Brief look at tax consideration of partnerships;

              A brief look
at Tax Considerations
of Partnerships
by David J. Vander Broek
DAVID J. VANDER BROEK, supervisor in our Detroit
office, joined TRB&S in 1957 after graduating from Michigan
State University with a B.A. degree.
Mr. Vander Broek is active in the Michigan Association of
Certified Public Accountants and is presently serving on its
Committee on Federal Taxation. He is a member of the
American Institute of Certified Public Accountants, Beta
Alpha Psi, and Beta Gamma Sigma.
A native of Michigan, he is married and the father of four
children.
This article is not intended to thoroughly explore all
considerations for the partnership form of operations or
the full implication of federal taxation of partnerships.
Rather, its purpose is to provide general knowledge of
partnership taxation and to highlight certain partnership
tax problems and planning areas.
The partnership form of business operation is one of
the dominant forms of business organization existing in
our country today. Laws governing these operations vary
among the states, although the general tendency at pres­ent
is toward the adoption of the Uniform Partnership
Act.
Federal taxation of partnership income is based upon
passing annual partnership profits or losses through to the
individual partners for inclusion in their respective indi­vidual
income tax returns. Although this generality is
true, specific partnership transactions can present a vari­ety
of complex income tax problems which should be
carefully explored (or deplored, as is often the case) by
competent tax personnel. This article, however, leaves the
details of partnership tax complexities to tax personnel
and concentrates on a more general review of partnership
tax considerations.
Choice of Taxable Operation
When two or more persons join their capital, property,
or services to carry on a business for profit, they first must
decide which business entity to use for their operations.
The nontax aspects of this decision, such as capital re­quirements,
nature, size, and duration of the business, may
automatically formulate this decision for them. Often,
however, the federal income tax consequences in the
small-to-medium size business operations are equally im­portant
factors for owners to consider in arriving at their
choice of business entity.
In addition to normal partnership arrangements, syndi-
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