1. a. 

   No tax is levied on the partnership itself.

2. b. 

   Earnings (or losses) determined and reported to IRS on Form 1065 (informational return).

1. a. 

   Each partner given a copy of schedule K-1, which is a recapitulation of income (or losses) allotted to them.

2. b. 

   Their share of NESE should be shown on Schedule SE of their individual Form 1040.

Although a penalty can be imposed by IRS for failure to file the partnership return, it will not be imposed if the failure is due to “reasonable cause”, i.e. a small partnership of a type that has not historically filed a partnership return (family farm partnership, family owned retail store partnership). Each member generally files a Schedule C (or F) setting out detailed statement of their share of partnership income and expenses. Thus SEI is accurately reported.

Sometimes a husband/wife who are partners will file a joint return. A consolidated Schedule C (or F) is filed; however, there is no way to divide net income shown on the schedule, so only one schedule SE is filed. This will cause incorrect reporting as all SEI will be credited to the record of the taxpayer whose name and SSN are shown on the Schedule SE (usually the husband). These situations cannot be identified except by the partners themselves.