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:

Aggregate Demand

The sum of all demands for goods and services in an economy, measured at a particular price level over a defined time interval.

John Maynard Keynes

An economist from Britain whose concepts revolutionized the field of macroeconomics and also altered the economic policy-making of states.

Government Spending

refers to the total expenditure by a government on goods, services, and public projects, including salaries, infrastructure, and welfare programs.

Depression

A major and lasting slump in economic performance, highlighted by a notable reduction in GDP, increased unemployment rates, and persistent deflation.