Which of the following is a correct definition of a concept related to partnership taxation?
A) The entity concept treats partners and partnerships as separate units and gives the partnership its own tax "personality."
B) A partner's capital sharing ratio is defined as the percent of partnership profits that will be allocated to the partner.
C) The partnership's inside basis is defined as the sum of each partner's capital account balance.
D) A special allocation is defined as an amount that could differently affect the tax liabilities of two or more partners.
E) None of these statements is correct.

Question

Quizplus · Accepted Answer

The entity concept is the correct definition described in option A. It is a fundamental concept in partnership taxation that treats the partnership as a separate entity for tax purposes, separate from the partners themselves. The partnership is given its own tax "personality" and files its own tax return, and partnership profits and losses are allocated to the partners based on their ownership percentage or capital sharing ratio. The inside basis of a partnership is the total of the partnership's individual asset basis, and a special allocation refers to an allocation of partnership income or loss that may affect the tax liabilities of partners differently. However, these definitions are not accurately described in the other answer choices.

Which of the Following Is a Correct Definition of a Concept