1107. Partnership Defined

1107.1 Are business partners self-employed?

Yes, business partners are self-employed. A partnership is generally said to be created when two or more persons join together to carry on a trade or business. Each partner contributes in one or more ways with money, property, labor, or skill and shares in the profits and risks of loss in accordance with the partnership agreement or understanding.

1107.2 How does intention relate to partnership?

The intention of the parties that join together to carry on a trade or business is important in determining whether a partnership exists. Intention of the parties is determined not merely from their statements, but to a large degree, from how they carry on the business with each other and with third parties. The abilities and contributions of each partner and the control that each has over the operation of the business are also important factors.

1107.3 Is a partnership the same for Social Security as for income tax?

A partnership is the same for Social Security purposes as for income tax purposes except that Social Security excludes coverage of a limited partner in a limited partnership. Besides the ordinary partnership, the term "partnership" for Federal income tax purposes includes a syndicate, group, pool, joint venture, or any other unincorporated organization that carries on a business. The term does not include corporations, trusts, estates, or associations taxable as corporations. (See §825 for an explanation of these associations.)

1107.4 Must a partnership have a formal agreement?

No. Two or more persons, including husbands and wives, may be self-employed as partners for income tax and Social Security purposes. This may apply even if they do not operate under a formal partnership agreement, and even if they are not considered partners under State law because they have not complied with local statutory requirements.

1107.5 Is a partnership the same as a joint venture?

For Federal income tax purposes and for Social Security purposes, a partnership and a joint venture are essentially the same. The main distinction is that a partnership involves a continuing enterprise while a joint venture is usually for the accomplishment of a single project or transaction.

Last Revised: Mar. 23, 2006