Got a new client who is a 1065 Partnership. Discovered that one of the partners has been receiving a payroll check from the company for over six years. It is my understanding that a partner in a company cannot receive a payroll check from that company. My recommendation will be for the partner to stop receiving payroll checks and to begin receiving a check that will be considered a guaranteed payment. What are the ramifications of six years of improper/mistaken payroll to a partner? What are the chances of this being an issue now that the partner/company is now my client? Is this situation more of a problem to the partnership or to the partner? Since payroll taxes have been consistently paid in via 941 deposits will IRS be in a hurry to deal with it? Any other considerations to stress over? Thanks.
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This has been discussed several times on the board. Basically it is not going to hurt anyone. In fact the partnership has been paying things it didn't have to pay. Like Unemployment Insurance maybe and Worker's Comp. So, the 941 being paid comes out the same as if the partner was paying SE tax.
Yes, they should stop because they are not supposed to be doing it, but the gov isn't out anything - they are.JG
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