What are the Implications for Partnerships and Partnership Taxation Under the Republican Proposals for Tax Reform

Abstract

From an international tax law perspective, what might be the effects of the new proposed partnership rules in the US?

Partnerships are a complex combination of sole proprietorship rules, corporate rules, and financial accounting rules — the tax consequences are outlined primarily in Subchapter K of the US Internal Revenue Code. Partnerships often involve individuals and individuals with corporations acting as partners engaging in business. However, when comparing the US approach to partnerships, there can be differences — especially in the concept of opaque and flow entity through taxation. Opaque is when the profits are taxed at the corporate entity level and flow through is when the profits are taxed at the individual level.

In the United States, there is an option to “check the box” whereby one can qualify for flow through status — and this has been a rule since the 1990s. In other countries, there can be different approaches and modes of analysis to determine whether an entity is flow through or opaque. It is important to consider how the US system as it stands currently relates to other countries — and how the proposed changes could alter these inter-national relations.

Keywords: Tax Reform, US Congress