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On August 21, 2026, the Internal Revenue Service (“IRS”) released a redacted third-party communication (the “Communication”) addressing whether an initially filed Form 1065, U.S. Return of Partnership Income (the “Return”), was valid and therefore commenced the statutory limitations period for assessment. Although the Return identified the partnership’s owners, it reported zeros for all income and related items. The IRS concluded that the Return “would most likely be considered invalid under application of the Beard test.”

The Tax Court adopted the Beard test in Beard v. Commissioner, 82 T.C. 766 (1984), aff’d, 793 F.2d 139 (6th Cir. 1986). Under that test, a document purporting to be a return is treated as a valid return—and begins the statutory assessment period—if:

• It contains sufficient data to calculate the tax liability;
• It purports to be a tax return;
• It represents an honest and reasonable attempt to satisfy the requirements of the tax law; and
• The taxpayer executed it under penalties of perjury.

The IRS concluded that the Return failed the first Beard requirement because it lacked sufficient data to calculate the tax liability. The Communication cited numerous Tax Court decisions holding that a return reporting only zeros is invalid, even when filed on an official IRS form. See Wells v. Commissioner of Internal Revenue, T.C. Memo. 2018-188. In Wells, the court reaffirmed that a zero return is invalid when it does not provide enough information for the Commissioner to calculate and assess a tax liability. The Communication nevertheless recognized that a zero return may be valid when the reported amounts accurately reflect the taxpayer’s activity. Citing YA Global Investments v. Comm’r, 161 T.C. 173, 264 (2023), it explained that a zero return may commence the limitations period if it describes the entity’s activities and explains why the entity believes it has no taxable income.

The Communication is significant for CPAs, EAs, and other preparers filing Form 1065 for a newly formed or inactive partnership, or for a partnership reporting no taxable income. If the IRS does not treat a filing as a valid return, the three-year assessment limitations period does not begin for that tax year. Accordingly, taxpayers and their representatives should include information supporting the accuracy of a zero return in light of the partnership’s activities. Relevant information may include:

• The date the partnership was formed;
• The date the partnership ceased operations;
• A statement that the partnership did not commence or conduct business operations during the taxable year; and
• The legal basis for its position that it had no taxable income.

If you or your client intends to file a return reporting no tax due or all zeros, take the steps necessary to ensure that the filing commences the limitations period for the applicable tax year. This is particularly important when asserting that no additional tax is due on separate returns reporting withholding tax for the partnership’s international partners.