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Benefits of a partnership tax return; discrete and integral

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A partnership uses Form 1065 to calculate the partnership's income or loss, then divides that income or loss between its partners using Schedules K-1. What are the advantages of this approach as opposed to the individuals completing separate Schedules C on their individual income tax returns to report the same business activity?

What benefits does the statement of cash flows provide readers of the financial statements that the balance sheet or income statement do not?

Are all companies required to file interim financial reports? Explain the differences between discrete and integral views and list an example for each view.

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Solution Summary

The 749 word solution gives a good explanation in response to each of the questions. Examples are included for clarity.

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Partnership tax law requires that a partnership return be filed for an active trade or business. The only exceptions for not filing are:
1. A simple sharing of expenses (not revenue)
2. Co-ownership of property that is leased or rented (normally real estate)

Beyond the requirement for filing, the advantages are that the partnership tax return can:
1. Provide for differences in ownership percentages
2. Distribute net income using a variety of allocation methods including guaranteed payments for partners who work more
3. Account for differences in liabilities of partners for debt; i.e. limited partners
4. Make financing much easier to obtain
5. Can limit disputes between partners by following a partnership agreement
6. Can limit liability for some partners
7. Can add owners and capital more easily
8. Provide a level of separation between you and the IRS

The Statement of Cash Flows is presented on a cash basis. Usually financial statements are accrual basis and as a result, the flow of cash is not easily discernable. The Statement of Cash Flows clearly shows sources of cash separate from the income statement gross income. Those sources and uses of cash may not be disclosed ...

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