R ran her hardware store as a sole proprietorship R gave her

R ran her hardware store as a sole proprietorship. R gave her daughter, S, a 20% interest in the business when S graduated from school. Under what conditions will the business be considered as a partnership for tax purposes? A If R made a completed gift and the entity is not a service partnership B. If S actively participates as a partner in the business C If S contributes 20% of the capital to the business or D Under no conditions.

Solution

As per IRS, the partnership is the relationship existing between two or more persons who join to carry on a trade or business. Each person contributes money, property, labor or skill, and expects to share in the profits and losses of the business. Thus when S contributes 20% of the capital to the business, it will be  considered as a partnership for tax purposes