Publication 541 |
2000 Tax Year |
Exclusion From Partnership Rules
Certain partnerships that do not actively conduct a business can
choose to be completely or partially excluded from being treated as
partnerships for federal income tax purposes. All the partners must
agree to make the choice, and the partners must be able to compute
their own taxable income without computing the partnership's income.
However, the partners are not exempt from the rule that limits a
partner's distributive share of partnership loss to the adjusted basis
of the partner's partnership interest. Nor are they exempt from the
requirement of a business purpose for adopting a tax year for the
partnership that differs from its required tax year, discussed under
Tax Year, later.
Investing partnership.
An investing partnership can be excluded if the participants in the
joint purchase, retention, sale, or exchange of investment property
meet all of the following requirements.
- They own the property as co-owners.
- They reserve the right separately to take or dispose of
their shares of any property acquired or retained.
- They do not actively conduct business or irrevocably
authorize some person acting in a representative capacity to purchase,
sell, or exchange the investment property. Each separate participant
can delegate authority to purchase, sell, or exchange his or her share
of the investment property for the time being for his or her account,
but not for a period of more than a year.
Operating agreement partnership.
An operating agreement partnership group can be excluded if the
participants in the joint production, extraction, or use of property
meet the following requirements.
- They own the property as co-owners, either in fee or under
lease or other form of contract granting exclusive operating
rights.
- They reserve the right separately to take in kind or dispose
of their shares of any property produced, extracted, or used.
- They do not jointly sell services or the property produced
or extracted. Each separate participant can delegate authority to sell
his or her share of the property produced or extracted for the time
being for his or her account, but not for a period of time in excess
of the minimum needs of the industry, and in no event for more than
one year.
However, this exclusion does not apply to an unincorporated
organization one of whose principal purposes is cycling,
manufacturing, or processing for persons who are not members of the
organization.
Electing the exclusion.
An eligible organization that wishes to be excluded from the
partnership rules must make the election not later than the time for
filing the partnership return for the first tax year for which
exclusion is desired. This filing date includes any extension of time.
See section 1.761-2(b) of the regulations for the procedures to
follow.
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