Dear Sirs:
Re: IT138R - Paragraph 13 - Partner's Expenses
This is in reply to your letter of August 13, 1991 concerning Interpretation Bulletin IT-138R - Computation and Flow-through of Partnership Income.
Paragraph 13 of this bulletin states that where under a partnership agreement a partner, who is an individual, personally incurs expenses in earning partnership income, the partner may deduct the expenses, either on the basis of the partnership fiscal year, or the calendar year.
You have asked if it is possible for a partner to switch from one basis to another and if there is a procedure to be followed.
It is our view that the legally correct method of an individual deducting such expenses for tax purposes is the calendar year basis. The alternative of using the fiscal period of the partnership is an administrative practice which recognizes the fact that many partners find it more convenient to report in this manner.
Generally, if a partnership agreement requires certain expense to be paid by the partner, the Department expects a method of reporting, once adopted, to be followed consistently by a taxpayer.
However, since the calendar year basis is legally correct it is unlikely the Department would oppose a change to this method.
Any taxpayer wishing to change from either method should submit a written request to the local District Taxation Office explaining the reasons for the request.
We trust these comments will be of assistance.
for DirectorManufacturing Industries, Partnerships and Trusts DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch
cc: Walter Szyc Chief, Applications Opinion Section