Partnership Employment and Payroll, 1979 · Real estate has more than kept pace with the rate of...

Partnership Employment and Payroll, 1979By Nick Greenia*

The first available statistics on employmentand payroll for partnerships indicate that forTax Year 1979 only one third of all partnershipsaccounted for all of the estimated $24 billionin reported payroll. Partnerships with payrolltended to be in trade and service industrieswhile partnerships without payroll were morelikely to be engaged in investment activities.Partnerships with payroll generated almost 70percent of total partnership receipts and totaldeductions and nearly 60 percent of partnershipnet income, but controlled less than 40 percentof all partnership assets (Figure A).

STUDY ORIGINS

These new partnership employment and payrolldata are the result of a study recently com-pleted by the Internal Revenue Service for theSmall Business Administration (SBA) as part of acontractual agreement between the two agencies.Eventually, this agreement is expected torealize two more business employment and payrolldata sets f or Tax Year 1979: one for corpora-tions and one for sole proprietorships [1].These data should prove useful in the continuingdevelopment of SBA's Small Business Data Basein fulfillment of its Congressional mandate toevaluate public policy and economic trends asthey affect small businesses, without therebyplacing any additional data collection burdenan them [2].

BACKGROUND

Two relatively recent sets of circumstancesprobably are responsible for the increasinglyevident role played by partnerships in invest-ment activities. The first set of circumstancesis the energy crisis and accompanying inflationof the early 1970's (most notably marked by theOPEC Oil Embargo of 1973), the repercussions ofwhich have continued to some degree into thepresent. As a result, certain energy resourcesthemselves have enjoyed a fairly steady appre-ciation as assets, and the efficient managementof and exploration for them have receivedtax-favored status as a result of legislationpassed to encourage energy production.

The second set of circumstances relates toanother resource, also in virtually fixedsupply, real estate. A combination of demo-graphic and economic factors has caused theappreciation of these assets. Increased foreigninvestment in domestic real estate and theincreased number of two-income households,occasioned by the rising labor force partici-pation of women, have contributed to increasesin the price of real estate. Real estate hasmore than kept pace with the rate of inflation,and this consideration together with certaintax advantages continue to make it attractiveto investors. Among these tax advantages arethe provisions regarding depreciation deduc-tions, conversion of ordinary income to capitalgains, and the use of "leverage" financing [3].

Thus, it is not especially surprising that tworesources in relatively fixed supply account formuch of the participation by partnerships in taxsheltered investment activity, predominantly inmining, finance, and real estate.

Partnerships as an Investment Entity

As a type of business entity, the partnershipaffords compelling opportunities as an invest-ment vehicle not found in either the corporationor the sole proprietorship. Since the partnersand not the partnership are taxed on partnershipincome, the so-called ' 'double-taxa tion" o

'f

corporate activity (by which the corporation istaxed on its income and shareholders on theirdividend distributions) is avoided. Thisflow-through aspect of partnerships becomesincreasingly useful for individuals in highincome tax brackets seeking ways of shelteringincome [4].

The partnership also provides an excellentmeans for obtaining quantities of capitalsufficient to achieve economies of scale anddiscount purchases not accessible to thesmaller and accordingly more restricted soleproprietorship. In fact, the limited partner-ship offers an ideal form to obtain infusionsof investment capital since, while one or moregeneral partners control and direct business

*Corporation Statistics Branch. Prepared under the direction of Dan Rosa,Chief. The author thanks Bob Noe and Rhen O'Dell, Internal Revenue Service,for their review of and suggestions on this article. 59

60 Partnership Employment and Payroll, 1979

Figure A

Percent of Selected Items For PartnershipsWith and Partnerships Without Payroll

LegjandF--I,% Without Payrollw % With Payroll

Percent Percent801 ---180

70

60

50

40

30

201

10

70

60

50

40

30

20

10

0/"PX Ok Ok 0/ 0/-,~p 0

operations, the "limited" partners function gains and losses since, unlike the corporation,much as shareholders in a corporation. While the partnership is not taxed on its income priortheir liability is limited to the amount of to distribution. Thus, additional partners cantheir individual investments, they can share, be obtained to increase the "size" and also thenevertheless, directly in the partnership's earning potential of the partnership itself.

Partnership Employment and Payroll, 1979 61

DATA ANALYSIS

Investment and Trade and Service Industries

Being primarily investment vehicles in whichalmost all business activity is performed by theparticipating partners, investment partnershipswould tend not to have payroll and employment,or at least to have them in disproportionatelysmaller amounts (especially limited partnershipsccmprised of a general partner and many limitedpartners acting solely as providers of invest-ment capital). On the other hand, partnershipsengaged in the production of goods and services,by their very nature, would require employeesand thus would report payroll and employment.This assessment seems best illustrated by Tables2 and S which show that over 80 percent of thepartners in partnerships without payroll wereengaged in mining, finance, and real estate--industries with high rates of investmentactivity. Nearly half the partners in partner-ships with payroll conducted business inwholesale trade, retail trade, and services.

Wholesale trade, retail trade, and servicesaccounted for approximately three qparters 9freported partnership employment (Figure B).Although mining, finance, and real estate repre-sented a third of partners in partnerships withpayroll, they accounted for a disproportionatelysmall amount of reported employment, only 10percent [S].

Partnership Size

Many partnerships with payroll were relativelysmall when examined by size of employment,business receipts, and total assets (Figures C,D, and E). Almost 60 percent of all partner-ships reporting employment had fewer than 5employees (Table 1). Over 90 percent of part-nerships with payroll had less than $1 millionin business receipts and over 90 percent againhad less than $1 million in total assets f6l.

Since two industry groups, retail trade andservices, accounted for more than half of allpartnerships with payroll but over 70 percentof reported employment, these statistics arenot particularly remarkable. Indeed, they areto be expected, given that many of these enter-prises can be capitalized with relatively smallinitial investments. Another feature attractingsmall businesses to these industries is that asignificant portion of employee remuneration ineating, drinking, and lodging establishmentscan consist of tips paid by customers and thusnot paid directly by the partnership. Employeeremuneration paid directly by the partnershipcan be fairly low for a variety of reasons asdiscussed in "Payroll per Employee" below.

Although 60 percent of all partnershipsreporting employment had fewer than 5 employees,

more than half of reported employment was inpartnerships with 20 or more employees. Threequarters of the employees in these "larger"partnerships could be found in two majorindustry groups, retail trade and services.Eating, drinking, and lodging establishmentshelp provide an explanation, since while theyaccounted for only 11 percent of reportedpayroll., they represented 23 percent of reportedemployment (Figure F). Because many of theseventures run double and even triple shifts, itis quite possible that some of the "larger"partnerships are thus explained. Mich of theremainder would be accounted for by professionalpartnerships in medical and health services;legal services; and accounting, auditing, andbookkeeping services.

Larger partnerships with payroll tended to befew, but affected the distribution of bothemployment and payroll by size of businessreceipts, representing disproportionately largeamounts. Fewer than 10 percent of all partner-ships with payroll had $1 million or more inbusiness receipts. These partnerships accountedfor some 20 percent of partners in partnershipswith payroll, but over 56 per~ent of payrolland over 40 percent of reported employment,most of which was in partnerships with 20 ormore employees.

Essentially four major industry groupsaccounted for the lopsided relationship of thepayroll and employment data in this higheremployment stratum: (1) finance, insurance, andreal estate; (2) construction; (3) manufactur-ing; and (4) transportation, communication,utilities, and sanitary services. Unionizationwas most likely a contributing factor for allof these except finance, insurance, and realestate.

Fewer than 10 percent of partnerships withpayroll had $1 million or more in total assets.Although these partnerships represented a thirdof reported employment, the percentage ofpartners represented by these partnerships wasroughly comparable at 27 percent.

Other Financial Distinctions

Across each industry (except transportation,communication, utilities, and sanitary services[71), partners in partnerships with payrollcontrolled disproportionately high percentagesof total income, net income, and even totalassets. This relationship was pronounced formining, finance, and to a lesser degree realestate, all areas with high concentrations ofinvestment and tax shelter activity. Althoughless than 5 percent of the partners in miningand finance were in partnerships with payroll,they accounted for disproportionately largepercentages of total assets and total income,some 30 percent and 40 percent, respectively.


Figure B

1979 Partnerships With Payroll:Percent of Partnerships, Employment, and PayrollBy Industrial Division

10

Agriculture, Forestry, andFishing

Mining

Construction,

Wholesale and Retail Trade

Finance, Insurance, andReal Estate

Services

Percent20 30 40 50

N

Legend,% Payroll% Employment% Partnerships

-Manufacturing

Transportation, Communi-cation, Utilities, & Sanitary,

M I 11111111M

10 20 30, 40'1 50Percent

Note: "Nature of Business Not Allocable~~ is not shown separate Iy'beca useot the small number of sample returns on which it was based. 'Nevertheless, its data are included~ in the appropriate totals.

While total assets and total income perpartnership in ea

.ch industry (except transport-

ation, communication, utilities, and sanitaryservices) were higher for partnerships withpayroll than for those without, the relation-ships exhibited by mining, finance, and realestate above are not particularly unusual.Even investment partnerships would, require someemployees after they reached a certain size, if

only for purposes of support services and organ-ization. Additionally, partnerships engaged inactual mining production activity- would requirelarger capitalization expenditures per partner-ship than those strictly in investment activi-ties, and thus would tend to be . larger', andreport payroll. This explanation would applysomewhat to real estate as well, but addition-ally At work for both mining and real estate is

Partnership Employment and Payroll, 1979

Figure C I

Partnerships With Payroll: Percent of Partnerships,Employment, & Payroll by Size of Business Receipts& Size of Total Assets

By Size of Business Receipts

$0 $25,000 $100,000 $250,000 $500,000 $1,000,000 $5,000,000Under Under Under Under Under Under or

$25,000 $100,000 $250,000 $500,000 $1,000,000 $5,000,000 More

I

63

By Size of Total Assets


Figure.D.--Number.of Partnerships with Payroll by Size of Employment and Size-of Total Assets

Size oftotal assets

. Total ............................$0 under $2S,000 ......... 6 ........$2S,000 under $100,000 ............$100,000 under $2SO,000 ...........$250,000 under $SOO,000............$SOO,000 under $1,000,000 .........$1,000,000 under $S,000,000 .......$S,000,000 or more .................

Total

393,216172,174

96,19354,49427,60317,89621,1763,679

Nonereported

(2)

121,S6260,43S24,83S1S,S788,S835,0986,214

820

NOTE: Detail may not add to total because of rounding.for a discussion of the "None reported" category.

Size of employment

1 underI S.

(3)

160,40979,27242,31918,6838,4366,0755,221

403

S under10

(4)

S9,98922,73S,18,234

9,9883,3672,0943,139

432

10 under- 20

(S)

29,7357,1746,971.6,4184,,0291,9102,663

S69

20 ormore

(6)

21,5212,SS93,83S3,8273,1872,7203,9381,4S4

"Zero Employment" under Limitations

Figure E.--Number of Partnerships with Payroll by Size of Employment and Size of Business Receipts

Size ofbusiness receipts

Total .................... i ......$0 under $2S,000 ..................42S,000 under $100,000 ............$100,000 under $250,000 ...........$250,000 under $SOO,000 ...........$500,000.under $1,000,000 .........$1,000,000 under $S,000,000 .......$5,000,000 or more .............. L.

Totall~

(1)393,216

49,684114,324113,16361,939~30,89320,3S32.860

Nonereported

L2)

121,56232,12842,70328,43210,8904,6972,454

258

Size of employment

1 under5

-C,

160,40914,99059,74956,05921,0716,2112,158

171 -1

5 under10

L4)

Sq, 98§1,9299,994

20,79016,7477,6012,7S2

174

10 under20

(5)29,735

"2291,5716,5949,2217,3494,575

197

20 ormore

(6)

21,521406307

1 '2884:0105,0368,4132.060

NOTE: Detail may not add to total.because of rounding. See "Zero Employment" under Limitationsfor a discussion of the "None reported" category.


Figure F.--Employment and Payroll for Selected Business Activities in Retail Trade and Services

[Money amounts are in thousands of dollars]

65

Industry Employment Percent Payroll Percent

(2) ~3) (4)

All industries ............................... 2,498,340 100.0 23,678,837 100.0

Subtotal, selected industries .................. 1,156,401 46.3 9,69S,344 40.9

Retail tradeEating and drinking establishments ........... 359,S33 14.4 1,367,617 S.8

ServicesHotels and other lodging places .............. 223,352 8.9 1,308,440 S.5Medical and health services ................... 211,484 8.5 1,797,963 7.6Legal services ............................... 218,919 8.8 3,007,396 12.7Accounting, auditing, andbookkeeping services ......................... 143,113---1 - S.7 2,213,928 9.3

probably the presence of corporate partners,and for real estate, also real estate investmenttrusts (REIT's) acting as partners.

Partners in certain investment partnerships(particularly real estate and mining) wouldexploit the accelerated depreciation provisions-for their assets and claim correspondingly largeamounts of depreciation deductions, resultingin some of the higher percentages of net lossesincurred by partnerships without payroll. Onthe other hand, in partnerships with payrollengaged in trade and service net losses wouldtend to be explained less by tax deductions andmore by the vicissitudes of the economy.

Payroll per Employee

The amount of payroll per employee is fairlyconstant until partnerships with 100 or moreemployees are encountered, rising then from aplateau of some $8,000 to $12,000 per employeeor an increase of roughly 50 percent. The risein payroll per employee is more noticeable asboth business receipts and total assetsincrease, but the glimpse afforded by size ofemployment indicates that more may be involvedthan simply the increased ability to pay higherwages permitted by higher partnership incomeand assets.

At work for businesses with more employees incertain industries (particularly for largerpartnerships in manufacturing, constructionand transportation, communication, utilities:and sanitary services) is the increased likeli-hood of unionization which may bid up theaverage wage rate (Figure G). In addition, andperhaps more fundamental, is the necessity formore management personnel, whether in the formof production working supervisors or in othermore removed strata and administrative servicesof the management hierarchy, tending to increaseaverage reported payroll per employee.

Another factor at work may be the amount ofhuman capital actually required, as illustratedby mining and manufacturing. Though both miningand manufacturing are capital-intensiveindustries, it is important to consider thathighly specialized workers employed in petroleummining probably represent larger investments ofhuman capital in terms of on-the-job-training,formal education, and the like. It is surelypossible that a certain amount of the premiumcommanded by mining might be attributable tothe short duration and harsh conditions ofemployment, but just as surely, mining is notunique among industries in this respect.

Figure G.--Payroll per Employee, by IndustrialDivision

Payroll perIndustrial division employee

All industries ................... $8,839Agriculture, forestry,and fishing ....................... 8,817

Mining .................... 17,483Construction .............. 11,236Manufacturing ...................... 10,7SSTransportation, communication,utilities, and sanitary services 10,827Wholesale trade .................... 9,947Retail trade ............... 4,801Finance .................... :. . ..*::*:** 22,198Insurance .......................... 10,715Real estate ........................ 8,278Services ........................... 9,933

NOTE: Payroll of partnerships reporting zeroemployment was excluded for purposes of thiscomputation. "Wholesale and retail trade notallocable" and "Nature of business notallocable" are not shown separately because ofthe small number of sample returns on whichthey were based. They are, however, includedin the "All industries" computation.


For retail trade (particularly eating anddrirking establishments) and, to a lesserdegree, certain -businesses in, services, therelatively low amount of human capital invest-ment required, especially for job entry, helpsaccount for some of the lower reported payrollper employee since a lower return would beexpected. Additionally, the fact that thesejo~s require relatively less' human capitaltends' to funnel more of the pool of unskilledworkers towards them, thus increasing thedemand for these jobs and cons.equently actingto keep wages down.

The lower human capital requirement also ispartially responsible for at least two otherfactors helping to keep down wages in retailtrade--high turnover and the high incidence ofpart-time and temporary employees. High turn-over is influenced by the relative portabilityof job skills and by the relatively low increasein pay to be expected frcm a longer stay at thesame job. The less rigorous requirements forjob entrance, in conjunction with the varietyof working hours-and shifts available for thesejobs, often make them especially suitable fortemporary employees such as students and other,individuals seeking supplemental rather than

_pK-imary--career-income.- -Part ~time-employees-are---also-att-rac-ted -by---these--job--features -and -f orobvious reasons, their participation also helpsto depress average reported payroll.

"True" remuneration per employee is probablyunderstated in eating and drinking and similarservice-type establishments due to the tendencyfor substantial amounts of tip income to gounreported [ 8 1. True average compensation mayalso be somewhat understated for agriculturalemployees since a substantial portion of theirtotal remuneration can consist of food andshelter, both of which are not reportable forpurposes of Form 943 (Employer's Annual TaxReturn for Agricultural Employees).

Seasonality of business activity also mayaccount for either understating- or overstatingof average employee payroll, depending on wherein the business year March 12,. (the date as ofwhich employment is reported) happens to fall,Thus, for many construction partnerships annualpayroll per employee probably is overstated inthe sense that employment would be higher ingood weather months.

SUNAARY

'For Tax Year 1979, partnerships with payrollcomprised only a third of all partnerships, *butalmost 60 percent of partnership net income.Partnerships without payroll represented some70 percent. of partnership net loss, and wereheavily concentrated, probably as limitedpartnerships, in industries experiencing highrates of investment and tax shelter activity,primarily real estate and finance. Partnerships

with payroll were heavily clustered in retailtrade and services, areas requiring relativ6lysmall capitalization outlays for businessstart-ups and operations.

Although 60 percent of partnerships reportingemployment had fewer than 5 employees, morethan half of all employees Worked--for' partner-ships with at least 20 employees. Ret

-ail trade

and services accounted for over 70 percent ofreported employment, much of it in, pattnershipswith 20 or more employees.

Average employee payroll was fairly constantat approximately $8,000 for partnerships 'withless than 100 employees; 1or partnerships Withat least 100 employees,' it" rose to $12,000.Ibis wage differential is~t probably due 'tofactors such as unionization and more layers of

.management personnel for :larger partnerships.Average employee payroll varied more acrossindustries and ranged from $4,800 for retailtrade to $22,200 for finance. The variationsin average employee payroll by industry *can beexplained by factors such.,,as seasonality ofbusiness . activity, - unionization, . industryprofitability, the employee's human capitalinvestment, and the part-time and temporary-nature-of-certain-jobs-.-

METHODOLOGY

Each of the business and payrolllinkage studies undertaken by JRS Statistics ofIncome

(SOI)Division_for~ the Small Business

Administration will add employment and payrollto the financial data already available fromthe IRS SOI business statistics. series bymatching -SOI sample. files of-

i, business . income

tax returns by Employer Identification Number(EIN) with the corresponding quarterly or annualEmployer's Tax Returns reporting Federal incometax withheld and Social Security (FICA) -taxes.For the Tax Year 1979 Partnership Linkage Study,this operation entailed matching the Tax Year1979 SOI sample

'file of 48,396 Form 1065 (U.S

Partnership Return of Income) ~ - records [91 witkthe population of some .5 million Form 941(Employer's Quarterly Federal Tax Rettifn) andForm 943 (Employer's Annual Tax Return forAgricultural Employees) records'' perfected andprovided by the Bureau of Census [101.

This study was designed to estimate data forfull-year partnership returns; -therefore, thedata differ from those for similar items in the1979 Statistics of - Income partnership' study asillustrated in Figure H-, and sh~ould-be.qualifiedaccordingly (see "Part-Year. and Other ExcludedRecords" under Limitations).

Because the,EIN's an. - some.. partneTs~~p records:.may have been incorrect,'-ft "Was'necessary toimpute [ III for those recqTd,s,,uftich should, havematched with Form 941 or Form 943 data...but didnot. Accordingly, "' three sets (.IbW,,., BEST, , and


Figure H.--Selected Items by Return Group as Percentages of 1979 Partnership Statistics of Income(SOI) Totals

Selected return groups

Item

Partnerships .................................Partners .....................................Total assets .................................

Total receipts ...............................Proxy Payroll . ...............................

Total

U)

100.0100.0100.0

100.0100.0

Full year'

(2)

91.S91.290.1

92.794.6

Part year

'Present study's universe.2Proxy Payroll was the sum of "Salaries and Wages" plus "Cost of labor""Payroll and Proxy Payroll" under Limitations for further discussion.

HIGH) of estimates were eventually produced;those from the BEST set were used in thisreport.

LIMITATIONS

Because the data presented in this articleare estimates based on a sample of returns,they are subject to sampling error. To insureproper use of the estimates, the magnitude ofthe sampling error should be known.

The table below presents approximatedcoefficients of -variation (CV's) for frequencyestimates. The approximate CV's shown here areintended only as a general indication of thereliability of the data. For numbers ofpartnerships other than those below, thecorresponding CV's can be estimated byinterpolation.

ApproximatedEstimated Number Coefficient

of Returns of Variation

940,000 .02150,000 .0s37,000 .109,400 .204,200 .30l'soo .50

The reliability of estimates based on samplesand the use of CV's for evaluating the precisionof sample estimates are discussed in theAppendix.

Part-Year and Other Excluded Records

Part-year partnership records (those withless than a full accounting year) and otherexcluded records (certain prior year records

(3)

6.26.37.7

3.83.9

(in percent)

Other excludedcases

(4)

2.32.52.2

3.51.5

from Form 1065. See

67

and records sharing the same EIN and accountingperiod) were omitted from the present tabula-tions. Part year records may have been new orfinal returns whose matches with Form 941 orForm 943 data would not have been consistentwith the rest of' the population--especiallysince employment is reported only as of thefirst quarter. Other excluded records mighthave adversely affected the data by effectingmultiple matches with Form 941 and Form 943data or by matching to Form 941 or Form 943data not representative of the Form 1065'saccounting period. This limitation of thepresent results means that the estimates inthis article are based on just over 90 percentof the population of 1979 partnership returns.They represent, however, partnerships containingnearly 95 percent of payroll as reported onForm 1065 (see "Payroll and Proxy Payroll"below for more discussion of this item). '

Payroll and Proxy Payroll

Although the ratio of Form 1065 Proxy Payroll(Salaries and Wages plus Cost of Labor) to Form941 and Form 943 Payroll suggested a virtualidentity (98.9 percent) for all partnershipswith payroll, there was some variation in thiscomparison across size of employment byindustry, size of business receipts, and sizeof total assets. It is possible that thepresence of false matches yet within the filemight account for certain of these deviations.Nevertheless, it is more likely that they aredue to (a) differences between the time periodof the partnership's accounting period asreported on Form 1065 and the time period ofthe Calendar Year quarterly Form 941 orCalendar Year annual Form 943 representing itspayroll and employment data and (b) the"burying" of some Proxy Payroll data in otherdeduction items on Form 106S.


Zero Employment

In addition to the 795,350 partnership Forms1065 not matching Forms 941 and Forms 943 andthus reporting neither payroll nor employment,over 30 percent of the 393,216 Forms 1065 thatdid match Forms 941 and Forms 943 reported zeroemployment (Figure I). In spite of theirnumbers, these records nevertheless accountedfor only some 7 percent of reported payroll.

Figure I.--Partnerships With and WithoutEmployment

CategoryNumber ofPartnerships

Total .............................. 1,188,566Not Matching Form 941or Form 943 ..................... 795,3SO

Matching Form 941'or

Form 943 ........................ 393,216Reporting employment ........... 271,6S4Not reporting employment ...... 121,562

-The-deletim-of-Employment--in Form -943-records-(due -- to - -its- -unreliab i1ityY -by --Census-wacdufftsfor the high proportion of zero employmentrepresented by agriculture, forestry, andfishing, but for other industries the followingare considered as possible explanations: (a)seasonality of business activity, (b) highbirth and death rates experienced by partner-ships as a whole (particularly those establishedpurely for tax purposes) predictably resultingin high numbers of no first quarter Forms 941(the only quarter for which employment wasrequired to be reported), and (c) the reportingrequirement itself, which asked for Employmentonly as of the pay period containing March 12.

NOTES AND REFERENCES

[11 A more comprehensive treatment of smallbusiness employment and payroll will beforthcoming from David A. Hirschberg andBruce Phillips (both of whose review ofthis article was much appreciated) of SBAat the conclusion of the Tax Year 1979corporation and sole proprietorshipstudies. These two studies should becompleted by the end of 1984; preliminarytabulations of sole proprietorship employ-ment and payroll data are anticipated byearly summer of 1984. The employment andpayroll studies will be repeated for allthree types , of business entity for TaxYear 1982 to coincide with the EconomicCensuses and thereafter annually forcorporations and every five years forpartnerships and sole proprietorships.

[21 For further information on the SmallBusiness Data Base see Kirchhoff, Bruce A.and Hirschberg, David A., "Small BusinessData Base: Progress and Potential," 1981Proceedings: American Statistical Associa-tion, Section on Survey'Research Methods;Hirschberg, David A. and Phillips, Bruce,"Using Financial Statement Data to Evaluatethe Status of Small Business," 1982 Pro-ceedings: American Statistical Associa-tion, Section on Survey Research Methods;and Rose, Paul and Taylor, Linda, "Size ofEmployment in Statistics of Income: A NewClassifier," 1982 Proceedings: AmericanStatistical Association, Section on SurveyResearch Methods.

[ 31 For a more definitive treatment of taxshelter partnerships see Joint Committee onInternal Revenue Taxation (Staff), Propo-sals Relating to Tax Shelters and OtherTax-Motivated Transactions, JCS-S-84.Also see Piet, Patrick, "PartnershipReturns for 1981 Reflect Tax Shelter Acti-vity," Statistics of income Bulletin,Winter 1983-84.

[41 "The use 'of tax-shelter investments byA increasing-__2 __b_e_Qqqe ---higher-brac axp

-ly wide-s -read through the 1970's. In 197939 percent of taxpayers with over $200,000of adjusted gross income (AGI), beforepartnership loss, reported net partnershiplosses, which reduced federal income taxliability by 10.7 percent in this incomeclass. Considering just those taxpayersin the top income bracket reportingpartnership loss, these losses reducedtheir tax liability by an average 2S.2percent. On the other hand, only 0.1

ercent of taxpayers with pre-loss AGI of10,000 - $20,000 reported net partnership

loss, and this loss reduced tax liabilityby only 0. 2 percent in their incomeclass ....

These -data overestimate tax shelterpartnerships to the extent that netpartnership losses are due to adverseeconomic circumstances as opposed to taxdeductions .... However, net partnershiploss data underestimate t0-deductions tothe extent that losses from one partnershipoffset profits from another." JointCommittee on Internal Revenue Taxation(Staff), Proposals Relating to TaxShelters and Other Tax-motivatedTransactions, JCS~-5-84, page 9.

[51 Almost one third (30.9 percent) of the393,216 partnerships with payroll did notreport employment. Partnerships withpayroll were defined as those whose Form1065 matched on Employer Identification

Partnership Employment and Payroll, 1979 69

Number (EIN) with a Form 941 or Form 943containing payroll or employment forCalendar Year 1978, 1979, or 1980. SeeMethodology and also "Zero Employment"under Limitations for further discussion.

[6 ] Tabulations of income statement, payroll,and employment data cross-classified bysize of employment, business receipts, andtotal assets are available on a reimburs-able basis. These may be obtained bywriting to Director, Statistics of IncomeDivision, D:R:S, Internal Revenue Service,1111 Constitution Avenue, N.W., Washington,DC 20224.

[7 ] Tax shelter partnerships without payrollengaged in the leasing of airplanes mayprovide a partial explanation for thisexception, since the large companiesengaged in actual business activity forthese industries most likely would becorporations.

[81 See Pearl, Robert B. and McCrohan, KevinF., "Estimates of Tip Income in Eating

Places, 1982,11 statistics of IncomeBulletin, Winter 1983-84.

[9] For a more detailed account of thissampling scheme, see Statist!,7s ofIncome--1979, Partnership Returns.

[101 Internal Revenue Service initiallyprocessed Forms 941 and Forms 943 andprovided the Census Bureau with extractsof selected data, as authorized byInternal Revenue Code section 6103.Census "perfected" these data for theirown purposes and later supplied Statistics.of Income Division with "perfected"employment and payroll data for 1978-1980.

[111 For a more complete description of theimputation process, including its assump-tions, see Greenia, Nick, Processing andImputation methodology, November 1983,(unpublished), available upon request bywriting to Director, Statistics of IncomeDivision, D:R:S, Internal Revenue Service,1111 Constitution Avenue, N.W., Washington,DC 20224.

70

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Partnership Employment and Payroll, 1979 · Real estate has more than kept pace with the rate of...

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Transcript of Partnership Employment and Payroll, 1979 · Real estate has more than kept pace with the rate of...