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IRC Code section 761(a) will allow the members of a tax partnership to elect out of Subchapter K, the partnership law, by reporting the income on their individual Form 1040 tax returns, but it only applies to partnerships owning investments that have specific attributes. The partnership entity remains a partnership entity for purposes of the limitation on allowable credits and other tax attributes. Strict guidelines apply and if you don't know what you are doing, you can get into trouble. What this means is that as a partner in a partnership, you will report your income on your individual form 1040 tax return and not file a separate form 1065 partnership return each year.
§ 761. Terms defined.
(a) Partnership. For purposes of this subtitle [IRC Sections 1 et seq.], the term "partnership" includes a syndicate, group, pool, joint venture, or other unincorporated organization through or by means of which any business, financial operation, or venture is carried on, and which is not, within the meaning of this title, a corporation or a trust or estate. Under regulations the Secretary may, at the election of all the members of an unincorporated organization, exclude such organization from the application of all or part of this subchapter [IRC Sections 701 et seq.], if it is availed of--
(1) for investment purposes only and not for the active conduct of a business,
(2) for the joint production, extraction, or use of property, but not for the purpose of selling services or property produced or extracted, or
(3) by dealers in securities for a short period for the purpose of underwriting, selling, or distributing a particular issue of securities,
if the income of the members of the organization may be adequately determined without the computation of partnership taxable income.
(b) Partner. For purposes of this subtitle [IRC Sections 1 et seq.], the term "partner" means a member of a partnership.
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