Which concept treats a partnership as a separate tax entity requiring its own tax return?

The entity concept recognizes a partnership as a distinct tax entity, which means that it is treated separately from its owners (the partners) for tax purposes. This concept is foundational in tax law because it allows the partnership to be accountable for its own income, expenses, and tax liabilities, separate from those of its partners. Consequently, under the entity concept, partnerships must file their own tax returns, typically using Form 1065 in the United States, which reports the partnership's income, deductions, and other relevant information.

By treating partnerships as separate entities, the entity concept ensures that they cannot simply pass their entirety of income directly to the partners without first accounting for the partnership's financial activities. This separation allows the IRS to maintain a clear record of the partnership's business dealings, while still recognizing the individual tax obligations of the partners, which are reported on their personal tax returns.

In contrast, other concepts such as the aggregate concept consider a partnership merely as a collection of individuals, meaning any taxation occurs at the partner level rather than recognizing the partnership's operations as distinct. The sole proprietorship concept applies specifically to individual entrepreneurs running unincorporated businesses and does not pertain to partnerships. The tax exemption concept generally refers to organizations that are exempt from taxation,