XYZ, LLC has several individual and corporate members. Abe and Joe, individuals with4/30 year-ends, each have a 23% profits and capital interest. RST, Inc., a corporation with a 6/30 year end, owns a 4% profits and capital interest while DEF, Inc., acorporation with an 8/30 year end, owns a 4.9% profits and capital interest. Finally, thirtyother calendar year-end individual partners (each with less than a 2% profits and capital interest) own the remaining 45% of the profits and capital interests in XYZ. What tax year-end should XYZ use and which test or rule requires this year-end?
A) 12/31, least aggregate deferral test.
B) 4/30, principal partners test.
C) 12/31, principal partners test.
D) 4/30, least aggregate deferral test.

Question

Quizplus · Accepted Answer

Based on the information given, XYZ should use a tax year-end of 4/30. The principal partners test requires that more than 50% of the partnership interests be held by partners with the same tax year-end in order to use that year-end. In this case, both Abe and Joe have a 4/30 year-end, which constitutes more than 50% of the partnership's interests when combined with RST, Inc.'s 6/30 year-end and DEF, Inc.'s 8/30 year-end. Therefore, the principal partners test is satisfied for a 4/30 year-end. The least aggregate deferral test is not applicable because there are no partners with a tax year-end other than 4/30 or 12/31 that hold a significant percentage of the partnership's interests.

XYZ, LLC Has Several Individual and Corporate Members