Question

Fern, Inc., Ivy, Inc., and Jeremy formed a general partnership. Fern owns a 50% interest, and Ivy and Jeremy both own 25% interests. Fern, Inc. files its tax return on an October 31 year-end; Ivy, Inc., files with a May 31 year-end, and Jeremy is a calendar year taxpayer. Which of the following statements is true regarding the taxable year the partnership can choose?

A) The partnership must choose the calendar year because it has no principal partners.
B) The partnership must choose an October year-end because Fern, Inc., is a principal partner.
C) The partnership can request permission from the IRS to use a January 31 fiscal year under § 444.
D) The partnership must use the "least aggregate deferral" method to determine its "required" taxable year.
E) None of the above items are true.

Answer 1

Answer: D) The partnership must use the "least aggregate deferral" method to determine its "required" taxable year.

Step-by-step explanation:

The Least Aggregate Deferral rule is used when neither of the partners can enforce their taxable year on the others because there is no dominant partner as is the case here because no shareholder has more than 50% ownership and the tax years of the partners are not aligned.

The partnership will have to use the "Least Aggregate Deferral" method when the above happens which is based on the percentage of profits for each partner.