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Unit 3 - Determining the Required Tax Year

Unit 3 - Determining the Required Tax Year - Determining...

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Determining the Required Partnership Tax Year
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Partnership Taxable Years Partnership Partner 6/30 12/31 6 months deferral Partner includes his distributive share of partnership income on the last day of the partnership's taxable year.
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“Required Taxable Year” Methods of determining tax year go in an order of priority: 1. Majority Interest Taxable Year IRC 2. Principal Partners Tax Year 3. Least Aggregate Deferral Method 4. Business Purpose
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1. Majority Interest Taxable Year IRC § 706(b)(4)(A) If partners who own more than a 50% interest in the partnership’s capital and profits have the same taxable year, the partnership must use that taxable year.
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Example of Majority Interest Taxable Year Partner Ownership Partner’s Tax Year A 5% Dec 31 B 5% Dec 31 C 25% June 30 D 20% Dec 31 E 30% June 30 F 10% Dec 31 G 5% Dec 31 What is the majority interest tax year?
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Example of Majority Interest Taxable Year Partner Ownership Partner’s Tax Year A 5% Dec 31 B 5% Dec 31 C 25% June 30 D 20% Dec 31 E 30% June 30 F 10% Dec 31 G 5% Dec 31 C = 25% E = 30% 55% June 30
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2. Principal Partners Tax Year
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