Question

Gold Corporation, Silver Corporation, and Platinum Corporation are equal partners in the GSP Partnership, which was formed on July 1, 2018. Gold and Silver use a calendar tax year, and Platinum's tax year ends June 30. GSP is not a seasonal business.

a. GSP may elect its tax year without regard to the partners' tax years.
b. GSP must use a tax year ending December 31 and Platinum must change its tax year to December 31.
c. GSP must use a tax year ending December 31, and Platinum can retain its tax year ending June 30.
d. GSP must use a tax year ending June 30, and the partners must change their tax years to end on June 30.
e. None of these choices are correct.

Answer 1

GSP Partnership must use a tax year ending December 31 because it does not meet any exception for a different year-end. Platinum Corporation, being a partner with a different fiscal year, is not required to change its tax year to that of the partnership.

Step-by-step explanation:

For partnerships in the United States, the Internal Revenue Code (IRC) has specific rules regarding the tax year a partnership can adopt. Typically, a partnership must conform to the tax year of its partners unless it meets certain exceptions that allow for a different year-end. Given the information provided about the GSP Partnership and its partners, two partners have a calendar tax year ending December 31, and one partner has a tax year ending June 30.

GSP cannot elect its tax year without regard to the partners' tax years. According to the Internal Revenue Code, a partnership should generally use the same tax year as its partners, unless it can establish a business purpose for a different tax year or meets one of the exceptions described in the IRC Section 706.

In this scenario, GSP must use a tax year ending December 31 because it has no seasonal business pattern that would justify a different tax year, and most of its partners are using the calendar year. However, it is not required that Platinum Corporation change its tax year to match the partnership or the other partners' tax year. Therefore, Option C is the correct answer: GSP must use a tax year ending December 31, and Platinum can retain its tax year ending June 30.