Partnership questions

[cientax]

Have a new client (partnership LLC with 2 partners 50% each) where only one partner received guaranteed payments of $1,000 per month for first nine months and the other partner received absolutely nothing, worked for nothing but he actively and materially participated (he operated the business) then partnership terminated at end of Sept and went to SMLLC. The guy that worked for free continued as SMLLC. How am I supposed to show the guaranted payments on the K-1's if only one partner received the payments and this is supposed to be 50% each? The partner that continued does not want to show that he received income from the partnership since he received nothing from it. There is a small loss of less than $1,000 on the 1065.

[michaelmars]

thats the whole point of guarenteed pmts, so you can distribute in a disporportionate manner.

the end result is the one who got the payments will pic up that income then the partners will split the remaining profit/loss 50/50

[Pacun]

Depending on the partnership agreement, you can give guaranteed payments to a partner who performs meaningful or remunarable work for the partnership. Let's say that your partnership teaches English. The instructor who meets with the students is the one who collects guaranted payment. Imagine that this instructor only teaches 2 hours a day and the other partner works 12 hours recruiting and enrolling students. Based on the contract only the instructor that meets with the students is the one who collects money. If the partnership is lossing money, the losses are split 50%/50%.

In your case, you shouldn't assigned any guaranteed to the partner who didn't receive anything. So let say that the partnership lost $1000, $500 losses for each partner and 9K guaranteed payment for the one who received guaranteed payments.

[kcjenkins]

The point is that the GP increases the loss or reduces the profit that is then split. For example:

Partnership AB takes in $5000, and has expenses of $3000. IF no GP, each of them gets net profit of $1000.

If A got GP of $1000, and B got nothing, then the net profit is $1000, [5000 -3000 -1000], so A gets GP of $1000 plus profit of $500, and B gets profit of $500.

If A got GP of $1500, and B got GP of $1000, then the net loss is $500, [5000 -3000 -2500], so A gets GP of $1500 plus loss of $250, and B gets GP of $1000 plus loss of $250.

[cientax]

Thanks guys for all the help, Now I can wrap it up and move on. The end is near!