Exchangors are often confused by the more expansive definition of  "partnership" for federal income tax purposes; whereas a partnership is defined as "an association of two or more persons to carry on as co-owners of a business for profit" for substantive law purposes, Section 761(a) and 7701(a)(2) of the I.R.C. define a partnership for federal income tax purposes as a "syndicate, group, pool, joint venture, or other unincorporated organization through or by means of which any business, financial operation, or venture is carried on, and which is not, within the meaning of this title, a corporation or a trust or estate", and includes in its definition people engaged in financial as well as business operations.

As is the case under substantive law, individuals engaged in a common enterprise may be treated as a partnership for tax purposes even if they do not wish to be partners and operate their enterprise as something other than a partnership. This is of particular importance for those individuals considering investing in syndicated real property interests, such a Tenancy in Common investments. Under Rev. Proc. 2002-22, the co-ownership of rental real property can be treated as a partnership for tax purposes under some circumstances, which is important as classification of the enterprise as a partnership (rather than undivided interests in real property) will disallow the clients  tax deferred exchange, as I.R.C. Sec. 1031(a)(2)(D) excludes exchanges involving partnership interests from tax deferred treatment whether the interests are exchanged of other partnership interests or for interests in real estate.