Wash. Court of Appeals published opinion — 323820.opn.pdf

Citation: Wash. Court of Appeals published opinion — 323820.opn.pdf
Jurisdiction: Washington (state)
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Original Source: https://www.courts.wa.gov/opinions/pdf/323820.opn.pdf ↗

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agreement as to distributive shares of income, gain, loss, deduction or credit (including
different ratios for profits vs. losses), as long as the allocations have "substantial
economic effect." 26 U.S.C. § 704. Simply stated, the requirement of "substantial
economic effect" means that the allocation must be reasonably expected to substantially
affect the partner's shares independent of tax consequences, and that the recipient partner
must erUoy the economic benefits or bear the economic burdens associated with the
allocation. Treas. Reg. § 1.704-1.
17

DeFelice v. Emp't Sec. Dep't
No. 32382-0-III- dissent

Donald 1. Weidner & John W. Larson, The Revised Uniform Partnership Act: The

Reporters' Overview, 49 Bus. LAW. 1,2 (1993). While observing that under the

predecessor UPA "it [was] not clear which rules are merely default rules and which rules

are mandatory rules," the reporters state, "Under RUPA, every rule governing the

relations among partners is a default rule unless it is separately listed as a mandatory

rule."

This is not to say that how parties share profits and losses will not have a bearing

on whether they are found to have "associate[ed] ... to carry on as co-owners a business

for profit," as is required to form a partnership under the RUPA. As the Supreme Court

of Nebraska observed, applying the RUPA, the indicia of co-ownership, which include

profit sharing and loss sharing, "are only that; they are not all necessary to establish a

partnership relationship, and no single indicium of co-ownership is either necessary or

sufficient to prove co-ownership." In re Key Tronics, 274 Neb. 936, 744 N.W.2d 425,

441 (2008).