A partnership's allocations of income and deductions to the partners are not required to be proportionate to the partners' percentage ownership of partnership capital,provided the allocations meet the substantial economic effect tests.

Question

Quizplus · Accepted Answer

This statement is true. Partnerships are allowed to allocate income and deductions in a way that is different from the partners' percentage of ownership as long as it meets the substantial economic effect tests, which ensure that the allocations have economic substance and are not merely tax avoidance strategies.

A Partnership's Allocations of Income and Deductions to the Partners