What is an investment partnership?

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A partnership is classified as an investment partnership if at least 90 percent of its assets are investments in stocks, bonds, options, and similar intangible assets, and at least 90 percent of its income is derived from that kind of asset.

Note: For tax years ending on or after December 31, 2023, 90 percent of an investment partnership’s income may also include the distributive share of partnership income from lower-tier partnership interests that meet the definition of qualifying investment securities. See IITA Section 1501(a)(11.5) for more information.

For tax years ending on or after December 31, 2004 – Investment partnerships are not subject to Illinois replacement tax.

For tax years ending on or after December 31, 2023 – Investment partnerships are required to withhold an amount from each applicable nonresident partner. Investment partnerships withholding for nonresident partners must file Form IL-1065 to report the withholding amount. See IITA Section 709.5(d) and the Form IL-1065 instructions for more information.

Note: Form IL-1000-E, Certificate of Exemption for Pass-through Withholding, does not exempt an investment partnership from investment partnership withholding.

If the investment partnership has no applicable nonresident members, it is not subject to the withholding requirement, and is not required to file Form IL-1065. An investment partnership may elect to pay PTE tax in which case it must file the Form IL-1065. Note: When filing Form IL-1065, partnerships can avoid delays in processing their partners' returns by submitting a completed Schedule B.

Note: Electing to pay PTE tax does not exempt an investment partnership from withholding for its nonresident partners. Investment partnerships electing to pay PTE tax must calculate investment partnership withholding for each of its applicable nonresident partners prior to calculating the PTE tax.

For tax years ending prior to December 31, 2023, and on or after December 31, 2004 - An investment partnership is not subject to replacement tax, and a nonresident partner is not subject to Illinois tax on the income passed through from the investment partnership, unless the partner’s investment in the partnership was made in connection with a business the partner is conducting at least partially within Illinois. If you qualify as an investment partnership, you are not required to file Form IL-1065, even if you are required to file a federal tax return (federal Form 1065, U.S. Return of Partnership Income). However, if you are an investment partnership who elects to pay PTE tax, then you must file the Form IL-1065. Note: When filing Form IL-1065, partnerships can avoid delays in processing their partners' returns by submitting a completed Schedule B.

For tax years ending prior to December 31, 2004 - Investment partnerships and their partners are subject to the same rules as other partnerships and partners. See IITA Section 1501(a)(11.5) and 86 Ill. Adm. Code Section 100.9730 for more information.

For more information about partnerships, see our Partnership webpage.

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