Will is a partner in Oil Exploration Limited Partnership. For the current year, the partnership reports net income of $130,000. Will's share of the income is $1,300. Will reports that amount in his gross income. The partnership pays no income tax on its earnings. What concept, construct, or doctrine applies here?

Question

Quizplus · Accepted Answer

The Entity Concept applies here because it recognizes the partnership as a separate entity for accounting purposes, but not for tax purposes. In this case, the partnership's income is passed through to the partners, who then report their share of the income on their individual tax returns. This is why Will reports his share of the income in his gross income, even though the partnership itself pays no income tax on its earnings.

Will Is a Partner in Oil Exploration Limited Partnership