The amendment of 1986 limits the choice of the tax for the partnership corporati

Question

The amendment of 1986 limits the choice of the tax for the partnership corporation and several other entities. In order to determine the partnership tax year, the interest rule of majority would be applied. The rule suggests that the partnership corporation can use that tax year which is used by the maximum of partners in the partnership. The principal partner rule may also be applied stating that the same year of partners having 5% interest or more can be applied in the corporation. The last method which can be applied is to determine the least aggregate deferral rule. This least aggregate deferral suggests the use of weighted average procedure based on the partner’s deferral period. In case of LLP, the partners are protected against personal liability. But, under income tax law the LLP is not considered as a separate entity and the losses and gains of Partnership Corporation is passed to the individual partner and would be reflected in the return of partners. LLP permits equal rights to all partners in the management. LLP is preferred over traditional partnership since this is quite flexible and offers great numerous of control along with no personal liability of any partner. The partners are held accountable for the liabilities and amount overdue that is defined in the agreement of LLP. Most beneficial way of doing business is the Limited Liability partnership. It has the governing act which leads to its establishment and the partners may choose either the unlimited liabilities feature wherein the profits of the firm will pass over to be included in their personal income tax calculations or the partners can choose the limited liability partner option in which the profits will be taxed in the hands of the entity. For these reasons it has become a preferred choice of doing business. Comment

Explanation / Answer

1.partnership corporation can use that tax year which is used by maximum of partners in the partnership.

2.principle rule states starting that the same year of partners having 5% interest or more can be applied.

3.partners are procted against personal liability ,but under LLp (income tax law) considered as seperate entity and the loses and gains of partenership corporation is passes to individual partner.

4.partners are held accountable for the liabilities and amount overdue that is defined in the agreement of LLP. Most beneficial way of doing business is the Limited Liability partnership.

5.benficial way of doing the business is wherein the profits of the firm will pass over to be include their personal tax in which profits will be taxed in the hands of the entity.

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