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Publication 541 2003 Tax Year

Publication 541
Introductory Material

This is archived information that pertains only to the 2003 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.

Table of Contents

Important Reminder

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Introduction

This publication explains how the income tax law applies to partnerships and to partners. Generally, a partnership does not pay tax on its income but “passes through” any profits or losses to its partners. Partners must include partnership items on their tax returns.

For a discussion of business expenses a partnership can deduct, see Publication 535, Business Expenses. Members of oil and gas partnerships should read about the deduction for depletion in chapter 10 of that publication.

Certain partnerships must have a tax matters partner (TMP) who is also a general partner. For information on the rules for designating a TMP, see Designation of Tax Matters Partner (TMP) in the Form 1065 instructions and section 301.6231(a)(7)–1 of the regulations.

Caution

Many rules in this publication do not apply to partnerships that file Form 1065–B, U.S. Return of Income for Electing Large Partnerships. For the rules that apply to these partnerships, see the instructions for Form 1065–B. However, the partners of electing large partnerships can use the rules in this publication except as otherwise noted.

Withholding on foreign partner or firm.

If a partnership acquires a U.S. real property interest from a foreign person or firm, the partnership may have to withhold tax on the amount it pays for the property (including cash, the fair market value of other property, and any assumed liability). If a partnership has income effectively connected with a trade or business in the United States, it must withhold on the income allocable to its foreign partners. A partnership may have to withhold tax on a foreign partner's distributive share of fixed or determinable income not effectively connected with a U.S. trade or business. A partnership that fails to withhold may be held liable for the tax, applicable penalties, and interest.

For more information, see Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities.

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Useful Items - You may want to see:

Publication

  • 505 Tax Withholding and Estimated Tax
  • 533 Self-Employment Tax
  • 535 Business Expenses
  • 537 Installment Sales
  • 538 Accounting Periods and Methods
  • 544 Sales and Other Dispositions of Assets
  • 551 Basis of Assets
  • 925 Passive Activity and At-Risk Rules
  • 946 How To Depreciate Property

Form (and Instructions)

  • 1065 U.S. Return of Partnership Income
  • Schedule K–1 (Form 1065) Partner's Share of Income, Credits, Deductions, etc.
  • 8308 Report of a Sale or Exchange of Certain Partnership Interests
  • 8582 Passive Activity Loss Limitations
  • 8736 Application for Automatic Extension of Time To File U.S. Return for a Partnership, REMIC, or for Certain Trusts
  • 8832 Entity Classification Election
  • 8865 Return of U.S. Persons With Respect to Certain Foreign Partnerships
  • 8886 Reportable Transaction Disclosure Statement

See How To Get Tax Help near the end of this publication for information about getting publications and forms.

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