Question :

Mary, louise and nell each have their own computer equipment and retail store. They purchase a plant together to manufacture computers, each making equal cash contribution toward the purchase, equal capital and profit interest and share all losses equally. Owned as tenants in common they have a written agreement that each has an equal interest in plant production, each is responsible for equal expenses and owns a proportionate, undivided part of the plants equipment. They agree that every will take one-third of the plants annual output and commingles with other computer equipment in their retail stores and sells it to customers.

1. Is the plant a partnership for federal income tax purposes?

2. If the plant is a partnership, can it make an election not to be subject to the partnership provisions of subchapter K of the IRS?

3. Consider the plant may elect out of Subchapter K...are mary, louise and nell subject to the self-employment tax on their distributive shares of the plants earnings, considering the output was purchased by mary, louise and nell rather than being distributed to each?