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To Meet the Substantial Economic Effect Tests, a Partnership's Allocations

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To meet the substantial economic effect tests, a partnership's allocations of income and deductions to the partners are required to be proportionate to the partners' percentage ownership of partnership capital.


Definitions:

Cost-volume-profit Analysis

A method used to determine how changes in costs and volume affect a company's operating income and net income.

Service Companies

Businesses that provide intangible products or services to consumers or other businesses rather than manufacturing goods.

Fixed

Costs that do not change with the level of production or sales activity, such as rent, salaries and insurance.

Variable

A quantity that can change or vary, often used in mathematics and statistics to represent an element that can assume different values.

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