Bradley T. Borden

Policy and Theoretical Dimensions of Qualified Tax Partnerships

Qualified tax partnerships are arrangements that come within the definition of tax partnership but elect out of the subchapter K partnership tax rules. Tax entity classification discussions often overlook qualified tax partnerships. This Article, on the other hand, identifies them as a definite part of the tax entity classification spectrum (along with disregarded arrangements, tax partnerships, S corporations, and C corporations). The Article presents a theoretical model that describes the relationship qualified tax partnerships have with other tax arrangements. By illustrating that relationship, the Article dismisses misconceptions about qualified tax partnerships. The Article also demonstrates that tax policy does not support the current definitional construct of qualified tax partnerships. A better classification model would provide a narrower definition of tax partnership, which would eliminate qualified tax partnerships. Lawmakers, however, may never construct that better model. Therefore, qualified tax partnerships will most likely continue to play an important role in the U.S. tax system. That being the case, Treasury should clarify and expand the regulatory definition of qualified tax partnership. Additionally policy suggests that only select provisions of the Internal Revenue Code should apply to qualified tax partnerships. The Article provides direction for such changes and recommends that Congress replace the current elective system with compulsory qualified tax partnership classification.