Question

Red, White, and Blue are unrelated corporations engaged in real estate development. The three corporations formed a joint venture (treated as a partnership) to develop a tract of land.

a. Complete the statement below that outlines the tax year the joint venture must adopt under the following ownership interests. Assume that the venture does not have a natural business year.

Tax Year Ending Interest in Joint Venture Red March 31 60% Blue June 30 20% White October 31 20%

The majority interest partners' rule  will apply in determining the partnership's tax year. Therefore, the partnership will use the same tax year as Red Corporation .

b.   The following data is provided regarding ownership interests.

Tax Year Ending Interest in Joint Venture Red October 31 30% Blue January 31 30% White September 30 40%

Complete the tables below to determine the tax year the joint venture must adopt using the least aggregate deferral method.

Carry the product answers out to one decimal place. Enter the product as a decimal (for example, 5.6). If an amount is zero, enter "0".

Test for Fiscal Year Ending October 31 Partner Year-End Date Profit % Months of Deferral Product Red 10/31 30 Blue 1/31 30 White 9/30 40 Aggregate deferral months

Test for Fiscal Year Ending January 31 Partner Year-End Date Profit % Months of Deferral Product Red 10/31 30 Blue 1/31 30 White 9/30 40 Aggregate deferral months

Test for Fiscal Year Ending September 30 Partner Year-End Date Profit % Months of Deferral Product Red 10/31 30 Blue 1/31 30 White 9/30 40 Aggregate deferral months

Therefore, the fiscal year-end date for the partnership is:  .

Answer 1

Answer :-

a)According to Majority interests partner's rule, Red Corporation has the highest interest in the joint venture i.e. 60% compared to Blue and White, as they both have 20% respectively.

By applying the Majority interests partner's rule, the partnership will use the same tax year as Red Corporation, which is March 31.

b) Under the least aggregate deferral method, the profit % each partner is multiplied by the number of deferral months of each partner for a particular year end and then aggregated. The year produces the least aggregate income is selected as the tax year by the partners.

Test for Fiscal Year Ending October 31 Partner Year-End Date Profit % Months of Deferral Product (Months of deferral × Profits %) Red 10/31 30 0 0 Blue 1/31 30 3 0.9 White 9/30 40 11 4.4 Aggregate deferral months 5.3

Test for Fiscal Year Ending January 31 Partner Year-End Date Profit % Months of Deferral Product (Month of deferral × Profits %) Red 10/31 30 9 2.7 Blue 1/31 30 0 0 White 9/30 40 8 3.2 Aggregate deferral months 5.9

Test for Fiscal Year Ending September 30 Partner Year-End Date Profit % Months of Deferral Product (Months of Deferral × Profits %) Red 10/31 30 1 0.3 Blue 1/31 30 4 1.2 White 9/30 40 0 Aggregate deferral months 1.5

According to this method, least of the aggregate deferral months will be selected. Thus, the least aggregate deferral months is 1.5.

Therefore, the fiscal year-end date for the partnership is 30 September.