Fern, Inc., Ivy, Inc., and Jeremy formed a general partnership. Fern owns a 50% interest, and Ivy and Jeremy both own 25% interests. Fern, Inc. files its tax return on an October 31 year-end; Ivy, Inc., files with a May 31 year-end, and Jeremy is a calendar year taxpayer. Which of the following statements is true regarding the taxable year the partnership can choose?
A) The partnership must choose the calendar year because it has no principal partners.
B) The partnership must choose an October year-end because Fern, Inc., is a principal partner.
C) The partnership can request permission from the IRS to use a January 31 fiscal year under § 444.
D) The partnership must use the least aggregate deferral method to determine its required taxable year.

Question

Quizplus · Accepted Answer

The partnership must use the least aggregate deferral method to determine its required taxable year because it involves calculating the period of deferral for each partner and selecting the year that results in the least aggregate deferral of income, which is a common approach when the partnership does not have a natural business year or does not meet the criteria to adopt a fiscal year directly based on a principal partner's tax year.

Fern, Inc, Ivy, Inc