Authored by John Walker and Chris D. Treharne, ASA, MCBA, BVAL of Gibraltar Business Appraisals, Inc. a member firm of FCG
Randal W. Holdner, Petitioner v. Commissioner of Internal Revenue, Respondent, and William F. Holdner, Petitioner v. Commissioner of Internal Revenue, Respondent
T.C. Memo. 2010-175, Docket Nos. 10367-08, 10375-08, Filed August 4, 2010.
The Tax Court considered whether two individuals working together without a written agreement constituted a partnership, whether the individuals were equal partners, and whether the individual filing tax returns for both was liable for accuracy-related penalties under IRC § 6662.
Disproportionate allocation of income and expense items is permitted if 1) written agreements exist to explain the allocation and 2) income and expense items are allocated in proportion to the ownership interest owned. Because the business in Holdner lacked a written partnership agreement, the Tax Court found that disproportionate allocation was impermissible and the accountant (who also was one of the two partners) was negligent by allowing such allocations.