Partnership interest acquired

[jrjames]

There is a 50/50 partenrship AB and before the addition of Partner C the equity was:

Partner A: 20,000

Partner B 20,000

Partner C was given a 30% share with no money put in and now it is

Parnter A 50%

Parnter B 20%

Partner C 30%

Questions:

1. Should partner C recognize income of 12,000 and if so how would it be reported and on what form and is it subject to SE tax

2. If partner C recognizes income does she now have basis in the partnership

3. If partner C recognizes income would partner B recognize loss or an expense and how and on what form would it be reported.

Thanks for considering my questions.

[OldJack]

Results are all about detail facts. Did the new partner receive a percent of ownership of current assets (equity ownership) or is it a percent of future profits (income ownership). What were the intent of the parties, is there a written agreement? Did the new partner receive the ownership for work previously performed, ie: bonus for work? To many variables to determine just from your post.

[jrjames]

Thanks for your reply. The new partner has an equity ownership of 30%. There was no past work performed. The intent of the parties was for the new partner to perform services for the equity acquired although there is no written agreement.

[lbbwest]

Thanks for your reply. The new partner has an equity ownership of 30%. There was no past work performed. The intent of the parties was for the new partner to perform services for the equity acquired although there is no written agreement.

Gee, I thought that there was supposed to be partnership agreement to refer to when allocating, income expense etc. Maybe they should think about having one drawn up? lbb

[OldJack]

The new partner has an equity ownership of 30%.

I would refer you to the 2009 Small Business Quickfinder Handbook, page B-7, that summarizes such partnership situation. If the new partner is receiving a "Capital Interest" of ownership of prior capital, the value is taxable as compensation to the new partner and deductible as a guaranteed payment for the partnership. [Reg § 1.721-1( b )] If the new partner is receiving a profits interest in exchange for services it is generally not a taxable event (with exceptions, see Handbook) [Rev. Proc. 93-27]