Harry and Sally Are Considering Forming a Partnership

question 205

Essay

Harry and Sally are considering forming a partnership. Both taxpayers use the calendar year and are cash basis taxpayers. The partnership will not be a tax shelter. The partners are uncertain as to whether the partnership should use the cash or accrual method of accounting. Moreover, the idea of a tax deferral in the first year of operations has led them to consider using a June 30 fiscal year-end for the partnership.
As their tax adviser, identify the issues that must be considered in selecting an accounting method and tax year for the partnership.

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Definitions:

Diabetes

A metabolic disease characterized by high blood sugar levels over a prolonged period due to insulin resistance or inadequate insulin production.

Halitosis

A medical term for bad breath, often resulting from poor dental hygiene, but it can also indicate deeper health issues.

Cheilitis

A condition characterized by inflammation of the lips, which can lead to redness, cracking, and in severe cases, bleeding.

Aspiration Risk

The danger of breathing in foreign objects or substances into the lungs, which can cause respiratory issues or infections.