2024-09-16
Federal law determines whether a person is a partner in a partnership. Even if a person is prohibited from being a partner under state law, that person can be considered a partner for federal income tax purposes. This would also apply to foreign law --- even if a person is prohibited under foreign law from being a partner in a partnership, that person may be considered a partner for U.S. federal income tax purposes.
In Rev. Rul. 77-332, the IRS determined that certain non-CPAs, designated as "principals" under the partnership agreement, should be treated as partners for federal income tax purposes, even though the principals could not be partners under state law.
We have created a chart showing Rev. Rul. 77-332.