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Partnership Tax Year. By: Rocco Losch. Partnership Tax Year. Reasons For Restrictions Sec. 706 Restrictions Reg. Sec. 1.706-1 Changing Tax Year Conclusion. Reasons For Restrictions. Who are partners? Individuals Trusts Estates Corporations Income Recognition Deferral.

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Partnership Tax Year

By: Rocco Losch


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Partnership Tax Year

  • Reasons For Restrictions

  • Sec. 706 Restrictions

  • Reg. Sec. 1.706-1

  • Changing Tax Year

  • Conclusion


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Reasons For Restrictions

  • Who are partners?

    • Individuals

    • Trusts

    • Estates

    • Corporations

  • Income Recognition Deferral


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Sec. 706 Restrictions

  • Elect Tax Year of 1 or More Majority Partners

    • Those with partnership interests exceeding 50%.

    • Only if common tax year for <3 years of partnerships existence.

  • Elect Tax year of All Principle Partners

    • Those with partnership interests exceeding 5%.

  • Elect Reg. Sec. 1.706-1

  • Elect Tax Year for Business Purpose


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Reg. Sec. 1.706-1

  • Elect the Tax Year of Least Aggregate Deferral

    • e.g. Stooge Partnership

    • Moe 40% 12/31, Larry 20% 11/30, Curly 40% 6/30


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Changing Tax Year

  • To change a partnership tax year, the partnership must file form 1128 with the Commissioner of Internal Revenue on or before the last day of the month following the close of the year to be adopted.(Sec. 1.706-1)

  • Sec. 444

    • Cannot increase the period of deferral


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Conclusion

  • Purposes of Restrictions

    • To eliminate income deferral schemes

    • Provide structure for tax year elections


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