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The substantive law governing the Federal income taxation of
partners and partnerships is found in subchapter K (sections 701
through 777) of the Code.15 See Rhone-Poulenc Surfactants &
Specialties, L.P. v. Commissioner, 114 T.C. 533, 539 (2000). An
entity that meets the definition of partnership provided by
section 761(a)--“a syndicate, group, pool, joint venture or other
unincorporated organization through or by means of which any
business, financial operation, or venture is carried on, and
which is not * * * a corporation or a trust or estate”--is thus
subject to the provisions of subchapter K.16 See sec. 1.761-1,
15A joint venture or other contractual arrangement may
create a separate entity for Federal tax purposes if the
participants carry on a trade, business, financial operation, or
joint venture and divide the profits therefrom. Sec. 301.7701-
1(a)(2), Proced. & Admin. Regs. An eligible domestic business
entity with two or more members will be classified for Federal
tax purposes as a partnership unless it elects to be classified
as a corporation. See sec. 301.7701-2(a), Proced. & Admin. Regs.
(defining “business entity” as “any entity recognized for federal
tax purposes * * * that is not properly classified as a trust
under �301.7701-4 or otherwise subject to special treatment under
the Internal Revenue Code”); see also sec. 301.7701-3(a) and (b),
Proced. & Admin. Regs. Whether an organization is an entity
separate from its owners for Federal tax purposes is a matter of
Federal tax law and does not depend on whether the organization
is recognized as an entity under local law. Sec. 301.7701-
1(a)(1), Proced. & Admin. Regs.
16Sec. 761(a) also provides that the members of an
unincorporated organization may elect to exclude such
organization from the application of all or part of subch. K if
it is availed of (1) for investment purposes only and not for the
active conduct of a business, (2) for the joint production,
extraction, or use of property, but not for the purpose of
selling services or property produced or extracted, or (3) by
dealers in securities for a short period for the purpose of
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