Partnerships;

              Partnerships
BY EDWARD W. CARMODY PARTNER, DALLAS OFFICE
Presented at the Texas Technological College Fourth Annual Tax Conference, Lubbock, Texas — October 1956
Partnerships under the 1954 Internal Revenue Code are a large subject with many facets. There are common situations which we meet everyday and also unusual situations which many of us may never en­counter.
There are areas which are relatively simple and elementary and areas which, upon the basis of my own difficulties, require con­centrated
study. Fortunately, the more complicated areas involve the unusual transactions. I have limited this discussion to certain of the more common transactions involving the formation, operation, and ter­mination
of a partnership and tried to avoid comparisons with the 1939 Code in order to reduce confusion.
By definition under the 1954 Code, a partnership includes a syn­dicate,
group, pool, joint venture, or other unincorporated organization through or by means of which any business, financial operation, or ven­ture
is carried on and which is not a corporation, trust, or estate. Un-der the Code, the term "partnership" is broader than under common law and I think it is important, therefore, to recognize at the beginning when a partnership exists for tax purposes.
If there is a partnership, irrespective of whether it exists for legal or tax reasons, a written agreement is important because distrib­utive
shares of income or loss, allocation of certain deductions, elec­tions,
and other tax consequences may depend on its contents.
Under the new Code, partners do not have a free choice in select­ing
the partnership year. In order to prevent the formation of fiscal-year partnerships which postpone the reporting of partnership income by partners, the 1954 Code provides that a new partnership, unless it secures prior approval of the Commissioner, must adopt either a tax­able
year which is the same as that of all its principal partners or a calendar year, if all its principal partners are not on the same taxable year. When such approval is required, the partnership will have to es­tablish
a business purpose satisfactory to the Commissioner.
A principal partner is one having an interest of 5 percent or more
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