- The only owners are spouses filing a joint return
- Both spouses materially participate in the trade or business
- The business is not treated as a corporation
- The spouses elect Qualified Joint Venture treatment
Then the business is not treated as a partnership for federal tax purposes. Instead, each spouse reports his or her respective share of income, gain, loss, deduction, and credit on separate Schedules C or F, as applicable. No Form 1065 is required.
However, IRS guidance provides that this statutory election applies to jointly owned trades or businesses not conducted through a state law entity. The IRS position is that a business conducted through a state law LLC is not eligible for Qualified Joint Venture treatment.
Community Property Exception — Revenue Procedure 2002-69
Revenue Procedure 2002-69 provides administrative relief for certain husband and wife entities in community property states. If a business entity is wholly owned by a husband and wife as community property and is not treated as a corporation under federal tax law, the IRS will respect either of the following treatments:
- Partnership treatment with Form 1065 filed
- Disregarded entity treatment treated as a sole proprietorship for federal tax purposes
Under disregarded entity treatment, the activity is reported directly on the spouses’ joint Form 1040, for example on Schedule C, F, or E, as applicable.
This relief applies only in community property jurisdictions and is administrative guidance rather than a statutory exception.
As clarified in Revenue Ruling 2004-77, federal tax classification is determined under IRC § 7701 and the corresponding Treasury Regulations, not by state law labels. An entity cannot be treated as a partnership if, for federal tax purposes, it is considered to have only one owner, for example because one purported owner is disregarded.
Separate Property States vs Community Property States
Separate Property States
- A husband and wife LLC is generally treated as a two member entity.
- It defaults to partnership classification under the check the box regulations.
- Form 1065 is required unless corporate status is elected.
- The Qualified Joint Venture election generally does not apply to a state law LLC.
Community Property States
- If ownership qualifies as community property, Revenue Procedure 2002-69 provides flexibility.
- The spouses may file Form 1065 and treat the entity as a partnership.
- Alternatively, they may treat the LLC as a disregarded entity for federal tax purposes.
In practice, Revenue Procedure 2002-69 provides the principal path for a spouse owned state law LLC in a community property state to avoid filing Form 1065 without electing corporate treatment, because the Qualified Joint Venture election generally applies only to jointly owned businesses not operated through a state law entity.
Practical Filing Guide
| Situation | Form 1065 Required? |
|---|---|
| Jointly operated unincorporated trade or business with Qualified Joint Venture election | No |
| LLC in separate property state | Yes |
| LLC in community property state that qualifies under Revenue Procedure 2002-69 | Optional |
| LLC elects corporate status | No. Corporate return required. |
Final Takeaway
The default federal rule is straightforward. A domestic LLC with two members is classified as a partnership and must file Form 1065 unless it elects corporate treatment or qualifies for an exception.
The only statutory exception specifically for spouses is the Qualified Joint Venture rule under IRC § 761(f), which generally does not apply to businesses conducted through a state law LLC under current IRS guidance.
Community property states receive administrative flexibility under Revenue Procedure 2002-69. Separate property states generally do not.
Proper classification planning at formation can prevent unnecessary filings, penalties, and compliance complexity.
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