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unlike most business entities such as C or S corporations a partnership is never subject to federal income taxation rather the partners themselves are liable for the income tax under partnerships taxable income with each partner individually taking into account his distributive share of each item including the partnerships income gain deduction loss and credit this makes the partnership a pure pass-through entity with all of its taxable income and loss passing through and being taxed to its owners despite its never being subjected to income tax a partnership must still account for its own gross income deductions etc reporting these annually unformed 1065 entitled us return of partnership income each partners distributive share of these tax items is then reported to the partners and to the IRS on a schedule k-1 the partners in turn recognize their respective shares of these k-1 items on their own returns section 702 a of the Internal Revenue Code lists several items of taxable income a...
