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New Data on Partnership Pass-Through Businesses

3 min readBy: Kyle Pomerleau

Back in September we released a paper on American pass-through businesses. It outlines the fact that since 1980, the number of businesses taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. ed through the individual income taxAn individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. Though barely 100 years old, individual income taxes are the largest source of tax revenue in the U.S. code has tripled while the number of corporations has declined. As these businesses grew in number, the amount of net income they earned grew from $320 billion (2010 dollars) to more than $1.6 trillion in 2010. Their net income has surpassed that of corporate net income and now makes up 54 percent of all business income in the United States.

The IRS has recently released new data on a portion of pass-through businessA pass-through business is a sole proprietorship, partnership, or S corporation that is not subject to the corporate income tax; instead, this business reports its income on the individual income tax returns of the owners and is taxed at individual income tax rates. es called “partnerships” for 2011. Partnerships, according to the IRS, are “relationships between two or more persons who join to carry on a trade or business, with each person contributing money, property, labor, or skill and each expecting to share in the profits and losses of the business.” As with all pass-through businesses, they are taxed through the individual tax code.

While this 2011 data doesn’t reveal much new information about pass-through businesses in general, there are some interesting things the data on partnerships reveals about the composition of pass through businesses.

From 1980 to 2010, the number partnerships grow steadily from 1.3 million to 3.2 million (Figure 1). S-corporations also grew at a slightly faster rate from 545,000 to 4.1 million. However, most of the growth came from sole proprietorships which grew from 8.9 million to over 23 million. Today, of the 30 million pass through businesses that filed a tax return in 2010, 11 percent, were partnerships. 13 percent of pass through businesses were S-corporations and the remaining 76 percent were sole proprietorships according to IRS data.

The most recent data on partnerships indicates the number of partnerships is still increasing at a slow pace. From 2010 to 2011, the number of partnerships increased from 3.24 million to 3.28 million.

Although partnerships are only 11 percent of pass-through returns today, they actually make up more than 50 percent of all pass through net income in 2010 and were responsible for the most of the growth in pass through income in the past thirty years. From 1980 to 2010, net business income of partnerships grew from $119 billion (2010 dollars) to $904 billion. Today, 55 percent of all pass through income is from partnerships. S corporationAn S corporation is a business entity which elects to pass business income and losses through to its shareholders. The shareholders are then responsible for paying individual income taxes on this income. Unlike subchapter C corporations, an S corporation (S corp) is not subject to the corporate income tax (CIT). s account for 25 percent of pass through net business income. Sole Proprietorships, even with their 76 percent share of returns only make up 20 percent of net business income. (Figure 2.)

The chart also indicates that the partnership net business income is slowing down according to 2011 IRS data. Adjusted to 2010 dollars, net business income of partnerships has actually declined slightly from $904 billion in 2010 to $885 billion in 2011.

The new data also shows how partnership returns and net income breaks down by industry. As the table indicates, the vast majority (48.6 percent) of partnerships are in the real estate and rental and leasing industry. The next largest share is in the finance and insurance industry with a 9.2 percent share. The smallest shares are management of companies (0.9 percent), educational services (0.4 percent), and utilities (0.1 percent).

The distribution of net income is slightly different. While finance and insurance has the second largest share of returns, it makes the largest share of net income (35.4 percent). Real estate and rental and leasing make 15.9 percent of partnership net income, and professional, scientific, and technical services earn 10.1 percent. Utilities (0.7 percent), other services (0.2 percent), and educational services (0.1 percent) make the smallest share. It is also interesting to point out mining and manufacturing. Although these industries make up a small share of the returns (1.1 percent and 2.0 percent), they make up a large share of net income (8.1 percent and 7.7 percent).

Share of Partnership Returns and Net Income by Industry, 2011


Share of Returns

Share of Net Income

Agriculture, forestry, fishing, and hunting















Wholesale trade



Retail trade



Transportation and warehousing






Finance and insurance



Real estate and rental and leasing



Professional, scientific, and technical services



Management of companies



Administrative and support and waste



Educational Services



Health care and social assistance



Arts, entertainment, and recreation



Accommodation and food services



Other services