If that same partnership had chosen to use a fiscal year instead, one that ends before the partners’ own calendar taxable year, the Tax Items for the partnership’s taxable year would be taken into account by the partners for their first taxable year ending after such fiscal year.įor example, assume A is an individual partner in partnership P, and that P’s taxable year is the calendar year. Thus, in the case of a partnership comprised entirely of individuals – who are “required” to use the calendar year as their taxable year – the items of partnership income, gain, loss, deduction and credit for the partnership’s taxable year that ends on December 31, in the case of a partnership that uses the calendar year, will be taken into account by the partners for their taxable year ending December 31.
In computing their taxable income for a taxable year, a partner must look to the taxable year of the partnership that ends within or with the taxable year of the partner. What’s more, the character of any partnership item included in a partner’s distributive share is determined as if the item were realized directly from the source from which it was realized by the partnership, or incurred in the same manner as incurred by the partnership. We also know that, in determining their income tax liability, each partner is required to take into account separately on their tax return their distributive share, whether or not distributed to them, of each class or item of partnership income, gain, loss, deduction or credit (“Tax Items”), including the taxable income or loss of the partnership, as computed under the partnership’s method of accounting. Partnership IncomeĪs we know, a partnership is not, itself, a taxable entity, and the partnership’s owners – i.e., the partners – are liable for income tax only in their separate capacities. That may be, but it can sure unsettle a partnership’s advisers when the decedent is one of the partners and their estate chooses to use a fiscal year for its taxable year.
I once heard it said that death keeps no calendar.
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