Partnerships/ LLC's

[Unregistered]

I have to questions to ask of you all.

First when filing a 1065 return it is my understanding that partners or members in the case of an LLC should never take W2 income from the partnership and or LLC.
Secondly I am also of the understanding that when more than 50% of a partnership or LLC interest is sold or transferred that a new partnership or LLC must be formed.

Basically I am looking for some thoughts on the subject. I currently am an unenrolled tax preparer who has a client who owns a partnership. Client and his partner go to a CPA who tells them that both of these are non-issues. CPA files the 1065. Normally I would say this really is not my problem because I don't file the 1065 return. However client is not sure he can trust this CPA and asked me to review the 1065.

Becuase I am not a CPA other partner says I have no clue as to what I am talking about.
So I guess I am looking for a little advice.I have been in tax preperation for 7 years and attend many seminars, so I feel I have a good grasp of certain tax topics.

Any help would be much appreciated ( ie: code section or court case)

[Gretel]

I will answer the first question:

No Wages (W-2's) for partnership or LLC unless real employees, not owners.

But a number of 1065's do it anyway.

[Unregistered]

Thank you for that info.

The only reason I can come up with is because of Retirement contributions.For example SEP or 412i plan contributions ,based on net self-employed earnings . What other reasons are there for the IRS to not want them to take wages. Can you think of any?

I know they do, it I even have some LLC's that do it against my advisement..

Also I just can't find any documentation on my second question but I have heard it spoken of in several seminars in passing.

Thank you all in advance.

[rosieea]

....
Also I just can't find any documentation on my second question but I have heard it spoken of in several seminars in passing.

Thank you all in advance.

If you have The Tax Book, see page 20-11, which references Reg Sec 1.708-1(b)(4). You may also want to review IRS Pub 541.