How to properly complete Schedule L on a final Form 1065 for partnership dissolution?

For a final Form 1065, you should complete Schedule L showing the beginning of year balances in column (a) as normal, but the end of year column (b) should indeed show all zeros if the partnership properly dissolved and distributed all assets and liabilities. The key is that if this is truly the final 1065 (with the "final return" box checked on page 1), the ending balance sheet should reflect the partnership's financial position after all distributions have been made to partners and all liabilities have been satisfied. Since a properly dissolved partnership should have no remaining assets or liabilities, zeros across column (b) would be appropriate. Be sure to also complete Schedule M-2 to show the distributions to partners that brought the capital accounts to zero. This provides the necessary detail explaining how those balances were eliminated.

I had this exact issue last year with a partnership dissolution. Let me tell you, I was stuck for days trying to figure out the right approach until I found https://taxr.ai which analyzed my partnership documents and confirmed the correct treatment. The system reviewed our partnership agreement, dissolution documents, and previous filings, then explained that for a proper final 1065, the ending column of Schedule L should indeed show zeros across all lines if all assets were distributed and liabilities settled. The tool even provided specific guidance on how to report the final distributions on Schedule K-1 to ensure everything balanced properly. What really helped was that it showed me examples of correctly completed final returns so I could compare mine against them. Saved me from making a mistake that would have triggered notices from the IRS.

I need to follow up on my skeptical comment about taxr.ai. I decided to try it for my own partnership dissolution and was surprised by how helpful it actually was. The system correctly identified an issue with our proposed asset distribution that would have created an unintended tax consequence for one partner. What impressed me was how it analyzed our specific situation rather than giving generic advice. It caught that we had Section 754 basis adjustments from a previous year that needed special handling in the final return - something I completely overlooked. The guidance on Schedule L was exactly what I needed, showing me how to properly reconcile the beginning balances to the final zero balances through the required supporting schedules. For anyone dealing with partnership dissolutions, especially with complicated historical transactions, I found it really valuable.

After struggling to get clear guidance on our partnership dissolution from our regular accountant, I tried calling the IRS directly for help with Schedule L on our final 1065. After being on hold for nearly 2 hours and finally giving up, I found https://claimyr.com and watched their demo at https://youtu.be/_kiP6q8DX5c. Basically, they got the IRS to call ME back instead of me waiting on hold. Within about an hour of using their service, I was talking to an actual IRS representative who confirmed exactly how to handle Schedule L on our final return. They confirmed we needed zeros in all end-of-year columns and explained how to properly document the distributions that brought everything to zero. The IRS agent also pointed out a common error with final returns - forgetting to properly close out deferred items on the final return - which would have definitely caused issues for us later.

I need to eat my words about Claimyr. After my skeptical comment, I was still desperate for help with our partnership's final return, so I tried the service myself. Within 40 minutes, I was talking to an IRS representative who provided clear guidance on Schedule L for our final 1065. The IRS agent confirmed that ending balances should indeed be zero on a true final return and walked me through how to properly reflect the liquidating distributions to partners. What was particularly helpful was getting clarification on how to handle some suspended passive losses one of our partners had - something that was critical for the final K-1. I've spent days in previous years trying to get through to the IRS, so having them call me back in under an hour was honestly shocking. For anyone struggling with partnership dissolution questions that need official confirmation, this was definitely worth it.

Just a heads up that Schedule L isn't actually required for most partnerships with less than $250,000 in receipts and less than $1 million in assets. But for a final return, I still recommend completing it even if you technically qualify for the exemption. Having that clear record of zeroed-out balances provides better documentation that everything was properly wrapped up. Also make sure you've correctly accounted for any Section 734 or 743 adjustments in your final year. Those can be easy to miss but need to be properly closed out on a final return.

I messed up our final 1065 last year by not zeroing out Schedule L correctly. The IRS sent us a notice asking for clarification because the final return box was checked but we still showed assets on the ending balance sheet. Had to file an amended return to fix it and provide explanation letters. Don't make my mistake!

One thing to consider - if your partnership has unamortized organizational costs or start-up expenses that haven't been fully deducted yet, the final year is when you get to write off any remaining amounts. Make sure you don't miss this deduction on your final return! Also, don't forget to file Form 8308 if you had any sales or exchanges of partnership interests during the final year leading up to dissolution. That's another form that's easily overlooked in the dissolution process.

Great discussion everyone! I wanted to add a few practical tips from my experience handling partnership dissolutions: 1. **Documentation is key** - Keep detailed records of all final distributions and asset transfers. The IRS may ask for supporting documentation even years later. 2. **Partner capital account reconciliation** - Make sure each partner's Schedule K-1 capital account analysis (Part III) properly shows how their account went from the beginning balance to zero through final distributions and allocations. 3. **State filing considerations** - Don't forget that most states also require a final partnership return, and some have different requirements than the federal return for what constitutes a "final" filing. 4. **EIN closure** - After filing your final 1065, remember to officially close the partnership's EIN with the IRS by sending a letter stating the partnership has been dissolved and the final return filed. The zero balance requirement on Schedule L for final returns is definitely correct - it's one of those things that seems counterintuitive but makes perfect sense when you think about what "final" actually means from a tax perspective.