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:

Anthropoids

A subgroup of primates that includes monkeys, apes, and humans, characterized by higher brain proportions and more complex behaviors.

Tarsier

A small, nocturnal primate with large eyes and a long tail, known for its distinctive vertical clinging and leaping behaviors.

Old World Monkey

A group of primates native to Africa and Asia, distinguished from New World monkeys by their nose shape.

Mammals

Warm-blooded vertebrates characterized by the presence of mammary glands which females use to nourish their young.