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SOI Tax Stats - Partnership Study Explanation of Selected Terms

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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 and total assets of $600,000 or more. The assets and liabilities of partnerships that did not provide this information were not estimated. 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. Also, for returns with accounting periods ending after December 31, 2005, total assets should have been determined without offset by liabilities and should not have been reported 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 not adjusted to include rental real estate activity, which was separately reported on the partnership return. This activity is the largest component of gross receipts for industry groups such as manufacturing.

Electing Large Partnerships
Partnerships that had 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 that reports the partner’s 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. ELF returns are submitted via electronic media in lieu of paper returns and are verified for mathematical consistency on submission.

Foreign Partnerships
Partnerships not created or organized in the United States, or under the law of the United States or of any state, are foreign partnerships. In general, if a foreign partnership has gross income from trade or business within the United States or has gross income derived from sources within the United States, it must file a partnership return.

Limited Liability Companies
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 taxed as partnerships file Form 1065, U.S. Partnership Return of Income. The Schedule B, Other Information, has a question to identify LLC’s. Limited liability companies combine the corporate characteristics of limited liability for all members with the pass-through tax 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, LLC’s are not limited in the number and type of owners. Unlike partners in limited partnerships, all members of LLC’s have limited liability protection, even if they actively participate in the management of the business. In some cases, LLC’s 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
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. They were identified by their response to a question on Form 1065, Schedule B, Other Information. Organizationally, LLP’s 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 for the consequences of his or her own actions.

Nonrecourse Loans
Nonrecourse loans are those liabilities of the partnership for which no partner bears the economic risk of loss.

North American Industry Classification System
Starting with the 1998 partnership study, data were classified using the North American Industry Classification System (NAICS).  NAICS replaced the Standard Industry Classification system (SIC). Like the SIC, NAICS is a hierarchical system that classifies businesses, including partnerships, into “sectors”, “sub-sectors”, “industry groups”, and “industries.”  SIC used the terms “industrial division,” “major group,” and “industry.” Although the complete NAICS system uses twenty sectors, for presentation purposes, the partnership data in the Tax Year 1998 through Tax Year 2001 articles were grouped into ten “industrial divisions” in order to more easily compare NAICS data to SIC data.  Beginning with the Tax Year 2002 article, the “industrial division” was dropped and the partnership data have been grouped into the same twenty “industrial sectors” used in the NAICS system, except for the exclusion of “public administration” and the addition of “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.  Data within these industrial sectors are classified in “industrial groups.”  The most detailed classification in these tabulations is the “industry.”  The 20 sectors used in this article are listed below. 

  • 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
  • Nature of business not allocable 

     In addition, for 2002, the 1997 NAICS classification system was revised.    The new version included a revised structure for both the construction and information sectors and additional detail for the retail trade sector.   The North American Industry Classification publication contains appendices comparing the 2002 NAICS United States structure to the 1997 NAICS United States structure.

     Partnership industries were determined based on the activity from which the business derived the largest percentage of its “total receipts.”  Total receipts, for industry-coding purposes only, was defined 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 3, 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.

Note:  Total receipts for the partnership industry coding purposes differ from total receipts used elsewhere in this article and is defined under Total Receipts in this section.

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 partnership's debts and losses. Limited partners are those whose liability in the partnership is limited to their investment. By definition, 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.

A partnership is a relationship between two or more entities or persons who join to carry on a trade or business, with each partner contributing money, property, labor, or skill, and each expecting to share in the profits and losses. Every partnership that engages in a trade or business or has income from sources in the United States must file an annual information return, Form 1065, U.S. Partnership Return of Income, or Form 1065-B, U.S. Return of Income for Electing Large Partnerships, with the Internal Revenue Service, showing the partnership's taxable 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 of its members are nonresident aliens.

Total Net Income (Loss)
Through Tax Year 1986, amounts for total net income (loss) were reported on the Form 1065 as "ordinary income (loss)". After tax law changes and tax form revisions in 1987, Statistics of Income studies began computing a similar total figure as the sum of:

  • ordinary business income (loss);
  • interest income;
  • dividend income;
  • royalties;
  • net rental real estate income (loss) from 8825; and
  • other net rental income (loss).

     The sum of these components is a measure of overall partnership profits or losses, which enable 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 the 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 1.0 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: (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;
  • farm net 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 3, 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)).


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Page Last Reviewed or Updated: 09-Mar-2015