Fern, Inc. Ivy, Inc. and Jeremy formed a general partnership. Fern owns a 50% interest, and...

Fern, Inc. Ivy, Inc. and Jeremy formed a general partnership. Fern owns a 50% interest, and Ivy and Jeremy both own 25% interests. Fern, Inc. files its tax return on an October 31 year-end; Ivy, Inc. files with a May 31 year-end, and Jeremy is a calendar year taxpayer. Which of the following statements is true regarding the taxable year the partnership can choose?

Expert Solution

Answer :-

The partnership must use the "least aggregate deferral" method to determine its required taxable year.

Explanation :-
● Because the partnership does not have any majority partners and because the principal partners do not all have the same taxable year, the least aggregate deferral rule determines the partnership's required taxable year.

● The partnership may be able to obtain Internal revenue service permission to adopt a different taxable year if it can demonstrate to the IRS that it has a substantial business purpose for choosing that year, such as having a natural business year.

● The partnership can also make an election under § 444, but a March 31 year end would not be possible because it would result in greater than 3 months (>3months) deferral of income to all of the partners.

ekkarill92 answered 2 years ago

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