Form 541 - Partnerships - Department Of Treasury Internal Revenue Service

Organizations Classified as

est. For more information, see Publication 515,

Important Change

Withholding of Tax on Nonresident Aliens and

Partnerships

Foreign Entities.

for 2003

An unincorporated organization with two or

more members is generally classified as a part-

Comments and suggestions. We welcome

Reportable transactions. New disclosure

nership for federal tax purposes if its members

your comments about this publication and your

carry on a trade, business, financial operation,

rules require partnerships and partners to file

suggestions for future editions.

Form 8886, Reportable Transaction Disclosure

or venture and divide its profits. However, a joint

You can e-mail us while visiting our web site

Statement, to report certain transactions en-

undertaking merely to share expenses is not a

tered into after 2002. For more information, see

partnership. For example, co-ownership of prop-

the tax shelter disclosure statement discussion

erty maintained and rented or leased is not a

You can write to us at the following address:

in the Form 1065 instructions under Other

partnership unless the co-owners provide serv-

Forms, Returns, and Statements That May Be

ices to the tenants.

Internal Revenue Service

Required and the Instructions for Form 8886.

The rules you must use to determine

Tax Forms and Publications

whether an organization is classified as a part-

W:CAR:MP:FP

nership changed for organizations formed after

1111 Constitution Ave. NW

1996.

Important Reminder

Washington, DC 20224

Organizations formed after 1996. An organi-

zation formed after 1996 is classified as a part-

Photographs of missing children. The Inter-

We respond to many letters by telephone.

nership for federal tax purposes if it has two or

nal Revenue Service is a proud partner with the

Therefore, it would be helpful if you would in-

more members and it is none of the following.

National Center for Missing and Exploited Chil-

clude your daytime phone number, including the

•

dren. Photographs of missing children selected

An organization formed under a federal or

area code, in your correspondence.

by the Center may appear in this publication on

state law that refers to it as incorporated

pages that would otherwise be blank. You can

or as a corporation, body corporate, or

Useful Items

help bring these children home by looking at the

body politic.

You may want to see:

photographs and calling 1 – 800 – THE – LOST

•

An organization formed under a state law

(1 – 800 – 843 – 5678) if you recognize a child.

that refers to it as a joint-stock company or

Publication

joint-stock association.

505

Tax Withholding and Estimated Tax

•

An insurance company.

Introduction

533

Self-Employment Tax

•

Certain banks.

535

Business Expenses

This publication explains how the income tax

•

An organization wholly owned by a state

law applies to partnerships and to partners.

537

Installment Sales

or local government.

Generally, a partnership does not pay tax on its

•

538

Accounting Periods and Methods

income but “passes through” any profits or

An organization specifically required to be

losses to its partners. Partners must include

taxed as a corporation by the Internal Rev-

544

Sales and Other Dispositions of

partnership items on their tax returns.

enue Code (for example, certain publicly

Assets

For a discussion of business expenses a

traded partnerships).

551

Basis of Assets

partnership can deduct, see Publication 535,

•

Certain foreign organizations.

Business Expenses. Members of oil and gas

925

Passive Activity and At-Risk Rules

•

partnerships should read about the deduction

A tax-exempt organization.

946

How To Depreciate Property

for depletion in chapter 10 of that publication.

•

A real estate investment trust.

Certain partnerships must have a tax matters

•

Form (and Instructions)

An organization classified as a trust under

partner (TMP) who is also a general partner. For

information on the rules for designating a TMP,

section 301.7701 – 4 of the regulations or

1065 U.S. Return of Partnership Income

see the instructions for Schedule B of Form

otherwise subject to special treatment

Schedule K – 1 (Form 1065) Partner’s

1065 and section 301.6231(a)(7) – 1 of the regu-

under the Internal Revenue Code.

Share of Income, Credits,

lations.

•

Any other organization that elects to be

Deductions, etc.

classified as a corporation by filing Form

Many rules in this publication do not

8308 Report of a Sale or Exchange of

8832.

apply to partnerships that file Form

Certain Partnership Interests

1065 – B, U.S. Return of Income for

CAUTION

For more information, see the instructions for

Electing Large Partnerships. For the rules that

8582 Passive Activity Loss Limitations

Form 8832.

apply to these partnerships, see the instructions

8736 Application for Automatic Extension

Community property. A husband and wife

for Form 1065 – B. However, the partners of

of Time To File U.S. Return for a

who own a qualified entity (defined later) can

electing large partnerships can use the rules in

Partnership, REMIC, or for Certain

choose to classify the entity as a partnership for

this publication except as otherwise noted.

Trusts

federal tax purposes by filing the appropriate

partnership tax returns. They can choose to

8832 Entity Classification Election

classify the entity as a sole proprietorship by

Withholding on foreign partner or firm. If a

8865 Return of U.S. Persons With

filing a Schedule C (Form 1040) listing one

partnership acquires a U.S. real property inter-

Respect to Certain Foreign

spouse as the sole proprietor. A change in re-

est from a foreign person or firm, the partnership

porting position will be treated for federal tax

Partnerships

may have to withhold tax on the amount it pays

purposes as a conversion of the entity.

for the property (including cash, the fair market

See How To Get Tax Help near the end of

A qualified entity is a business entity that

value of other property, and any assumed liabil-

this publication for information about getting

ity). If a partnership has income effectively con-

meets all the following requirements.

publications and forms.

nected with a trade or business in the United

•

The business entity is wholly owned by a

States, it must withhold on the income allocable

husband and wife as community property

to its foreign partners. A partnership may have to

under the laws of a state, a foreign coun-

withhold tax on a foreign partner’s distributive

Forming a Partnership

try, or a possession of the United States.

share of fixed or determinable income not effec-

•

tively connected with a U.S. trade or business. A

No person other than one or both spouses

The following sections contain general informa-

partnership that fails to withhold may be held

would be considered an owner for federal

liable for the tax, applicable penalties, and inter-

tion about partnerships.

tax purposes.

Page 2

Form 541 - Partnerships - Department Of Treasury Internal Revenue Service - 2002 Page 2

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