Partnerships Under the Internal Revenue Code of 1954
BY CHARLES N. WHITEHEAD PARTNER, SAN FRANCISCO OFFICE
Presented at the Third Northwest Graduate Accounting Study Conference of the Washington Society of Certified Public Accountants, Seattle — October, 1955
I have been asked to speak to you on the subject of "Partnerships under the Internal Revenue Code of 1954". In the time allotted it is apparent that I will be unable to do more than sketch the new statutory provisions and point out some of the problems which will occur, particularly
some which may cause problems in accounting if the firm's books are kept on a tax basis.
Most of you realize that the tax law applicable to partnerships under the 1939 Code was incomplete and extremely sketchy. The statutory
provisions were supplemented by rulings and court decisions and the law applicable to partnership transactions was found more often in decisions and regulations than in the law. Unfortunately, the decisions themselves sometimes were in conflict and many times were not clear. For many years the whole question of tax liability arising from partnership
transactions was fraught with uncertainty.
The new Code (1) seeks to change all this and prescribe a more detailed and better articulated set of provisions which are designed to cover the common and many unusual transactions of partnerships. Tentative regulations have been issued, which clarify some of the points, but there are many phases of the new law which are as doubtful as some of those under the old law, and in addition, something new has been added. In particular, the new provisions permit the exercise of numerous elections particularly as to basis of partnership interests and assets, and the exercise of such elections is likely to cause considerable
confusion and uncertainty. Fortunately, the tentative regulations are well illustrated and a good job has been done in translating the abstract
code provisions to understandable interpretations.
The new Code continues the treatment of partnership as a non-taxpaying entity which files a return of information only. (2) The partners,
as in the past, must report their distributive shares of income. The conduit principle is applied, as in the past, but is extended to divi-dends received for purposes of the dividend received credit, and also to the foreign tax credit.(3) The new law prescribes that the elections