unreimbursed partnership expenses

[Unregistered]

taxpayer is a general partner
taxpayer says in articles of organization partner will incur additional expenses outside k-1 distributive share
he also receives a w-2 form as an employee

1. he has purchased a truck and wants to expense it at 100%
can he use this on page 2 sch E under "UBE" or would I need to take it to Sch A
2106 with 2% limitation

If you have any IRS regs or codes PLEASE let me know

[Bees Knees]

A partner is NOT an employee of a partnership that is taxed as a partnership, unless the partnership elects to be taxed as a corporation. [Citation = Revenue Ruling 69-184]

A partner deducts unreimbursed partnership expenses on Schedule E, Form 1040, part II, by entering “UPE” as the name of the line item, with the expense amount entered in column (h) of line 28. [Citation = IRS instructions for Schedule E]

[Unregistered]

unreimbursed partnership expenses

I agree but I did not do the 1065/k-1 and am just trying to put this thing together.
He got a W-2 form paid under the partnership name and ID#

I am just thinking how rediculous this looks with $45,000 of "UBE" on the page 2 Sch E
but guess it can happen. That is for other expenses and writing off the $24,000 truck he says stays at the office and 100% business

than ks,
ja

[Bees Knees]

If the partner were audited, the partner could be subject to SE tax on the W-2 income that should have been paid as guaranteed payments. IRS doesn't have to give credit for FICA tax paid, since the procedure was wrong.

I'm not saying they would. I'm just saying they could. Or, they could say well since you insist the partner is an employee, then you don't get the UPE thing on page 2 of the Schedule E.

If the partnership isn't going to follow the rules, then I'm not sure other partnership provisions will be honored.

[sea-tax]

If the partner were audited, the partner could be subject to SE tax on the W-2 income that should have been paid as guaranteed payments. IRS doesn't have to give credit for FICA tax paid, since the procedure was wrong.

I'm not saying they would. I'm just saying they could. Or, they could say well since you insist the partner is an employee, then you don't get the UPE thing on page 2 of the Schedule E.

If the partnership isn't going to follow the rules, then I'm not sure other partnership provisions will be honored.

Bees I agree with your assesment. In fact a partner of mine is going thru an audit now with the same issues about w-2 . Thankfully client came to us after he got IRS audit letter . When we asked why w-2 he said it was easier than making estimates. Go figure

[Unregistered]

unreimbursed partnership expenses

Anyone else care to respond before I spend any more time on this.
I'm actually sick of it. I know the 1065 is wrong but the taxpayer insist he is entitled to the "UBE". I thought since they did pay him with a W-2 with Income tax withheld, FICA and FUTA it might appear to be "more correct" if there is such a thing, to put the truck on Sch A
thanks,
ja

[Bees Knees]

If it were my client, I would report the W-2 as issued, report the line 1 K-1 profit or loss on Schedule E as issued, and give him his UPE on Schedule E.

I would then give him a signed written letter informing him that the partnership paying him a W-2 is improper under IRS guidelines, and that he is at risk for having his UPE taken away if audited by the IRS. Give him a projection of how much extra tax that would cause putting it on Schedule A rather than E. But say that you are reporting it this way under his insistence.

Conclude the letter by strongly advising him that the partnership should report income correctly in the future, and keep a signed copy of the letter for your file so that you have a defense if he ever does have his UPE taken away.

[Unregistered]

unreimbursed partnership expenses

Thanks for that! It is exactly what I have done.
ja

[Kram BergGold]

Disagree

I would tell the client the partnership return is wrong. It materially affects your 1040. Either fix the partnership return or go elsewhere. The reason I take this position is you are going to have the same issue every year. You are going to be left holding the fan when the IRS knocks.