Montgomery County sentinel. [volume] (Rockville, Md.) 1855-1974, 1949-02-10

tai assets Capital gains and
losses) from ordinary net income
or ordinary net loss and each part
ner must include in his individual
return as part of his capital
gains or losses, his distributive
share of the capital gains or losses
of the partnership as we'll as their
proportionate share of the ordi-
nary net income or ordinary net
loss of the partnership. Charitable
contributions made by the firm are
not taken into account in comput-
ing the net income but the part
ners' proportionate share of these
as well as his own individual con-
tributions may be deducted on his
individual income tax return. You
may not, however, deduct an
amount for contributions which ex-
ceeds 1870 of your adjusted gross
income. Each partner is also al
lowed a credit on his individual
return for his share of the part
nership's partially tax-exempt in
terest Interest on government
obligations subject to the surtax
but not subject to the normal taxi.
In the event the partners are paid
a salary by the firm, such amounts
are not to be considered as salaries
but are treated as part of the
partnership profits. and should be
included on the partners indivi-
dual returns as such. If a partner
reports his income on the basis of
the calendar year and the firm
reports on the basis of a fiscal
year, the partners must report on
their individual returns their share
of the firms net income for any
taxable year ending with or within
the partners taxable year. If
partnership is dissolved or if a
partner retires from the firm and
the assets of the firm are suscep-
tible to partition and are distri-
buted in kind, the regulations pro-
vide that there is actually no in
come or loss realized until the
property is disposed of. When the
property is disposed of, the part
ners realize either a capital gain
or a capital loss. The Federal
Courts have held, however, that in
the case of a partner retiring from
a law firm and the only assets dis
tributed to him were his share of
the fees for services previously
performed by him, then in such
case, the amounts received by the
partner is to be taxed as ordinary
income and not as capital gain.
In the event partner should die
during the taxable year, the re-
turn of the deceased partner must
include his share of the partner
ship profits up to the date of his
death.
Family Partnerships
If bona fide partnership exists
between husband and wife then the
net income of the partnership will
be taxed to each spouse according
to their respective share under the
partnership agreement. Husband
and wife partnerships have been
viewed suspiciously by the tax
authorities for in such cases, the
total family income is necessarily
subjected to lower surtax rates. In
such cases, if the relationship is
not in fact a bona fide partnership
but is merely a sham designed for
the purpose of tax-reduction, it
will be stricken down by the
courts. Under the present law,
however, a husband and wife may
file joint return under the split
income provisions and will ulti-
mately receive the same tax reduc-
ton, as far as lower surtax rates
are concerned, as they would re-
ceive under a partnership arrange
ment with each receiving an equal
share Of the profits.