One significant and unresolved partnership taxation problem is the taxation of a deceased partner's final year. In a recent case of first impression, Estate of Hesse v. Commissioner, the Tax Court held that the widow of a deceased partner could not include his share of partnership losses incurred during the year of his death on their final joint income tax return. Consequently, the widow lost thousands of dollars in tax refunds because the loss deductions could not offset prior taxable income. The Tax Court believed the result was illogical and unfair, but nevertheless found that the Code required the decedent's executor to report the partnership losses on the income tax return of the decedent's estate.
This note analyzes the tax treatment of a deceased partner's final year, including the key Code provision, section 706. After surveying the history of the taxation of a deceased partner's final year, the note examines the Hesse case and explores three possible strategies for circumventing the Hesse problem under the current Code.
Michelle A. Cecil,
Partnership Taxation: A Deceased Partner's Final Year, 1981 University of Illinois Law Review 671
Available at: https://scholarship.law.missouri.edu/facpubs/729