Guidance for Special Types of Businesses
Special Rules for Certain Business Structures
Special Provisions for Partnerships
Organizations Classified as Partnerships. An unincorporated organization
with two or more members is generally classified as a partnership for federal tax purposes
if its members carry on a trade, business, financial operation, or venture and divide its
profits. However, a joint undertaking merely to share expenses is not a partnership. For
example, co-ownership of property maintained and rented or leased is not a partnership
unless the co-owners provide services to the tenants.
The rules you must use to determine whether an organization is
classified as a partnership changed for organizations formed after 1996.
Organizations formed after 1996. An organization
formed after 1996 is classified as a partnership for federal tax purposes if it has two or
more members and it is none of the following.
- An organization formed under a federal or state law that refers to it
as a corporation, body corporate, or body politic.
- An organization formed under a state law that refers to it as a
joint-stock company or joint-stock association.
- An insurance company.
- Certain banks.
- An organization wholly owned by a state or local government.
- An organization specifically required to be taxed as a corporation by
the Internal Revenue Code (for example, certain publicly traded partnerships).
- Certain foreign organizations.
- A tax-exempt organization.
- A real estate investment trust.
- An organization classified as a trust under section 301.7701-4 of the
regulations or otherwise subject to special treatment under the Internal Revenue Code.
- Any other organization that elects to be classified as
a corporation by filing Form
8832.
For more information, see the
instructions for Form 8832 located on the bottom of Form
8832
Organizations formed before 1997. An organization
formed before 1997 and classified as a partnership under the old
rules will generally continue to be classified as a partnership
as long as the organization has at least two members and does not
elect to be classified as a corporation by filing Form 8832.
Important References
Publication
541 Partnerships
Publication 553
Highlights of The 2001 Tax Law Changes
Form
8832
Entity Classification Election
Instructions
Form 8832 located on the bottom of Form 8832
