Harry and Sally Are Considering Forming a Partnership

question 92

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. Also, 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.
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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:

Perceptual Adaptation

Perceptual adaptation is the ability of the body or brain to adjust to an altered perceptual environment, allowing for maintained performance despite changes.

Size Constancy

The perceptual phenomenon where the perceived size of an object remains constant despite changes in the distance or size of the image on the retina.

Restored Vision

The return of sight or improvement in vision that may occur naturally or through medical intervention after a period of impairment or loss.

Perceptual Set

A predisposition to perceive things in a certain way, based on expectations, experiences, and context.