1. Aggregate approach: the partnership as a separate entity is disregarded and each partner is viewed as directly owning an undivided interest in the partnership's assets operations. If the tax law used only aggregate concepts, the partnerships and their partners would be treated: - Each partner would be taxed on share of partnership income and would be viewed as owning a direct interest in each partnership asset. - Contributions and distributions would be viewed as taxable transfers.
2. The portions of Subchapter K that reflect the aggregation approach: taxation of partnership income to the partners and the nonrecognition provisions for contributions to and distributions from partnerships. - Sec.701: Partnership itself is not subject to tax. Partners are taxed on their share of income as if they earned it directly. - Sec. 702: Partners calculate their income tax based on different items and realize the items as if they are realized by the partnership. - Transfer of partnership interests: gain or loss on the sale of exchange is recognized to the transferor and is considered capital gain or loss.
3. Entity approach: partnership is considered an entity separate from partners. If the tax law used only entity concepts, the partnerships and their partners would be treated: - The partnership itself would be subject to tax on partnership income. - Contributions and distributions would be taxed
- Transfers of partnership interests would be taxed without regard to the character of basis of the entity's assets.
4. The portions of Subchapter K that reflect the entity approach: transfer of partnership interests. - Sec. 703: partnership taxable income is determined at the partnership level (Income, deductions, gains, losses and credit). Partners then can calculate their taxable income based on partnership taxable income. Partnership adopts its own accounting method and it does not affect the partners' non-partnership tax...