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