See Form 8832 for more details. 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. Family Partnership Members of a family can be partners. If capital is not a material income-producing factor, they joined together in good faith to conduct a business.
Capital is material.
Capital is a material income-producing factor if a substantial part of the gross income of the business comes from the use of capital. Capital is ordinarily an income-producing factor if the operation of the business requires substantial inventories or investments in plants, machinery, or equipment. Capital is not material. In general, capital is not a material income-producing factor if the income of the business consists principally of fees, commissions, or other compensation for personal services performed by members or employees of the partnership. A capital interest in a partnership is an interest in its assets that is distributable to the owner of the interest in either of the following situations.