The Tax Advisor recently published an article about properly reporting partner compensation. Here is an excerpt from the Executive Summary of that article by Noel P. Brock, CPA.

  • As partnerships increasingly offer equity interest to retain valued employees, these employees may be unaware of the employment tax consequences of receiving a partnership interest.
  • Many partnerships continue to treat those former employees who hold partnership interest as employees for employment tax purposes, even though the IRS clearly believes these employee/partners cannot be employees.
  • If the IRS discovers this treatment, the possible consequences go far beyond employment tax liability. For example, it might cause a grant of an unvested partnership interest to fail to qualify for the safe harbor in Rev. Proc. 2001-43.

If you have a partnership and would like to review the partner compensation, please contact our tax experts at JamisonMoneyFarmer PC.