Arizona Form 165 is the Arizona Partnership Income Tax Return, the document every partnership doing business in Arizona files with the Arizona Department of Revenue to adjust its federal income to an Arizona basis and report each partner’s share. A partnership does not pay income tax itself, so this return is mostly informational, but a wrong entry on it flows straight onto every partner’s personal Arizona return.
This guide walks through the 2025 Form 165 line by line, using the version revised for the 2025 tax year. The Department processes hundreds of thousands of pass-through returns each year, and the single most common error is a mismatched federal-to-Arizona adjustment on line 6 that triggers partner-level notices months later.
Here is what you will learn:
- 📋 What Form 165 is, who must file it, and the exact statute and deadline that govern it
- 🗂️ Every document and number you must gather before you open the form
- ✍️ A line-by-line walkthrough of page 1, Schedules A, B, C, and the K-1 attachments
- 👥 Three full filled-out examples, including a multistate partnership and a PTE election
- 🚫 The mistakes that get returns rejected and the penalties that follow late filing
What the Form Is and Who Must File It
Arizona Form 165 is the return a partnership uses to report its income to Arizona and to compute the adjustments that move each partner from a federal number to an Arizona number. The form is required under Arizona Revised Statutes Title 43, which governs income taxation in the state. The partnership itself owes no income tax on ordinary partnership income, so the return acts as a bridge: it tells Arizona how the entity’s income breaks down and how much of it belongs to Arizona.
Every domestic partnership must file Form 165 if it has any income from Arizona sources. This includes syndicates, groups, pools, joint ventures, and any foreign partnership doing business in Arizona, as confirmed in the partnership filing rules. A multi-member LLC that the IRS treats as a partnership files Form 165 too, because Arizona follows the federal entity classification.
The form connects several players. The partnership files the return, the Arizona Department of Revenue receives it, Title 43 requires it, and the partners ultimately carry the results onto their own Form 140, 140PY, or 140NR returns. Miss the filing, and the consequence is not entity-level tax but a late-filing penalty plus confusion on every partner’s personal return.
A common misconception is that a partnership with a federal Form 1065 but “no Arizona tax due” does not need to file. That belief is false and costly. If the partnership has Arizona-source income, it must file Form 165 even though the entity pays no income tax, and skipping it can still generate a penalty.
Before You Start: Documents and Information You Need
Gather everything below before you open the form, because Arizona cross-references most of these figures against your federal return and partner records. Missing one item is the difference between a clean filing and a return that sits in suspense.
- Completed federal Form 1065. A full copy must be attached to Form 165, and Arizona starts every calculation from federal partnership income; without it the return is incomplete and will be rejected.
- Federal Schedules K-1 for every partner. You need each partner’s distributive share to build the Arizona K-1s; a missing K-1 means a partner gets no adjustment and may misreport.
- The partnership’s Arizona transaction privilege or withholding account numbers. These confirm identity; a wrong number can route your return to the wrong account.
- Employer Identification Number (EIN). Arizona matches the EIN to IRS records, and a typo here freezes processing.
- Each partner’s full legal name, address, SSN or EIN, and residency status. Residency drives whether a partner gets a resident K-1 or a nonresident K-1(NR).
- Apportionment data (sales, payroll, property by state). Multistate partnerships need this for Schedule C; without it you cannot compute the Arizona share.
- Arizona addition and subtraction detail. You need the specific items for Schedules A and B, such as state tax credits and bonus depreciation differences.
- Prior-year Form 165, if any. It helps you carry forward depreciation differences and confirm consistent partner information.
If any item is missing, stop and find it. A partnership that guesses at apportionment numbers, for example, almost always lands on a Department adjustment letter that takes months to resolve.
Where to Get the Form and How to Access It
You download Form 165 free from the Arizona Department of Revenue. The official 2025 form and its matching instructions both live on the agency site, and the revision year is printed in the top corner so you can confirm you have the current version. Always pull the form for the tax year you are reporting, not the calendar year you are filing in.
The form package has several parts. Page 1 is the main return, Schedule A lists additions, Schedule B lists subtractions, Schedule C handles apportionment for multistate partnerships, and the separate 165 Schedule K-1 and 165 Schedule K-1(NR) report each partner’s share. Resident partners use the K-1 and nonresident partners use the K-1(NR).
Most filers either e-file through approved tax software or mail a paper return. The Department accepts both, and e-file is faster and cuts math errors. Download every schedule you might need before you start so you are not hunting for a page mid-return.
A misconception is that an old form “works fine” if the numbers look the same. It does not. Using a prior-year form can place figures on retired line numbers, and the Department will treat the entries as misreported.
Step-by-Step: How to Fill Out Arizona Form 165 Line by Line
This is the heart of the return. Work top to bottom, finish the federal return first, then complete the schedules before you total page 1. Numbers flow upward from the schedules into the main form, so doing them out of order causes errors.
Taxpayer Identification Block (Name, Address, EIN)
This top block asks for the partnership’s legal name, mailing address, and Employer Identification Number exactly as they appear on the federal Form 1065.
Enter the name in all capital letters, the EIN with no dashes in the boxes provided, and the address as a standard street or P.O. Box line. For example, DESERT BLOOM LANDSCAPING LLC, EIN 861234567, at 1450 W BASELINE RD, TEMPE AZ 85283.
If the partnership uses a P.O. Box for mail but operates at a street address, use the P.O. Box here since this is the mailing block. The most common mistake is entering a name that does not match IRS records, which causes the Department to hold the return until it can match the EIN. A frequent misconception is that the trade name can be used; you must use the legal entity name on file with the IRS.
Filing Period and Boxes (Calendar Year, Fiscal Year, Amended)
This area asks what tax year the return covers and whether it is an amended, final, or short-period return.
Check the calendar-year box for a standard January through December year, or enter the fiscal-year dates in MM/DD/YYYY format. Mark Amended if you are correcting a prior Form 165, as explained in the amended return guidance.
If the partnership formed or dissolved mid-year, this becomes a short-period return and the due date shifts to the 15th day of the third month after the short period ends. The common error is leaving every box blank, which makes the Department default to a calendar year that may not match your records. Many filers wrongly believe checking “amended” alone fixes a prior return; you must also attach corrected schedules and K-1s.
Line 1 – Partnership Income (Loss) From Federal Form 1065
Line 1 asks for the partnership’s total income or loss as reported on the federal return.
Pull the figure from your completed federal Form 1065 and enter it here, using a negative sign for a loss. For example, Desert Bloom reports federal partnership income of 185,000 and writes 185,000 on line 1.
If the partnership has a federal loss, enter it as a negative number rather than leaving the line blank. The most common mistake is transposing the federal number or pulling it from the wrong line of the 1065, which throws off every downstream total. A misconception is that you re-add individual income items here; line 1 is one consolidated federal figure, not a sum you rebuild.
Schedule A – Additions to Partnership Income
Schedule A asks for income items Arizona taxes that the federal return did not, or deductions Arizona disallows.
List each addition on its lettered line, such as additions related to Arizona tax credits and the federal bonus depreciation difference, then total them. For example, a partnership that claimed an Arizona credit must add back the related federal expense, entering 4,200 on the credit-addition line per the Schedule A additions rules.
A frequent edge case is bonus depreciation: Arizona historically did not fully follow federal bonus depreciation, so the difference shows up as an addition. The common mistake is forgetting the credit add-back, which understates Arizona income and triggers a correction notice. People wrongly assume Schedule A only applies to large partnerships; even a small entity with one state credit must complete it.
Schedule B – Subtractions From Partnership Income
Schedule B asks for items Arizona does not tax that the federal return included, or extra deductions Arizona allows.
Enter each subtraction on its line and total them. A typical entry is the Arizona depreciation adjustment that reverses a prior bonus-depreciation addition, or interest from U.S. government obligations. For example, Desert Bloom subtracts 1,500 of U.S. Treasury interest.
The edge case to watch is recapture of a prior-year addition: when Arizona depreciation later exceeds federal, you subtract the catch-up here. The common mistake is double-counting a subtraction you already took in a prior year, which understates income and can trigger an audit. A misconception is that any federal deduction can be repeated here; only Arizona-specific subtractions belong on Schedule B.
Line 6 – Net Adjustment of Partnership Income
Line 6 asks for the net result of your additions and subtractions, the single most important number on the return.
Combine the Schedule A total and the Schedule B total to reach the net adjustment, then enter it on line 6. For example, with 4,200 in additions and 1,500 in subtractions, Desert Bloom enters a net adjustment of 2,700.
The critical nuance is that a resident partner’s Arizona Schedule K-1 is produced only when there is a net adjustment on line 6, as confirmed by Drake’s AZ K-1 guidance; if line 6 is zero, resident partners get no K-1. The common mistake is computing line 6 wrong and then issuing K-1s with the wrong adjustment, which makes every partner misreport. A widespread misconception is that line 6 is the partnership’s tax; it is an adjustment figure, not a tax owed.
Schedule C – Apportionment Formula (Multistate Partnerships)
Schedule C asks multistate partnerships to compute the share of income that belongs to Arizona using sales, payroll, and property factors.
Enter Arizona and everywhere figures for each factor, then apply either the standard formula or the sales-factor-only method, carrying the result as directed in the apportionment schedule. For example, a partnership with 600,000 Arizona sales out of 2,000,000 total sales lands on a 30% sales factor.
The nuance is method choice: Arizona allows an enhanced or sales-factor-only election that can lower the Arizona share for sales-heavy businesses. The common mistake is mixing Arizona-only data into the “total everywhere” column, which inflates the apportionment ratio and over-reports Arizona income. A misconception is that a single-state Arizona partnership must complete Schedule C; if all income is Arizona income, you skip it.
Lines 26–29 – Payments and Pass-Through Entity (PTE) Tax
This section asks about any tax paid at the entity level, which applies when the partnership makes the Pass-Through Entity election.
If the partnership elects PTE, the tax is calculated on page 2, Part II, and you report estimated payments on line 27, enter 0 on line 28, and total on line 29 per the 2025 line instructions. For example, an electing partnership that paid 9,000 in PTE estimates enters 9,000 on line 27.
The PTE election lets a partnership pay Arizona tax at the entity level so partners can claim a credit on Form 355, which then flows to Form 301 and the personal return. The election must be made by the original or extended due date and is irrevocable for that year, as the PTET election rules explain. The common mistake is missing the election deadline; the misconception is that PTE is automatic, when it must be affirmatively chosen each year.
Schedule K-1 and K-1(NR) – Partner Share Statements
These attached schedules report each partner’s share of the Arizona adjustment, one K-1 per partner.
Resident and part-year partners receive the 165 Schedule K-1, while nonresident individuals, trusts, estates, and corporate partners receive the 165 Schedule K-1(NR). On the resident K-1, line 3 is the partner’s share of the net adjustment, and the partner carries a positive amount to Arizona Form 140, line 16, and a negative amount to line 27, per the K-1 instructions.
The nuance is that nonbusiness income gets special handling: for a nonresident with only nonbusiness income, you leave Part 1 of the K-1(NR) blank and complete Parts 2, 3, and 4, per Lacerte’s nonbusiness income guidance. The common mistake is issuing a resident K-1 when line 6 is zero, which confuses the partner. A misconception is that every partner always needs an Arizona K-1; resident partners only get one when an adjustment exists.
Signature Block
The signature block asks a general partner or authorized member to sign under penalty of perjury, and the paid preparer to sign if one was used.
A general partner or LLC member-manager signs and dates the return, and a paid preparer adds their name, PTIN, and firm. For example, Maria Delgado, managing member of Desert Bloom, signs and dates the return 03/10/2026.
If the return is e-filed, the signature is captured electronically through the software. The common mistake is filing an unsigned paper return, which the Department treats as not filed and which keeps the late-filing clock running. A misconception is that any partner can sign; it must be a general partner, member-manager, or authorized officer.
Three Filled-Out Examples Using Real Scenarios
Below are three common fact patterns, each following one partnership through the key lines of Form 165.
Scenario 1: Desert Bloom Landscaping LLC — small in-state partnership, all resident partners. This two-member Arizona LLC has only Arizona income and a small bonus-depreciation difference.
| Form Section | What Desert Bloom Enters |
|---|---|
| Name / EIN | DESERT BLOOM LANDSCAPING LLC / 861234567 |
| Filing period | Calendar year box checked |
| Line 1 federal income | 185,000 |
| Schedule A additions | 4,200 (credit add-back) |
| Schedule B subtractions | 1,500 (U.S. Treasury interest) |
| Line 6 net adjustment | 2,700 |
| Schedule C apportionment | Skipped (100% Arizona) |
| Resident K-1s issued | Two, each showing share of 2,700 |
| Signature | Maria Delgado, dated 03/10/2026 |
Scenario 2: Canyon Tech Partners — multistate partnership with resident and nonresident partners. This consulting partnership operates in Arizona, California, and Nevada and has one Arizona resident and one nonresident partner.
| Form Section | What Canyon Tech Enters |
|---|---|
| Name / EIN | CANYON TECH PARTNERS LP / 862223344 |
| Line 1 federal income | 900,000 |
| Schedule A additions | 0 |
| Schedule B subtractions | 0 |
| Line 6 net adjustment | 0 |
| Schedule C sales factor | 600,000 AZ / 2,000,000 total = 30% |
| Arizona apportioned income | 270,000 |
| Nonresident K-1(NR) issued | One, showing Arizona-source share |
| Resident K-1 issued | None (line 6 is zero) |
| Signature | David Nguyen, general partner |
Scenario 3: Saguaro Health Group — partnership making the PTE election. This medical group elects to pay Arizona tax at the entity level so its partners can claim the credit.
| Form Section | What Saguaro Health Enters |
|---|---|
| Name / EIN | SAGUARO HEALTH GROUP LLP / 864445566 |
| Line 1 federal income | 1,200,000 |
| PTE election | Made by original due date, irrevocable |
| PTE tax (page 2, Part II) | Calculated on Arizona income |
| Line 27 estimated payments | 9,000 |
| Line 28 | 0 |
| Line 29 total payments | 9,000 |
| K-1 Part VI PTE amount | Reported to each partner for Form 355 |
| Signature | Janet Osei, managing partner |
Across these three, notice that Desert Bloom issues resident K-1s because line 6 is non-zero, Canyon Tech issues only a nonresident K-1(NR) because its line 6 is zero, and Saguaro Health adds the PTE layer on top of the standard return.
How to File the Completed Form
Arizona accepts Form 165 two ways, and you should keep proof of filing no matter which you choose.
- E-file through approved software. File through the Department’s partnership e-file program using commercial tax software. There is no filing fee for the return itself, e-filed returns process in days rather than weeks, and you keep the electronic acknowledgment as proof of filing.
- Paper by mail. Mail the signed return with a complete copy of the federal Form 1065 attached to the Arizona Department of Revenue address printed in the form instructions. There is no fee, processing takes several weeks, and you should mail by certified mail and keep the receipt as proof.
If the partnership owes PTE tax, pay through AZTaxes.gov by electronic check or credit card, or include a check with a paper return. The due date is the 15th day of the third month after the tax year closes, which is March 15 for calendar-year partnerships, per the partnership due-date rules. For a six-month extension, file the Arizona extension Form 120/165EXT or rely on the federal extension, but remember an extension to file is not an extension to pay any PTE tax due.
What Happens After You File
After you file, the Department matches your EIN and federal income against IRS data and processes the partner K-1 information. If everything reconciles, the return simply posts and no notice is sent, since the partnership owes no income tax on ordinary income.
If a number does not match, the Department issues a notice asking for clarification or corrected schedules, and partner-level discrepancies can surface months later when partners file their own returns. A partner who receives an Arizona K-1 with a line 3 adjustment must carry it to their Form 140 or 140NR, and a mismatch there can generate a separate partner notice.
If you elected PTE, the entity-level payment posts to the partnership account, and each partner claims the matching credit on Form 355, which flows to Form 301 and onto the personal return. Keep your filing proof and a copy of every K-1, because the most common post-filing problem is a partner who cannot reconcile their Arizona number without the source K-1.
Mistakes to Avoid When Filling Out the Form
- Entering a partnership name that does not match IRS records, which causes the Department to hold the return.
- Leaving the EIN boxes with a typo, which freezes processing until the number matches.
- Skipping the attached federal Form 1065, which makes the return incomplete and rejectable.
- Miscomputing line 6, which sends the wrong adjustment to every partner’s K-1.
- Issuing resident K-1s when line 6 is zero, which confuses partners who have nothing to report.
- Mixing Arizona-only figures into the “everywhere” column on Schedule C, which over-reports Arizona income.
- Forgetting the credit add-back on Schedule A, which understates income and triggers a notice.
- Double-counting a Schedule B subtraction from a prior year, which can prompt an audit.
- Missing the PTE election deadline, which permanently bars the entity-level credit for that year.
- Filing an unsigned paper return, which the Department treats as never filed.
- Using a prior-year form, which places entries on retired line numbers and misreports data.
- Confusing the K-1 and K-1(NR), which gives nonresident partners the wrong source-income figures.
Do’s and Don’ts
Do: – Finish the federal Form 1065 first, because every Arizona figure starts from it. – Complete the schedules before totaling page 1, since numbers flow upward into the main form. – Confirm each partner’s residency, because it decides which K-1 they receive. – Attach a full federal return copy, since Arizona requires it to process Form 165. – Keep proof of filing, because it protects you if a partner-level notice appears. – Make the PTE election by the deadline if you want it, because it is irrevocable and time-limited.
Don’t: – Don’t guess at apportionment numbers, because the Department will adjust them. – Don’t issue a resident K-1 with a zero adjustment, since it creates partner confusion. – Don’t use the trade name in the legal-name block, because it will not match IRS records. – Don’t leave the filing-period boxes blank, since the Department will default the year. – Don’t treat line 6 as a tax due, because it is an adjustment figure only. – Don’t assume an extension to file extends the PTE payment date, because it does not.
Pros and Cons of Filing on Your Own vs. With Help
| Filing Yourself | Filing With a Tax Pro |
|---|---|
| Saves preparer fees, which helps a small single-state partnership | Costs a fee, but the cost is small against penalty risk |
| Gives you direct control over every entry | Hands control to an expert who knows the schedules |
| Works well when line 6 is zero and there is no apportionment | Best when multistate apportionment is involved |
| Risky if you misjudge residency or the K-1 rules | Reduces the chance of issuing the wrong K-1 type |
| Forces you to learn the PTE election yourself | Ensures the PTE election and Form 355 credit line up |
A simple, all-resident, single-state partnership like Desert Bloom can file on its own with confidence. A multistate or PTE-electing partnership like Canyon Tech or Saguaro Health gains the most from professional help, because the apportionment and credit mechanics are where costly errors hide.
FAQs
Do I file Form 165 if my partnership owes no Arizona tax?
Yes. A partnership with Arizona-source income must file Form 165 even though the entity pays no income tax on ordinary partnership income, because the return reports each partner’s share.
Is Form 165 due on the same date as the federal return?
Yes. It is due the 15th day of the third month after the tax year ends, which is March 15 for calendar-year partnerships, matching the federal partnership deadline.
Do all partners get an Arizona Schedule K-1?
No. Resident partners receive a K-1 only when there is a net adjustment on line 6; if line 6 is zero, resident partners get no Arizona K-1.
Do I enter my federal income on line 1 as a single number?
Yes. Line 1 is the consolidated partnership income or loss from the federal Form 1065, not a sum you rebuild from individual income items.
Do I use the trade name or the legal name in the top block?
No to the trade name. Use the legal entity name on file with the IRS, in all capitals, so the Department can match it to the EIN.
Do nonresident partners get the same K-1 as residents?
No. Nonresident individuals, trusts, estates, and corporate partners receive the Schedule K-1(NR), while resident and part-year partners receive the standard 165 Schedule K-1.
Is line 6 the tax the partnership owes?
No. Line 6 is the net adjustment of partnership income from federal to Arizona basis, not a tax; the partnership pays no income tax on ordinary income.
Do I complete Schedule C if all my income is from Arizona?
No. A partnership with only Arizona-source income skips the apportionment formula on Schedule C and reports the full amount as Arizona income.
Do I have to attach my federal Form 1065?
Yes. A complete copy of the federal partnership return must accompany Form 165, because Arizona builds every figure from the federal numbers.
Is the PTE election automatic once I pay the tax?
No. The Pass-Through Entity election must be affirmatively made by the original or extended due date, and once made it is irrevocable for that tax year.
Do I enter a federal loss on line 1 or leave it blank?
Yes, enter it. Report a federal loss as a negative number on line 1 rather than leaving the line blank, so downstream totals compute correctly.
Does filing an extension also extend my PTE payment deadline?
No. An extension gives you more time to file the return, but any Pass-Through Entity tax due must still be paid by the original due date to avoid interest.
Do I need to sign a paper Form 165?
Yes. A general partner or member-manager must sign a paper return; an unsigned return is treated as never filed and keeps the late-filing clock running.
Do part-year residents use the K-1 or the K-1(NR)?
Yes, the resident K-1. Part-year residents use the standard 165 Schedule K-1, and they carry the allocable portion of any adjustment to Arizona Form 140PY.
Related reading
- How to Fill Out Arizona Form 120 (w/Examples) + FAQs
- How to Fill Out Arizona Form 140 (w/Examples) + FAQs
- How to Fill Out Arizona Form 140NR (w/Examples) + FAQs
- How to Fill Out Arizona Form 140PY (w/Examples) + FAQs
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