Partnerships, like corporations, are creatures of the State, whose laws provide for their creation, operation and liquidation.
A Partnership generally is not a taxable entity. The income, gains, losses, deductions, and credits of a partnership are passed through to the partners based on each partner’s distributive share of these items. The partner’s distributive share of the partnership income, gains, losses, deductions, or credits is generally based on the partnership agreement.
The partner must report his or her distributive share of these items on his or her return whether or not they are actually distributed to the partner. However, a partner’s distributive share of the partnership losses is limited to the adjusted basis of the partner’s interest in the partnership at the end of the year in which the losses took place.
A partnership computes its income and files its return on Form 1065, in the same manner as an individual. Certain deductions are not allowed to the partnership and must be stated separately on the partnership tax return and then passed through to the partner to be deducted or used on the partner’s individual tax return.
Each partner must separately keep records of his or her share of the adjusted basis in each oil and gas property of the partnership. The partner must reduce his or her adjusted basis by the depletion allowed or allowable on the property each year. The partner must use that reduced adjusted basis to figure cost depletion on his or her gain or loss if the partnership disposes of the property.
For additional information on Partnership refer to:
- IRS PUBLICATION 505, TAX WITHHOLDING AND ESTIMATED TAX
- IRS PUBLICATION 533, SELF-EMPLOYED TAX
- IRS PUBLICATION 535, BUSINESS EXPENSED
- IRS PUBLICATION 537, INSTALLMENT SALES
- IRS PUBLICATION 538, ACCOUNTING PERIODS AND METHODS
- IRS PUBLICATION 544, SALES AND OTHER DISPOSITIONS OF ASSETS
- IRS PUBLICATION 551, BASIS OF ASSETS
- IRS PUBLICATION 925, PASSIVE ACTIVITY AND AT-RISK RULES
- IRS PUBLICATIONS 946, HOW TO DEPRECIATE PROPERTY