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g-creek
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Gift

Friends A and B decide to buy and flip a house in 2020. As work begins, Friend A asks Friend C if she would be interested in helping with the design. Friend C is not a professional but is told by Friend A that if they make  profit, he will give her some undetermined amount. Due to unforseen conditions and Friend B not helping with labor, the project stretches into 2022.  Due to extra costs, it is assumed they probably will not make a profit, but actually lose money. Fortunately house prices are still high and the house sells and a profit is made. There is no written or oral contract between any of the parties and Friend C has not submitted an invoice for her efforts.  Friend A is happy and relieved to finally have the project completed and gives Friend C a check for $30,000.  Is the $30k a business expense for Friend A and business income for Friend C, or a gift from Friend A to Friend C?

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2 Replies

Gift

Friends A, B and C ought to consult an attorney to sort out what is more of a legal issue than an income tax issue.   This user forum is not the place to help sort out those kinds of issues.

**Disclaimer: Every effort has been made to offer the most correct information possible. The poster disclaims any legal responsibility for the accuracy of the information that is contained in this post.**

Gift

At first glance, it seems that C is also part of the Partnership.  Her pay was dependent on the profit/loss, which seems like she it being treated as a Partner.

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