Partnership with husband and wife. Husband has been taking weekly checks. Prior years it has been classified as guaranteed payments. I understand it does not have to be classified as guaranteed payments that it can be a draw. The partnership has a good profit. Can we switch it from guaranteed payments on the 1065 to just a draw this year without maybe causing a red flag - be consistent as prior years.
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Can't speak to the audit flag. IRC Reg 1.761-1(c) allows the partners to agree to any method of distribution, even after the year end, as long as it has substantial economic effect. The change must occur no later than the due date of the return without extension.
(c) Partnership agreement . For the purposes of subchapter K, a partnership agreement includes the original agreement and any modifications thereof agreed to by all the partners or adopted in any other manner provided by the partnership agreement. Such agreement or modifications can be oral or written. A partnership agreement may be modified with respect to a particular taxable year subsequent to the close of such taxable year, but not later than the date (not including any extension of time) prescribed by law for the filing of the partnership return. As to any matter on which the partnership agreement, or any modification thereof, is silent, the provisions of local law shall be considered to constitute a part of the agreement.
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