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Partnership Tax Allocations And The Internalization Of Tax-Item Transactions, Brad Borden

Bradley T. Borden

Studies in the theory of the firm help explain partnership attributes and the relationships partners have with each other, which in turn inform the analysis of partnership tax allocation rules. Those studies suggest that partners apportion partnership economic items (such as income and loss) to each other to reduce partner shirking, opportunistic behavior, and agency costs. But partnerships are complex communities of interest, so partners are often unable to determine the specific source of partnership economic items (i.e., they cannot trace partnership output directly from partner input). Therefore, apportioned amounts of partnership items may contain several different and inseparable economic …