Limitations Of The Old Classification Regulations

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Generally, an entity is taxed as either a corporation or a partnership and in the past there were major differences between the two, specifically, limited liability. The main benefit of a corporation was limited liability, while a partnership was subject to individual liability for partnership debts. Partnerships began to devise new configurations that were aimed at limiting their liability. They succeeded in creating limited partnerships, which took the main advantage of a corporation and shared that advantage with partnerships. The elimination of the limited liability distinction between corporations and partnerships came the need for a new entity classification system. However, the basis of the old classification regulations was…show more content…
In the facts of the case, the Court discovered that the trustees “had authority to acquire and operate a golf course, receive the profits therefrom, make loans and investments, make regulations governing the trust, increase the number of trustees, and choose their successors. The Court further ascertained that the trust was to continue for a period of twenty-five years and would not dissolve upon the death of a trustee.” It was from these facts, that the Court decided the trust would be treated as a corporation for tax purposes. Also from this case, came the five characteristics that were used to determine if an organization was to be treated as a corporation for tax purposes in the Kintner classification regulations. Those characteristics were: (1) ability of the organization to hold title in property, (2) continuation of the organization without interruption by the death of an owner, (3) centralization of management, (4) free transferability of ownership interests, and (5) limited liability for the organization’s debts. The Kintner regulations came from the case of United States v. Kintner. In Kintner, the United States Court of Appeals for the Ninth Circuit was to decide whether an association of doctors would receive corporate tax treatment despite the fact that the organization was a partnership for state law purposes. “The doctors structured a state law partnership to meet the definition of an association in order to take
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