In short
A partnership must generally use the tax year of its partners who together own more than 50% of its profits and capital. If there is no such majority, it uses the tax year of all its principal partners (5% or more), and otherwise the year that gives the least aggregate deferral.
Key takeaways
- A different year is allowed with a business purpose, such as a natural business year.
- A section 444 election allows a different year with limited deferral and required payments.
- The rules stop partners from deferring income by choosing a year ending soon after theirs.
Where it's tested
REG: Partnership Taxation — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A partner has an outside basis of $20,000, which includes a $12,000 share of partnership liabilities. The partnership repays all of its debt. What is the tax consequence to the partner?