102. What are “syndication costs” and how are they treated for tax purposes? Syndication costs are costs incurred in bringing an investment partnership to market. These costs include brokerage commissions and fees; registration fees; legal and accounting fees for developing the offering document; and printing and distribution costs for the prospectus, placement memoranda, and related documents.Under § 709, syndication costs cannot be deducted and no amortization is permitted. Upon termination of the partnership, the partners’ basis will theoretically still include those costs, so the partner might have a lower gain or a greater loss at that time. (See Chapter 11 for treatment of liquidating distributions and limitations on when aloss can be recognized.)103. Harry and Sally are considering forming a partnership. Both taxpayers use the calendar year and are cash basis taxpayers. The partnership will not be a tax shelter. The partners are uncertain as to whether the partnership should use the cash or accrual method of accounting. Also, the idea of a tax deferral in the first year of operations has led them to consider using a June 30 fiscal year-end for the partnership.As their tax adviser, identify the issues that must be considered in selecting an accounting method and tax year for the partnership. Because neither partner is a Subchapter C corporation and the partnership is not a tax shelter, the partnership may select any accounting method: cash, accrual, or a hybrid of the two methods.If the partnership uses the accrual method of accounting in determining its income, the partners will be taxed onpartnership revenues from all “closed” transactions. In this regard, it does not matter whether cash has been received by the partnership and whether or not the partners use the accrual method on their individual tax returns. Thus, if the partnership adopts the accrual method for tax purposes, the partners may be faced with reporting and paying taxes on partnership income long before cash is available for distribution.