Question

3. For what reasons may it be important to characterize an organization as a partnership? Attach Internal Revenue Code Section

Answer 1

Patnership taxation os governed by subchapter K of chapter 1 U.S> Internal Revenue code of the U.S. Federal Income tax.

Reasons why it is important to characterize an organization as patnership :
1. Tax advantage : Income of a patnership is not taxed at organization level unlike corporation but at individual patner level. All the income is considered to be distributed amongst patners and have to reported that way.

2. Loss limitation

There is a limit on the deduction of distributive share of patner due to patnershuip losses. A patner may deduced his loss only to extent of his adjusted basis in patnership. Anything excess is only payable at the emd of patmership,