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Old 02-23-2017, 03:26 PM
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Smile Partnership interest between husband and wife

My wife and I have interest in a general partnership between the two of us and we live in a community property state. She does most of the work so I would like to make the distributive shares reflect that. There are some questions I have, however.

- Would the IRS challenge a potential 90-10 or 80-20 split by viewing it as not being economically substantial or having economic effect under 704 1(b)(2)?

- Is it more sound to properly compensate my wife with a guaranteed payment?

- IRS publication 555 for community income laws says "If both spouses are partners, any self-employment tax is allocated based on their distributive shares." Does this confirm my understanding that for the purposes of calculating self employment taxes I would not be forced to take a 50% interest in the partnership?

For the next year I'm thinking about incorporating but I'm struggling a bit for 2016



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Old 02-24-2017, 04:20 AM
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My wife and I have interest in a general partnership between the two of us and we live in a community property state. She does most of the work so I would like to make the distributive shares reflect that. There are some questions I have, however.

- Would the IRS challenge a potential 90-10 or 80-20 split by viewing it as not being economically substantial or having economic effect under 704 1(b)(2)?====> =basically, Community property is a marital property regime , not potentail share of profit between a husband and a wife partenrs , under which most property acquired during the marriage
The P/S agreement should address the purpose of the business and the authority and responsibility of each partner It's not necessary, for example, for two owners to equally share ownership and authority. However, if you decide to do it, make sure the proportion is stated clearly in the agreement.

- Is it more sound to properly compensate my wife with a guaranteed payment? ===>Agreed ;since as you said, she does most if the work and then you may reflect this aspect as mentioned above . Guaranteed payments are legitimate business expenses where a firm pays one of more of its partners for services rendered, over and above their share of profits.

- IRS publication 555 for community income laws says "If both spouses are partners, any self-employment tax is allocated based on their distributive shares." Does this confirm my understanding that for the purposes of calculating self employment taxes I would not be forced to take a 50% interest in the partnership?=====>No I do not think so; however, it needs to be allocated /based on your distributive shares."



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