Partnership
Organization Expenses
If you decide to conduct your business as a partnership,
neither the partnership itself nor you as one of the partners
would normally be able to deduct the expenses you paid to
organize the partnership. However, your partnership can elect to
treat these organizational costs as deferred expenses that can
be amortized (deducted ratably) over a period of at least 60
months, starting with the month in which the partnership begins
business.
If you decide that your partnership should not make
this election, the organizational costs must be added to the tax
basis of your partnership interest. In that case, when your
partnership interest is sold or the partnership itself is
dissolved, the amounts paid for the organizational expenses will
reduce the amount of your capital gain or loss.
Requirements. To qualify for the amortization
election, an expense must satisfy these three conditions:
- It must be related to the creation of the partnership
itself, rather than to the startup of the business
operations.
- It must be chargeable to the capital account.
- If the expense is related to the creation of a partnership
having a limited life, it must be of a character that would
benefit the partnership over its entire life.
Examples of organizational costs that can be amortized
include:
- legal and accounting fees for services related to the
organization of the partnership, such as negotiation and
preparation of the partnership agreement
- filing fees
Examples of costs that can't be amortized (and instead must
be included in the basis of the partnership interest) include:
- expenses for acquiring assets for a partnership, or for
transferring assets to it
- expenses connected with the admission or removal of
partners (other than at the time the partnership is first
organized)
- expenses relating to a contract involving the operation of
the partnership business
- expenses incurred to promote the sale of partnership
interests
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