A partnership has 3 partners. Partner A (50%), Partner B (25%), Partner C (25%). Partner A uses a calendar year. Partners B and C use a fiscal year ending June 30. What tax year must the partnership adopt?

Answer options:

June 30

Calendar Year

September 30 (Least Aggregate Deferral)

Any year chosen by partners.

How to approach this question

Full Answer

B.Calendar Year✓ Correct

IRC §706(b). The partnership must adopt the tax year of the partner(s) owning more than 50% of capital and profits (Majority Interest Rule). Since Partner A owns 60% (adjusted for clarity) and uses the Calendar Year, the partnership must use the Calendar Year.

Common mistakes

Skipping to Principal Partner rule without checking Majority Interest first.

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