Essay on Taxation in the United States and Partnership

Submitted By gilbertpc
Words: 2180
Pages: 9
Open Document
Checkpoint | Document

4/14/15, 7:37 PM

Checkpoint Contents
Federal Library
Federal Editorial Materials
WG&L Federal Treatises
Partnership & Limited Liability Entity Taxation
McKee, Nelson & Whitmire: Federal Taxation of Partnerships and Partners
Part I General Concepts
Chapter 1: An Overview of Subchapter K
¶1.02. The Aggregate and Entity Concepts

¶ 1.02 The Aggregate and Entity Concepts
Subchapter K represents a blending of two views as to the nature of partnerships. The first view is that a partnership is simply an aggregation of individuals, each of whom should be treated as the owner of a direct undivided interest in partnership assets and operations. This is sometimes referred to as the “aggregate” or “conduit” view of partnerships. The second view is that a partnership is a separate entity, with a tax existence apart from the partners. Under this view, a partner has no direct interest in partnership assets or operations, but only an interest in the partnership entity separate and apart from its assets and operations.

¶ 1.02[1] The Aggregate Concept
If a pure aggregate approach to the taxation of partners and partnerships were applied,
Subchapter K would be largely unnecessary. Each partner would be directly taxable on a share of partnership income and would be viewed as owning a direct interest in each partnership asset. Contributions to or distributions from partnerships would be disregarded unless they changed the proportionate interests of the partners in particular properties, in which case such transfers would trigger exchanges (taxable, in the absence of an applicable nonrecognition provision such as § 1031) among the partners.
The sale of a partnership interest would be treated as the sale of undivided interests in partnership assets, with the amount realized by the seller fragmented, asset-by-asset,

35

and

the buyer entitled to a cost basis for his interest in each partnership asset. Computation of a

https://checkpoint.riag.com/app/view/toolItem?usid=38d123n137a2c&feature=ttoc&lastCpReqId=1759048

Page 1 of 6

Checkpoint | Document

4/14/15, 7:37 PM

partner's basis in his partnership interest and determination of the character of the interest would be irrelevant because the partnership interest would not be treated as an asset separate from the partner's interest in the underlying assets of the partnership.

¶ 1.02[2] The Entity Concept
An entirely different scheme of taxation results if partnerships are considered entities separate from the partners. Viewed in these terms, the partnership itself, rather than its partners, would be subject to tax on partnership income, much as a corporation is taxed under Subchapter
C.

36

Contributions to and distributions from the partnership entity would generally be taxable

events, in the absence of a specific nonrecognition provision,

37

and transfers of partnership

interests would generally be taxed without regard to the character or basis of the entity's assets.

¶ 1.02[3] Blending of the Entity and Aggregate
Concepts
When Subchapter K was codified in 1954, it blended entity and aggregate policies, but it leaned more heavily on the entity view for normative rules and provided aggregate rules as taxpayeroptional alternatives. Over the years, this entity bias has been eroded by numerous targeted changes in the Code's provisions. The mixture of aggregate and entity concepts in Subchapter K may be summarized as follows:
1. The aggregate concept predominates in connection with the taxation of partnership income to the partners and the general nonrecognition provisions for contributions to and distributions from partnerships. (Even in these matters, however, the drafters incorporated certain entity notions, particularly in connection with the computation of partnership taxable income, 38

the adoption of a separate taxable year for the partnership,

treatment of certain transactions between partners and partnerships.

40

39

and the

)

2. The entity approach,
Show More

Related Documents: Essay on Taxation in the United States and Partnership

LIT1 Task 1 Essay

are several state and federal filings for the location of a corporation. Convenience/Burden- With a corporation funding and financing can come easily by selling stock or credit. A corporation also has a long life span. A downfall is that it is very complicated to run a corporation and there are a lot more expenses involved. Also has a double taxation. S-Corporation: This is similar to a C-corporation in profit and liability. The differences are that there is no dual taxation but they must…

Words 1775 - Pages 8

Essay on When Anyone Is Interested In Launching Their Own Unique Business

key decisions that are detrimental to the success of it. As each business is unique to each owner or owners that oversee it we need to identify the important factors of creating the business. The main areas that need to be focused on are liability, taxation, succession, retaining and sharing profits, expansion and convenience or burden. For any owner or owners to be successful in their business they need to be educated on each of the business organization types and requirements that will benefit the…

Words 3420 - Pages 14

Entrepreneurs: Corporation and Business Essay

business in the state where they conduct their business. If you live and work in New Hampshire, for example, you would incorporate your business in New Hampshire. If your business conducts business throughout the United States, you need to incorporate in the state where your headquarters will be. If you have a substantial business presence in another state, you may need to let that state know and file state tax returns or sales tax returns based on your business earnings in that other state. Businesses…

Words 736 - Pages 3

Chapter 20 in Bagley & Savage Subject: Corporate Governance, Ownership, and Control: Forms of Business Organizations (E.G. Sole Proprietorship/Limited Partnership/Llc/Etc....) Ernie Jameson Is a Design Engineer with a Essay

Jameson's Company chapter 20 in Bagley & Savage subject: Corporate Governance, Ownership, and Control: Forms of business organizations (e.g. sole proprietorship/limited partnership/llc/etc....) Ernie Jameson is a design engineer with a proven track record in the field of electronic instruments. He recently designed new VLSI very large scale integrated chip. This chip is meant to be the heart and soul of a digital sampling keyboard to b called Echo. Jameson believes the Echo will set a…

Words 1290 - Pages 6

Business Organization Form Choice Memo Essay

vendor, or venue choose to sue her. Id. at 55. One further disadvantage of a sole proprietorship is the heavy tax burden Ms. P would find herself saddled with. “An individual who operates a trade or business as a sole proprietor, and even some partnership arrangements, must pay self-employment tax on net earnings from self-employment.” Timothy M. Todd, Multiple-Entity Planning to Reduce Self-Employment Taxes: Recent Cases Demonstrate the Pitfalls and How to Avoid Them, 13 Journal of Tax and Practice…

Words 3192 - Pages 13

Lit: 1.310.6 Essay

it must be registered as a business. When selling products within one State, the operate under the state's UCC (Uniform Commercial Code), but if the goods were being sold across State lines, they would then operate under the Federal UCC. Sole Proprietorships can do business with all sorts of companies, such as franchises, partnerships, and corporations. Limited and General Partnerships: Within a partnerships, two or more individuals agree to share the money, skills, and efforts and…

Words 1265 - Pages 6

Expanding Your Business Into Foreign Markets

IRS regulations states that U.S. citizen or resident alien must report income from all sources within and outside of the U.S. However, depending on the organizational structure there are applicable tax laws relevant to that organization. Therefore, key tools of tax analysis are essential in the establishing a foreign organization abroad. Selection should be made to evaluate taxation of any Foreign Business Relationship, such as Foreign Parent Corporation or joint venture partnership. Consequently…

Words 1600 - Pages 7

Business Task 3 Task 1

documents for the registration of the company. General Partnership This type of organization is formed when two or more individuals create a partnership in order to share the profits and losses of their venture. Characteristics Liability: As opposed to the sole liability in the sole proprietorship, in a general partnership, each partner is held jointly liable for any obligations or debts that the organization may incur. Income Taxes: Same taxation as a sole proprietorship, since the income is divvied…

Words 2362 - Pages 10

Business organization Essay

type of business it should be. It is also important to understand that each state and local community could have specific laws and regulations and that should be taken into account when making the business structure decision. Although the basic building blocks for any business remain the same, along with their advantages and disadvantages. The three types of business structures are sole proprietorships, partnerships, and corporations. Each of these business types has unique distinctions within…

Words 977 - Pages 4

Political System Of Minolina

Systems State and Local Political Processes Minnesota's Constitution and systems Minnesota’s Governmental components The most common correlations made with the state of Minnesota are its lakes and the Mall of America. Minnesota is a bicameral system with three branches of government consisting of an executive, legislative, and judicial branch. These three departments create a strong partnership for an effective system that maintains checks and balances system for the impressive state of Minnesota…

Words 1040 - Pages 5