Explain the difference between expenses of organizing a partnership and expenses of syndicating a partnership.

Question

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Answer 1

A maximum of $5,000 of costs of organizing the partnership can be deducted in the year in which the partnership begins business. The deduction is limited to the lesser of (1) the costs of organizational expenses or (2) $5,000, reduced by the amount by which such organizational expenses exceed $50,000. Any organizational expenses in excess of the first year deduction can be deducted ratably over the 180 month period beginning with the month in which the partnership begins business. Organization expenses include legal and accounting fees incident to the organization of the partnership and filing fees.

Syndication expenses are expenses incurred to promote and market partnership interests. These expenses must be capitalized by the partnership and are not amortizable. Syndication fees include brokerage and registration fees, legal fees of the underwriter and issuer, and printing costs associated with the prospectus.