Defining 'Partnership' for Federal Tax Purposes

Abstract

This report examines the case law and statutory history of the terms "partner" and "partnership," including the seminal Supreme Court cases of the late 1940s, the 1951 amendments that added the language now codified at section 704(e)(1), and the check-the-box regulations added in 1996. The central conclusions are as follows: (1) The existence of a partnership and the identity of its partners should be jointly determined under a single test. (2) The test for partnership validity and partner status most consistent with the text of the code, the case law, and the regulations is easier to pass than the test the government has argued for in recent litigation, and it does not depend on taxpayer purpose. (3) There is a strong argument that the check-the-box regulations harmonized the rules for partnerships and corporations regarding the tests used to assess the validity of business entities and to identify their owners. (4) The economic substance doctrine should not make purpose relevant to the question of entity validity. Copyright 2011 Ethan Yale. All rights reserved.

Keywords: partnership, partner, check-the-box, economic substance