For Australian businesses and investors holding stakes in US partnerships, that tracing exercise rarely stays simple. Ownership often runs through disregarded entities, estates, or family members, so the partner roster filed with the return won't necessarily reveal every owner the IRS wants disclosed.
This guide covers Schedule B-1 for 2025 Form 1065 returns being filed during the 2026 season, while flagging where the 2026 form is still in draft. Always confirm the current IRS instructions before you file, since form revisions and question numbering can shift between years.
Key Takeaways
- Schedule B-1 becomes relevant once Schedule B’s ownership questions, currently 2a and 2b, are answered "Yes."
- Apply the 50% test separately to profit, loss, and capital; the highest year-end figure drives reporting.
- List entities in Part I and individuals or estates in Part II; trace disregarded entities to the real tax owner.
- File it with Form 1065 and reconcile it to ownership records and related international filings.
What Is Schedule B-1 and How Does It Relate to Form 1065?
Schedule B-1's official title is "Information on Partners Owning 50% or More of the Partnership." It exists so the IRS can identify entities, individuals, and estates that own, directly or indirectly, 50% or more of a partnership's profit, loss, or capital, according to the Schedule B-1 form itself.
The trigger sits on Schedule B, "Other Information," which is part of Form 1065. A "Yes" answer to the relevant ownership question sends you to Part I or Part II of Schedule B-1 depending on who the qualifying owner is.
Schedule B-1 vs. Schedule K and K-1
Don't mix these up:
- Schedule B-1 discloses who controls the partnership through significant ownership stakes.
- Schedule K reports the partnership's total income, deductions, and credits at the entity level.
- Schedule K-1 reports each partner's individual share of those same items.
Not the Same as Schedule B on Form 1040
If your Australian accountant also handles your personal US return, don't confuse this with Schedule B (Form 1040), which covers interest, ordinary dividends, and certain foreign-account or trust questions for individuals. The two forms share a letter but nothing else.
Who Must File Schedule B-1 and How Does the 50% Ownership Test Work?
Before applying the test, confirm the current question numbers on Schedule B for the year you're filing. Older guidance referencing 3a/3b applies to returns from 2009 through 2017; the finalised 2025 Schedule B uses questions 2a and 2b instead.
| Trigger question | Who qualifies | Schedule B-1 part |
|---|---|---|
| 2a | Corporations, partnerships, trusts, tax-exempt organisations, foreign governments | Part I |
| 2b | Individuals and estates | Part II |
Both questions ask about ownership of 50% or more, measured at year-end, directly or indirectly, in profit, loss, or capital. Exactly 50% counts, and an owner only needs to hit that threshold in one of the three categories, not all three.
Direct Ownership Comes First, Indirect Ownership Catches the Rest
Start with year-end ownership records, the partnership agreement, and capital accounts to establish each partner's direct percentage. Then trace indirect interests held through corporations, partnerships, trusts, or estates.
Here's a simplified version of the scenario the IRS itself uses: Corporation A owns 50% of Partnership B and 15% directly in Partnership C. Partnership B separately owns 70% of C.
That gives A an indirect 35% in C on top of its direct 15%, totalling 50%. Partnership C would then list both A and B in Part I, even though A's direct stake alone looked unremarkable.
Family Attribution Isn't Automatic
A common mistake is assuming every relative's ownership gets combined. It doesn't.
Attribution only applies when the IRS's specific ownership rules are met, generally involving a spouse, siblings, ancestors, or lineal descendants who hold a direct or qualifying indirect interest of their own. A family member with no interest at all isn't added just because of the relationship. Document the actual ownership path before including or excluding anyone.
Special Situations Worth Flagging
- Disregarded entities: Look through to the actual tax owner.
- Tiered partnerships: Trace ownership through each layer separately.
- Consolidated corporate groups: List the parent, not individual subsidiaries.
- Estates and tax-exempt owners: Confirm the identifying information each category requires.
- Ownership changes mid-year: Use the year-end percentage, not a mid-year peak.
A Practical Testing Sequence
- Gather the partner roster and year-end ownership percentages.
- Trace each direct and indirect ownership path, including upstream entities.
- Test profit, loss, and capital separately rather than averaging them.
- Identify every owner meeting the 50% threshold and document the workpapers.
How to Complete Schedule B-1: Part I, Part II, and Required Information
Start with the partnership's legal name and EIN at the top, matching Form 1065 exactly. Don't substitute an owner's details here by mistake.
Part I and Part II ask for slightly different information:
| Field | Part I (entities) | Part II (individuals/estates) |
|---|---|---|
| Name | Name of entity | Name of individual or estate |
| Identifying number | EIN, if any | SSN or EIN, if any |
| Classification | Corporation, partnership, trust, tax-exempt organisation, or foreign government | Not applicable |
| Country | Country of organisation | Country of citizenship (decedent's citizenship for an estate) |
| Ownership | Maximum percentage in profit, loss, or capital | Maximum percentage in profit, loss, or capital |
Apply the Disregarded-Entity Rule
List the underlying tax owner, never the disregarded entity itself. Route that owner to the correct part:
- Individual or estate: Part II
- Entity: Part I
Confirm the owner's identifying number, country, and maximum percentage before moving on. Duplicate or misplaced entries most often creep in at this step.
Step-by-Step Completion Workflow
- Answer the Schedule B ownership questions using your documented analysis.
- Separate qualifying entities from individuals and estates.
- Enter each owner once, in the correct part.
- Report the highest applicable profit, loss, or capital percentage, not an average.
- Attach Schedule B-1 to Form 1065 and retain your ownership workpapers.
A quick reconciliation example: if a partner holds 20% directly and an additional 35% indirectly through a related trust, you'd report 55% for that owner on Schedule B-1. This doesn't touch the partner's actual Schedule K-1 allocations, which stay based on the partnership agreement's distributive share arrangements.
2026 Updates, Filing Timing, Common Errors, and Final Review
The Schedule B-1 form and its embedded instructions remain the August 2019 revision. There's no new "2026 version" to chase down. The real change sits elsewhere on Schedule B. The finalised 2025 instructions updated question 19 to cover payments received that are allocable to foreign partners. That is a reporting change, not an ownership-threshold change.
A 2026 draft Form 1065 exists, but general instructions for it had not been finalised at the time of writing. Treat draft forms as planning references only, never as filing documents.
Filing Timing Follows Form 1065
Schedule B-1 doesn't have its own deadline. It attaches to and travels with the partnership return, according to the 2025 Form 1065 instructions. For calendar-year partnerships, the standard due date fell on 16 March 2026.
Partnerships needing more time generally file Form 7004 by that same due date, which provides a six-month extension under the Form 7004 instructions. An extension buys time to file, not time to pay.
Where Schedule B-1 Stops and Other Forms Begin
Schedule B-1 identifies owners. It doesn't replace separate obligations such as:
- Form 8865 for certain US-person interests in foreign partnerships
- Forms 8804, 8805, and 8813 for section 1446 withholding on foreign partners
- Schedules K-2 and K-3 for international tax items
- FBAR (FinCEN Form 114) for foreign financial accounts
An Australian owner's citizenship or country of organisation appearing on Schedule B-1 doesn't by itself confirm or rule out any of these separate filings. Each needs its own assessment.
Common Errors Worth Avoiding
- Testing only direct ownership and missing indirect interests entirely
- Treating the 50% test as requiring profit, loss, and capital to all cross the threshold
- Reporting an average or lowest percentage instead of the applicable maximum
- Listing a disregarded entity instead of its actual tax owner
- Placing an individual or estate in Part I, or an entity in Part II
- Leaving identifying numbers or country fields blank
- Duplicating an owner because data was entered in more than one place in the return software
Final Pre-Filing Checklist
- Confirm the current IRS form year and instructions before filing
- Reconcile the Schedule B answer to the attached Schedule B-1
- Verify the 50% analysis and maximum percentage for every listed owner
- Check names, EINs, SSNs, entity types, and country information
- Scan for duplicate owners and confirm related international forms separately
For Australian businesses and foreign investors with US partnership interests, ownership analysis gets complicated quickly, especially with tiered structures or disregarded entities.
VJM Global's tax professionals work with US tax rules and IRS forms daily. The firm's accounting and tax compliance work spans Australia, the US, the UK, and Europe, which helps when a Form 1065 ownership review must reflect both US filing requirements and how the structure sits from the Australian side.
Frequently Asked Questions
When do I need to file Schedule B-1?
Generally when the partnership answers "Yes" to the applicable ownership questions on Schedule B, currently 2a or 2b. Always check the current-year instructions, since question numbering has changed before.
Who must file Schedule B-1 for a partnership?
Any partnership filing Form 1065 where an entity, individual, or estate meets the 50% direct or indirect ownership threshold in profit, loss, or capital needs to attach Schedule B-1.
What must be reported on Schedule B-1?
Each qualifying owner's legal name, identifying number, entity classification (Part I only), country of organisation or citizenship, and maximum applicable ownership percentage, based on the current form instructions.
Who is required to file Form 1065 for a partnership?
Domestic partnerships generally file Form 1065 unless they neither receive income nor incur deductible expenses for the year. LLCs classified as partnerships follow the same rule. Confirm your entity's federal tax classification before assuming an exception applies.
What are the family attribution rules for Schedule B-1 partnership income?
Family attribution isn't automatic for every relative. It applies only when specific IRS ownership rules are met, typically involving a spouse, sibling, ancestor, or lineal descendant who holds their own qualifying interest. Document the relationship and ownership path carefully.
How is Schedule B-1 different from Schedule B (Form 1040)?
Schedule B-1 attaches to Form 1065 and discloses significant partnership owners. Schedule B (Form 1040) is a personal tax schedule covering interest, dividends, and certain foreign-account or trust questions for individuals.
