Reference no: EM13546582

Mary Black, Nell Brown, and Louise Gray each has her own computer equipment and a service retail store. In an effort to potentially reduce costs and to increase control over supply channels, they buy a plant which manufactures selected computer supplies and equipment. Each makes an equal cash contribution toward the purchase of the plant, each has an equal capital and profits interest in the plant, and they agree to share all losses equally. They own the plant as tenants in common. The co-owners have a written operating agreement specifying that each has an equal share of expenses, and each owns a proportionate, undivided part of the plant's equipment. The agreement also provides that the plant, as such, does not have the right to market the manufactured computer supplies and equipment to other purchasers. Mary, Nell and Louise agree that each will take one-third of the plant's annual output And commingles it with other computer equipment and supplies in their respective computer equipment and service retail stores and sells it to customers.

With regard to the plant, research and respond to the following questions:
1.Is the plant a partnership for federal income tax purposes?
2.If the plant is a partnership for federal income tax purposes, may it hold an election not to be subject to the partnership provisions of Subchapter K of the Internal Revenue Code? Explain why or why not.
3.Without regard to your answer to Question 2, assume that the plant may elect out of Subchapter K. Are Mary, Nell and Louise subject to the self-employment tax on their distributive shares of the plant's earnings, assuming the output was purchased by Mary, Nell and Louise rather than being distributed to each? Explain your answer.

Your paper must be in a Word document of two to three pages in length. Outside references are not required but may be included.