Treating Partners as Employees: Risks to Consider

Journal of Accountancy, 2014

6 Pages Posted: 24 Oct 2017

See all articles by Noel Brock

Noel Brock

Eastern Michigan Univeristy

Date Written: August 1, 2014

Abstract

More and more businesses, including partnerships, are awarding equity interests to valued employees to keep them. Partnerships often are unaware that even a small equity interest can stop the new partner from continuing to be treated as an employee for tax purposes. Failure to treat these partners correctly can have numerous adverse tax effects, such as overpaying FICA tax, causing benefits paid on the partner’s behalf to be taxable to the partner, and accelerating the taxation of certain bonus payments. Other risks include problems with state tax apportionment formulas and miscalculating the Sec. 199 domestic production activity deduction. Although several planning techniques are available to avoid this problem, none are without shortcomings.

Keywords: Partnership, Employee, Parter as employee

JEL Classification: K34

Suggested Citation

Brock, Noel, Treating Partners as Employees: Risks to Consider (August 1, 2014). Journal of Accountancy, 2014 . Available at SSRN: https://ssrn.com/abstract=3041458

Noel Brock (Contact Author)

Eastern Michigan Univeristy ( email )

Eastern Michigan University
Ypsilanti, MI 48197
United States
619-300-1207 (Phone)

HOME PAGE: http://https://www.emich.edu/cob/faculty/n_brock.php

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