This page contains information about selected terms and concepts used in SOI's annual Partnership Study. Assets and Liabilities A partnership was required to provide balance sheet information, in general, only if it had total receipts of $250,000 or more, total assets of $1,000,000 or more, and was not required to file Schedule M-3. For partnerships with accounting periods ending before 2008, the total asset requirement was $600,000. SOI did not estimate the assets and liabilities of partnerships that did not provide this information. If a partnership provided balance sheet data in a format of its own, instead of that provided on the return form, an effort was made during data collection to associate the amounts provided with the items on the partnership balance sheet. In addition, for returns with accounting periods ending after December 31, 2005, total assets should have been determined without offset by liabilities and not re-ported as a negative amount. If, however, the partnership continued to report negative total assets, no effort was made during data collection to change the amount. Business Receipts Business receipts represent the gross receipts or sales less returns and allowances from trade or business income. Business receipts were the largest component of gross receipts for industry groups such as manufacturing. SOI did not adjust business receipts to include rental real estate activity, which was reported separately on the partnership’s return. Electing Large Partnerships Partnerships with 100 or more partners in the preceding year could elect to file Form 1065-B, U.S. Return of Income for Electing Large Partnerships, in lieu of the more general Form 1065. Unlike a regular partnership reporting its allocated share of income, gain, loss, deductions, or credits to each partner, an electing large partnership combines most items at the partnership level and passes through net amounts to partners. Electronically Filed (ELF) Partnerships Certain partnerships with more than 100 partners were required to file their returns electronically. Other partnerships could volunteer to file electronically. Partnerships submitting ELF returns electronically did so in lieu of paper returns. Foreign Partnerships A foreign partnership that has gross income effectively connected with the conduct of a trade or business within the United States or has gross income derived from sources in the United States must file a Form 1065, even if its principal place of business was outside the United States or all its partners were foreign persons. Limited Liability Companies (domestic) A limited liability company (LLC) is an entity formed under State law by filing articles of organization as an LLC. Limited liability companies that choose to be classified as partnerships file Form 1065, U.S. Partnership Return of Income. SOI identified LLCs by their response to a question on Form 1065, Schedule B, Other Information. Limited liability companies combine the corporate characteristics of limited liability for all members with the passthrough income treatment of a partnership. (The owners of an LLC are called members, not partners.) These businesses offer more organizational flexibility than S corporations. (S corporations pass through their income, gains and losses, deductions, and credits to their shareholders for tax purposes, like partnerships.) For example, unlike S corporations, LLCs are not limited in the number and type of owners. Unlike partners in limited partnerships, all members of LLCs have limited liability protection, even if they actively participate in the management of the business. In some cases, LLCs file as sole proprietorships on individual income tax returns or as corporations on corporation income tax returns. LLC data reported on these returns were not included in this article. Limited Liability Partnerships (domestic) A limited liability partnership (LLP) is formed under a State limited liability partnership law. Limited liability partnerships file Form 1065, U.S. Partnership Return of Income. SOI identified LLPs by their response to a question on Form 1065, Schedule B, Other Information. Organizationally, LLPs are available in some States only for professional partnerships, such as law firms or accounting firms. A partner in an LLP receives liability protection from the actions of other partners, but is liable for the partnership debts as well as the consequences of his or her own actions. Nonrecourse Loans Nonrecourse loans are those partnership liabilities for which no partner bears the economic risk of loss. North American Industry Classification System Starting with the 1998 partnership study, SOI classified data using the North American Industry Classification System (NAICS), which replaced the Standard Industry Classification system (SIC). NAICS is a hierarchical system that classifies businesses, including partnerships, into sectors, subsectors, industry groups, and industries. Although the complete NAICS uses 20 sectors, SOI grouped the partnership data into 20 industrial divisions in Tax Year 1998 through Tax Year 2001 SOI Bulletin articles for presentation purposes and easier comparison between NAICS and SIC data. SOI dropped the industrial division for the Tax Year 2002 article and grouped the partnership data into the same 20 industrial sectors used in NAICS, except for: 1) excluding public administration, and 2) adding nature of business not allocable. Businesses are only classified in the nature of business not allocable sector when a more specific activity cannot be identified from the return. SOI classified data within these industrial sectors in industrial groups. The most detailed classification in this article and related data tables is the “industry.” The 20 sectors used in this article are: Agriculture, forestry, fishing, and hunting; Mining; Utilities; Construction; Manufacturing; Wholesale trade; Retail trade; Transportation and warehousing; Information; Finance and insurance; Real estate and rental and leasing; Professional, scientific, and technical services; Management of companies (holding companies); Administrative and support and waste management and remediation services; Educational services; Health care and social assistance; Arts, entertainment, and recreation; Accommodation and food services; Other services; and Nature of business not allocable. In addition, in 2002, 2007, and 2012, NAICS updated its classification system. In 2002, the new version included a revised structure for both the Construction and Information sectors and additional detail for the Retail trade sector. NAICS updated the Information sector again in 2007, along with one financial industry. In 2012, changes occurred in the following sectors: Manufacturing; Wholesale trade; Retail trade; Real estate and rental and leasing; and Accommodation and food services. The North American Industry Classification System publication contains appendices comparing the 2002, 2007, and 2012 NAICS United States structures to the 1997 NAICS United States structure. SOI determined a partnership industry based on the activity from which the business derived the largest percentage of its total receipts. For industry coding purposes only, SOI defined total receipts as the sum of: gross receipts or sales less returns and allowances (i.e., business receipts in the statistics); ordinary income from other partnerships, estates, and trusts; net farm profit; net gain from Form 4797; other income (Form 1065, page 1, line 7); other gross rental income; interest income; dividend income; royalties; net short-term capital gain; net long-term capital gain; net section 1231 gain; other income (Form 1065, page 4, line 11); gross rents from rental real estate; net gain from the disposition of property from rental real estate activities; and net income from rental real estate activities from partnerships, estates, and trusts in which the partnership is a partner or beneficiary. Total receipts for partnership industry coding purposes differs from total receipts used elsewhere in this article (see “Total receipts” in this section). Partner Partners can be individuals, corporations, other partnerships, or any other legal entity. Partners are classified as either general or limited. General partners are those who assume liability for the partner-ship’s debts and losses. Limited partners are those whose liability in the partnership is limited to their investment. A partnership must have at least two partners, at least one of which must be a general partner. A general partnership is composed entirely of general partners. A limited partnership has at least one general partner and one or more limited partners. Partnerships A partnership is the relationship between two or more persons who join to carry on a trade or business. Each person contributes money, property, labor, or skill with the expectation of sharing in the profits and losses of the business, regardless of whether a formal partnership agreement was made. Every partnership that engages in a trade or business or has income from sources in the United States must file an annual information return with the Internal Revenue Service, either Form 1065, U.S. Partnership Return of Income, or Form 1065-B, U.S. Return of Income for Electing Large Partnerships, showing the partnership’s income or loss for the year. A partnership must file this return even if its principal place of business is outside the United States and even if all its members are nonresident aliens. Total Net Income (Loss) Through Tax Year 1986, partnerships reported the amounts for total net income (loss) as ordinary income (loss) on Form 1065. After the tax law changes and tax form revisions in 1987, Statistics of Income studies began computing a similar total figure as the sum of the following: ordinary business income (loss); interest income; dividend income; royalties; net rental real estate income (loss) from Form 8825; and other net rental income (loss). The sum of these components is a measure of overall partnership profit or loss, which allows for comparisons with total net income (loss) reported for years before 1987. The profit status of a partnership is determined based on the sum of these six amounts. Partnerships where the sum of these six amounts equals zero are included with loss partnerships. For 2004, the definition of total net income (loss) was revised because other portfolio income (loss) was excluded since it was no longer reported separately on Schedule K, but was included on Schedule K, Line 11, “Other income (loss).” This resulted in the 2004 total net income (loss) being understated by that amount when compared to years prior to 2004. However, this understatement was small since, for 2003, other portfolio income (loss) for all partnerships was only $3.1 billion or 1 percent of the $301.4 billion reported for total net income (loss). Total Receipts Total receipts is computed for the statistics to reflect similar computations published in other Statistics of Income (SOI) studies. It is the sum of positive income received by partnerships for the specific items listed below (note that negative amounts or losses are included in the statistics as deduction items): gross receipts or sales less returns and allowances (i.e., business receipts in the statistics); ordinary income from other partnerships, estates and trusts; net farm profit; net gain from Form 4797; other income (Form 1065, page 1, line 7); net rental real estate income; other net rental income; interest income; dividend income; royalties; net short-term capital gain; net long-term capital gain; net section 1231 gain; and other income (Form 1065, page 4, line 11). Note: Total receipts in Bulletin Table 7 differs from the total receipts presented in Historical Table 11. Historical Table 11 excludes certain income items allocated directly to partners (such as net short-term and long-term capital gains, net gain under Internal Revenue Code section 1231, and other income (Schedule K, Line 7)).