Which one of the following statements regarding partnership taxation is incorrect?
A) A partnership is a tax paying entity for Federal income tax purposes.
B) Partnership income is comprised of ordinary partnership income or loss and separately stated items.
C) A partnership is required to file a return with the IRS.
D) A partner's profit-sharing percent may differ from the partner's loss-sharing percent.
E) All of these statements are correct.

Question

Quizplus · Accepted Answer

A partnership itself is not a tax-paying entity. Rather, the partnership files an information return (Form 1065) each year to report its income, deductions, gains, and losses to the IRS. However, the partnership itself does not pay federal income tax. Instead, the partnership's income or loss is "passed through" to the partners, who report their share of the partnership's income on their individual tax returns and pay tax accordingly.

Which One of the Following Statements Regarding Partnership Taxation Is