Question

3. The partnership has four partners A 2% partner, individual calendar year. B 51% partner, corporation, 6/30 fiscal year. C 30% partner, corporation, 6/30 fiscal; D 17% corporation, 6/30 fiscal. What taxable years may the partnership use under the following alternative situations?
(a) What taxable year(s) may the partnership use?
(b) Suppose C and D use the 4/30 fiscal year instead.
(c) Suppose A is 22%, B is 31%, and C and D use the 4/30 fiscal year.

Answer 1

(a) The partnership may use 6/30 fiscal as the tax year

Explanation: B, C and D, having the same tax year, own a majority interest of 98% (more than 50%) in partnership.

(b) The partnership may use 6/30 fiscal as the tax year.

Explanation: B still owns a majority interest of 51% (more than 50%) in partnership. So partnership must use tax year of that partner.

(c) The partnership may use 4/30 fiscal as the tax year.

Explanation:The partnership must use a tax year that results in the least aggregate deferral of income to the partners. The deferral of income of partners is calculated as follows:

Year	Year	Profits	Months	Interest
End	End	Interest	of	×
12/31			Deferral	Deferral
A	12/31	0.22	0	0
B	6/30	0.31	6	1.86
C	4/30	0.30	4	1.2
D	4/30	0.17	4	0.68
Total Deferral				3.74
Year	Year	Profits	Months	Interest
End	End	Interest	of	×
6/30			Deferral	Deferral
A	12/31	0.22	6	1.32
B	6/30	0.31	0	0
C	4/30	0.30	10	3
D	4/30	0.17	10	1.7
Total Deferral				6.02
Year	Year	Profits	Months	Interest
End	End	Interest	of	×
4/30			Deferral	Deferral
A	12/31	0.22	8	1.76
B	6/30	0.31	2	0.62
C	4/30	0.30	0	0
D	4/30	0.17	0	0
Total Deferral				2.38