I see the Author's Comment" on 20-5 in TTB that it is not uncommon to see partnerships pay partners as employees, w/h tax,issue W2's, etc. Frankly, I had not seen this in 30 years (has it been that long?) of practice, until this year. "It's the way I've always done it" (now I have heard that before) and "then I don't have to make estimated payments". Since it is "not uncommon", would you press the issue to change? Or write a memo quoting RevR 69-184 and let the client decide? What's the risk in status quo in this case?
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John -
Several years ago we inherited a hunband-wife partnership who paid wages to the partners. We did the tax returns and payroll for about 6 years with no problems.Originally posted by John3cpa View Post -
I would simply point out the facts and let them continue with their payroll if that was their decision. It works good for some people that otherwise would not pay their taxes on time.
I have gotten clients to incorporate for the very reason that payroll withholding was the only way to get them to pay taxes without having to borrow money at the end of the year and go thru that mental anguish.Comment
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While it's not the preferred method,
I have several LLC's and partnership's that issue W-2's to partners. I explain to the partners the proposed regs and the fact that the IRS wants them to pay estimates, but also inform them that there is not a final reg that requires it. Then, it's their decision. For most they see this as the easiest way to meet their tax obligations and saves me a big year end headache of being the bearer of bad news with their tax bill.Comment
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Interesting discussion. I was under the impression that wages to partners is not allowed and that this was the final word. But Josh you make it sound like it may be just proposed legislation.
I was told by an auditor that wages in a 1065 are a big nono. They said while it is similar in nature to a se tax it is not exact. Specially when talking about retirement plan contributions.Comment
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