Accepted Answer

Based on your description - you will form a partnership.

An unincorporated organization with two or more members is generally classified as a partnership for federal tax purposes if its members carry on a trade, business, financial operation, or venture and divide its profits.

 

The partnership agreement includes the original agreement and any modifications.

An investing partnership can be excluded if the participants in the joint purchase, retention, sale, or exchange of investment property meet all the following requirements.

• They own the property as co-owners.

• They reserve the right separately to take or dispose of their shares of any property acquired or retained.

• They do not actively conduct business or irrevocably authorize some person acting in a representative capacity to purchase, sell, or exchange the investment property. Each separate participant can delegate authority to purchase, sell, or exchange his or her share of the investment property for the time being for his or her account, but not for a period of more than a year.

Every partnership that engages in a trade or business or has gross income must file an information return on Form 1065 showing its income, deductions, and other required information. The partnership return must show the names and addresses of each partner and each partner's distributive share of taxable income. The return must be signed by a general partner.

 

Contributions into partnership are not taxable. Each owner should show their pro-rata share of partnership income (reduced by any tax the partnership paid on the income), credits and deductions on Schedule K-1 (1065), Partner's Share of Income, Deductions, Credits, etc.

 

Please see additional information in IRS publication 541 - http://www.irs.gov/pub/irs-pdf/p541.pdf

Let me know if you need any help.

 

Expert:	Lev
Pos. Feedback:	99.1 %
Accepts:
Answered:	10/21/2009

Tax Preparer

Personal Investment, Tax Preparation