Law Commons^™

Residual-Risk Model For Classifying Business Arrangements, Brad Borden

Bradley T. Borden

Tax law classifies business arrangements as one of three general structures: (1) disregarded arrangements, (2) tax partnerships, or (3) tax corporations. Since the enactment of the income tax in 1913, tax law has struggled unsuccessfully to develop an ideal model for classifying business arrangements. The current model’s sole virtue is its simplicity, derived from formalistic, elective attributes. Its greatest shortcoming may be that it disregards the reasons parties form business arrangements and the reasons they use economic items to reduce rent-seeking behavior and agency costs. That disregard often allows business participants to choose their tax classification and minimize their taxes, …

Aggregate-Plus Theory Of Partnership Taxation, Brad Borden

Bradley T. Borden

This Article presents a theory of partnership taxation. To provide context for the presentation, the Article examines the history and status of partnerships. That examination reveals humans have a natural tendency to form partnerships and partnerships create a significant challenge for lawmakers. The challenge is determining whether partnerships are entities separate from their members or aggregates of the members. After decades of debate and consideration, many lawmakers and commentators now view partnerships as entities. Tax law has not, however, adopted that view. Partnerships are subject to an aggregate tax regime that contains entity components.

Economic theory justifies tax law deviating …

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 …