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FEDERAL INCOME TAX STATUTE 1 (AGENDA FOR DISCUSSION OF PROVISIONS . . . T.D. 5)

handle is hein.ali/aliftp0275 and id is 1 raw text is: AMERICAN LAW INSTITUTE - INCOME TAX PROJECT AGENDA FOR DISCUSSION OF PROVISIONS ON PARTNERSHIPS AND PARTNERS IN TENTA- TIVE DRAFT No. 5. I. Determination of Partnership Income. 1. Taxable Year.- a. The partnership may not adopt a fi -cal year as its taxable year vithout the approval of the Secretary of the Treasury. Section X727. b. If the partnership activity is continued after a change in mem- bership by what is substantially the same organization (although the partnership may be a new one under local law), such change in mem- bership will not terminate the partnership's taxable year except with respect to a partner who retains no interest in the partnership or whose estate or beneficiary derives no such interest. Section X751 (b), sec- tion AX751(b). Example: Assume that A, who reports income on a calendar year basis, is a member of a partnership with a fiscal year ending on Jan- uary 31st. Each partner's estate is to share in partnership profits for two years after the date of his death. A dies on November 30, 1950. Under the draft, the partnership taxable year is kept open and A's final return reports his share of partnership income for the previous fiscal year, February 1, 1949-January 31, 1950, only. The estate waits until after January 31st and reports income for February 1, 1950-January 31, 1951. If the taxable year of the decedent closed at his death, his share of partnership income for twenty-two months (February 1, 1949-November 30, 1950) would be included in his final return. (Note: A partner reports his share of partnership income for any partnership taxable year ending with or within his own taxable year.) 2. Distributive Share.--A partner's distributive share of partner- ship income or loss is to be determined by the partnership agreement. Proposal I, however, will not permit a partner to take a loss in excess of the basis of his interest in partnership assets. Section X750(c) (1). Proposal II contains no such limitations. Section AX750(c) (1). It should be noted that these two rules as to the allowance of losses are not bound up with the other provisions of Proposals I and II and may be interchanged.

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