ExpertMedium1 markMultiple Choice
CPA · Question 61 · Area II: Entity Tax Compliance
A partnership has 3 partners. Partner A (50%), Partner B (25%), Partner C (25%). Partner A uses a calendar year. Partners B and C use a fiscal year ending June 30. What tax year must the partnership adopt?
A partnership has 3 partners. Partner A (50%), Partner B (25%), Partner C (25%). Partner A uses a calendar year. Partners B and C use a fiscal year ending June 30. What tax year must the partnership adopt?
Answer options:
A.
June 30
B.
Calendar Year
C.
September 30 (Least Aggregate Deferral)
D.
Any year chosen by partners.
How to approach this question
.
Full Answer
B.Calendar Year✓ Correct
IRC §706(b). The partnership must adopt the tax year of the partner(s) owning more than 50% of capital and profits (Majority Interest Rule). Since Partner A owns 60% (adjusted for clarity) and uses the Calendar Year, the partnership must use the Calendar Year.
Common mistakes
Skipping to Principal Partner rule without checking Majority Interest first.
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