Form K-1, filed for each partner, details what that individual has received from the partnership for the same period. Money retained by the partnership for whatever reason is still reported as the partners' taxable income. Equally complex rules govern contributions of property, time, patents, copyrights and the like. Like profits, losses pass on to individual partners based on their percentage ownership. Partners that report losses can do so in a current or future tax year.
Limited partners receive more protection.
Proceeds from the sale of a partnership are taxed just like profits. Partners are only taxed on profits that exceed the amount they invested. If you die or sell your partnership share, the partnership agreement dissolves under the law-unless the agreement specifies otherwise. Professional partnerships still abound. The IRS is kinder to small general partnerships, auditing them only a third as often as they do SP's.