9037 / How is a partnership’s accounting period determined?

A partnership is one of the entities that is generally required to adopt a particular accounting period as specified under the regulations.1 A partnership’s accounting period is determined by reference to the partner’s required accounting period(s).² The partnership’s “required taxable year” can either be:

(1)  The tax year of the majority partnership interest;

(2)  The tax year of all the principal partners; or

(3)  If it cannot be established based on the majority partnership interest or principal partners, a calendar year.³

For these purposes, when a partnership’s accounting period is determined by reference to the majority interest, it means that it is determined based on the tax year of a partner or group of partners having an aggregate interest in partnership profits or capital of more than 50 percent.⁴

A “principal partner” is a partner who has an interest of five percent or more in partnership profits or capital.⁵ Once it is established that a partner is a principal partner, that principal partner is required to maintain the same calendar year established by the partnership unless that principal partner is able to demonstrate a valid business purpose for the deviation.

See Q 9040 for a discussion of the business purpose test that must be satisfied to allow a principal partner to adopt an alternate accounting period. This business purpose test must also be satisfied in order for the partnership to adopt an accounting period that deviates from the requirements set forth in (1)-(3), above.