- 18 -
credit, when determining his income tax. Sec. 702(a); Vecchio v.
Commissioner, 103 T.C. 170, 185 (1994). Each partner is taxed on
his distributive share of partnership income regardless of
whether the amount is actually distributed to him. United States
v. Basye, 410 U.S. 441, 454 (1973) (“Few principles of
partnership taxation are more firmly established than that no
matter the reason for nondistribution each partner must pay taxes
on his distributive share.”); Vecchio v. Commissioner, supra at
185; sec. 1.702-1(a), Income Tax Regs. A partner’s distributive
share of income or loss is generally determined by the
partnership agreement. Sec. 704(a). The partnership agreement
may be written or oral. Stern v. Commissioner, T.C. Memo. 1984-
383; sec. 1.761-1(c), Income Tax Regs. In the case of an oral
partnership agreement, all the facts and circumstances
surrounding the formation and operation of the partnership are
relevant in determining the sharing ratios of the partners.
Barron v. Commissioner, T.C. Memo. 1992-598; Hogan v.
Commissioner, T.C. Memo. 1990-295 n.7; Reed v. Commissioner, T.C.
Memo. 1978-58; Ryza v. Commissioner, T.C. Memo. 1977-64. If the
partnership agreement does not provide as to a partner’s
distributive share, or if the partnership agreement provides for
an allocation that does not have substantial economic effect,
then a partner’s distributive share is determined by the
partner’s “interest in the partnership.” Sec. 704(b).
Page: Previous 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 NextLast modified: May 25, 2011