Aggregate-Plus Theory of Partnership Taxation

68 Pages Posted: 18 Apr 2008 Last revised: 30 Jun 2009


This Article presents a theory of partnership taxation. To provide context for the presentation, the Article examines the history and status of partnerships. That examination reveals humans have a natural tendency to form partnerships and partnerships create a significant challenge for lawmakers. The challenge is determining whether partnerships are entities separate from their members or aggregates of the members. After decades of debate and consideration, many lawmakers and commentators now view partnerships as entities. Tax law has not, however, adopted that view. Partnerships are subject to an aggregate tax regime that contains entity components. Economic theory justifies tax law deviating from the legal view of partnerships. People join together as partners to increase their collective welfare and use partnership law to apportion economic income to reduce agency costs. Aggregate taxation is uniquely suited to recognize the apportionment of economic items and accurately tax it. That accuracy helps foster economic efficiency. To ensure efficient and accurate tax laws, lawmakers should include entity components in partnership tax law only as needed to guarantee effective tax administration. This Article thus proposes the aggregate-plus theory of partnership taxation, recommending that lawmakers adopt the aggregate concept for all partnership tax laws and add entity components only as needed to facilitate tax administrative. It also demonstrates the theory's utility by applying it to existing and proposed rules.

Keywords: theory of the firm, agency costs, partnership taxation, aggregate taxation, carried interests, profit interests, subchapter k, partnership history, commenda, compagnia

JEL Classification: A12, H22, H25, K22, K34, L14, L21, L22

Suggested Citation

Borden, Bradley T., Aggregate-Plus Theory of Partnership Taxation. Georgia Law Review, Vol. 43, p. 717, 2009, Available at SSRN:

Bradley T. Borden (Contact Author)

Brooklyn Law School ( email )

250 Joralemon Street
Brooklyn, NY 11201
United States


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