Mary Black, Nell Brown, and Louise Gray each has her own computer equipment and service retail store. In an effort to potentially reduce their costs and increase their control over supply channels, they buy a plant which manufactures selected computer supplies and equipment. Each makes an equal cash contribution toward the purchase of the plant, each has an equal capital and profits interest in the plant, and they agree to share all losses equally. They own the plant as tenants in common. The coowners have a written operating agreement specifying that each has an equal interest in the plant's production, each is responsible for her equal share of expenses, and each owns a proportionate, undivided part of the plant's equipment. The agreement also provides that the plant, as such, does not have the right to market the manufactured computer supplies and equipment. In lieu of the plant's selling the manufactured computer supplies and equipment to other purchasers, Mary, Nell, and Louise agree that each will take one-third oft he plant’s annual output. Each takes her share of the output, commingles it with other computer equipment and supplies in their respective computer equipment and service retail stores, and sells it to customers.

With regard to the plant, research and answer the following questions: 1. Is the plant a partnership for federal income tax purposes? 2. If the plant is a partnership for federal income tax purposes, may it make an election not to be subject to the partnership provisions of Subchapter K of the Internal Revenue Code? 3. Without regard to your answer to question two, assume that the plant may elect out of Subchapter K. Are Mary, Nell, and Louise subject to the self-employment tax on their distributive shares of the plant’s earnings, assuming the output was purchased by Mary, Nell, and Louise, rather than being distributed to each?