Question

Respond to the following in a minimum of 175 words: What is the difference between the aggregate and entity theory of partnership taxation? Provide two examples of how partnership tax rules reflect the aggregate theory and two examples of how they reflect the entity theory.

Answer 1

SOLUTION:-

Aggregate Theroy:-

Aggregate theory of partnership is a theoy which states that a patnership does not have a separate legal existence such as a corporation. Under the aggregate theory of partnership, partnership is only the totality of the partners who make it up. According to this theory, each partner is treated as the owner of a direct and undividend interest in partnership assets, liabilities and operations and is not viewed as a taxpaying entity. Tax is actually paid at the partner level. Partners are treated as a group of individual sole proprietorship for the purpose of tax rules that provide separate elections or limitations, such as IRC section 108 cancellations, of debt (COD) income exclusions, itemized deductions, and tax preferences. All partners, under this theory, individually report their respective shares of income and deductions.

Entity approach:-

The entity approach to partnerships views the partnership as a separate and distinct entity against which tax liabilities can be assessed and to which each partner has a piece of ownership. With this approach, partnerships begain to feel a lot more like a corporation for tax purposes.While the theory of this approach is not so often used in the context of pertnership taxation, it is certainly not absent. For example, partnerships maintain some that each partnership has its own separate reporting period, separate calculation of basis in assets, and separate methods of accounting. Thus, even though the results of a partnerships operation ultimately are dividend and distributed to each partner, the aforementioned issues are addressed by the partnership itself and impact the results that are entered on the partnerships.

THANK YOU, if any queries please leave your valuable comment on comment box.............

If possible then rate the answer as well