Sally is a calendar-year taxpayer who owns a 30% capital and profits interest in the SEM Partnership. Eric sells the remaining 70% capital and profits interest to Michelle on October 3. The partnership year-end is March 31 as permitted by the IRS for business purposes. Which of the following statements is correct?

Question

Quizplus · Accepted Answer

Sally will need to include partnership distributive shares for both periods, as she was a partner for both periods. The partnership will need to file two tax returns for the year, one for the period ending March 31 and one for the period ending September 30 (the day before Eric sold his interest). This will allow for accurate reporting of each partner's share of the income and expenses for each period. Sally is not required to conform her tax year with the partnership tax year. The new partnership is not a continuation of the old partnership, as there has been a significant change in ownership.

Sally Is a Calendar-Year Taxpayer Who Owns a 30% Capital