On June 12, 20X9, Kevin, Chris, and Candy Corp. came together to form Scrumptious Sweets General Partnership. Now, Scrumptious Sweets must decide which tax year-end to use. Kevin and Chris have calendar year-ends and each holds a 35 percent profits and capital interest. However, Candy Corp. has a September 30th year-end and holds the remaining 30 percent profits and capital interest. What tax year-end must Scrumptious Sweets adopt, and what rule mandates this year-end?
What will be an ideal response?
Scrumptious Sweets must use a calendar year-end because that is the majority interest taxable year. Partnerships have a majority interest taxable year if one or more partners with the same taxable year own more than 50 percent of the profits and capital interests in the partnership. Since Kevin and Chris together own 70 percent of the profits and capital interests in Scrumptious Sweets and both have a calendar year-end, Scrumptious Sweets must also adopt a calendar year-end.
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