Wealthy couples exploited pass-through partnerships to split income before joint filing

Evidence

One approach was for husbands and wives to form family partnerships and “split” their incomes equally. Family partnerships mimicked small businesses, such as two-person law firms or retail stores; these are classified as “pass-through” entities in which each individual partner pays taxes on their share of the income. (The spousal approach ignored the fact that no legitimate business partnership agreement would be formed solely to award half of the income from the earner to the nonearner.) When family partnerships weren’t challenged by the IRS, the couple got the same result as the Seaborns, and a lower tax bill. When they were challenged, sometimes the taxpayer won and sometimes they lost. This approach was case by case, expensive, and unpredictable. — Dorothy A. Brown, The Whiteness of Wealth, 90

Categorization

• XREF: connects to: Community property laws let wealthy couples split income and pay lower taxes — Dorothy A. Brown, The Whiteness of Wealth: How the Tax…, 88
• yield-rescued: below the book’s yield-target cutoff, included anyway for connecting to: Community property laws let wealthy couples split income and pay lower taxes — Dorothy A. Brown, The Whiteness of Wealth: How the Tax…, 88