- 22 -
A. General rules (secs. 701-707)
(1) Income of partners.--Under your committee’s bill,
as under present law, partners will be liable individually
for income tax on their distributive shares of partnership
income. The bill provides that the partnership will act as
a mere conduit as to income and loss items, transferring
such items directly to the individual partners.
The items required to be segregated will retain their
original character in the hands of the partner as though
they were realized directly by him from the same source from
which realized by the partnership and in the same manner.
After excluding the items required to be separately treated,
the remaining income or loss, which corresponds to the
ordinary income or loss of the partnership under present
law, is attributed to the partners.
The computation of partnership income is generally on
the same basis as existing law. The partnership is allowed
the usual business deductions, but is denied the deductions
peculiar to individuals.
The bill provides that all elections with respect to
income derived from a partnership (other than the election
to claim a credit for foreign taxes) are to be made at the
partnership level and not by the individual partners. This
rule recognizes the partnership as an entity for purposes of
income reporting. It avoids the confusion which would occur
if each partner were to determine partnership income
separately for his own purposes.
(2) Distributive shares.--The taxation of partnership
income or other items directly to the partners requires a
determination of each partner’s share of such items. In
general, such shares will be determined in accordance with
the partnership agreement as under existing practice.
The report goes on to state as follows, id. at A221, A222:
Section 702. Income and credits of partner
This provision represents no change in current law and
practice. It incorporates provisions of sections 182,
183(c), 184, 186, and 189 of present law.
* * * * * * *
Page: Previous 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 NextLast modified: May 25, 2011