Which one of the following statements regarding partnership taxation is always correct?
A)A partnership is a taxable entity for Federal income tax purposes.
B)Partnership income is comprised of ordinary partnership income or loss and separately stated items.
C)A partnership is not required to file a tax return.
D)A partner's profit-sharing ratio will equal the partner's capital-sharing ratio.
E)None of these statements are correct.

Question

Quizplus · Accepted Answer

Partnership taxation is based on the idea that each partner includes their share of the partnership's income or loss on their individual tax return. The partnership itself does not pay tax. The partnership's taxable income or loss is divided among the partners according to their profit-sharing ratio, which may differ from the capital-sharing ratio. The IRS requires that partnerships file an annual tax return on Form 1065 to report its income, deductions, gains, and losses. Partnerships must also provide each partner with a Schedule K-1, which reports each partner's share of the partnership's income, deductions, and credits. The income items that may be separately stated on a Schedule K-1 include items like interest income, dividend income, capital gains or losses, and charitable contributions.

Which One of the Following Statements Regarding Partnership Taxation Is