Final answer:
Statement c is incorrect as a partnership is not a tax-paying entity for Federal income tax purposes. The profits and losses pass through to the individual partners, who report them on their personal returns.
Step-by-step explanation:
The subject of this question is partnership taxation, which falls within the field of business and taxation law. When analyzing the given statements about partnership taxation, statement c is incorrect. A partnership is not a tax-paying entity for Federal income tax purposes.
Instead, the profits and losses of a partnership pass through to the individual partners, who report their respective shares on their personal income tax returns. Partnerships indeed file an informational return with the IRS (Form 1065), but the entity itself does not pay income tax on the profits. The correct structure of partnership taxation allows for flexibility in how income and losses are allocated among partners, including the fact that a partner's profit-sharing and loss-sharing percentages can differ as mentioned in statement a.
Moreover, separately stated items are reported to ensure that they receive the correct tax treatment on each partner's individual return, reflecting statement d. As with any business structure, partnerships have their positives such as ease of management and no special taxes on the entity itself, but also have potential negatives such as the sharing of profits and each partner's personal liability for business debts.
Corporate income taxes, while significant, are different in that corporations pay income tax on their profits, as they are considered separate legal entities. This distinction between corporate entities and partnerships is essential for understanding their respective tax responsibilities.