partnership

Forum|Forum|6 years ago
September 11, 2019
5 replies
60 views

If the partner join the partnership in July, can the partner share the partnership's whole year profit?

Carl

Level 11

Sure. There's nothing that says otherwise. Heck, you could have a partner joing an existing partnership that had two partners and do that. So if you have 2 partners and take on a 3rd partner on Dec 31 of the tax year, you can share the profits anyway the partnership desires. The new partner can get 99% of the profit for the entire year, while the two old timers have to split the remaining 1% if the partnership so desires.

Rick19744

Level 13

NO. I disagree with @Carl11_2 .

When there is a change in partnership ownership, the statute and regulations under Section 706 require that allocations are based on specific rules; an interim closing of the books or proration method.

There are rules regarding each of the allocation methods and the proration method can only be used if agreed to by all the partners. These rules are designed to avoid shifting of tax allocations.

In your case, the partners need to determine how they want to allocation the earnings based on the outcome of each of the above methods.

*A reminder that posts in a forum such as this do not constitute tax advice.Also keep in mind the date of replies, as tax law changes.

Carl

Level 11

@Rick19744 thanks for jumping in. Can you define for me please the difference between "change in partnership ownership" and "taking on a new partner"? I did not interpret the post as a change, but as taking on an additional partner into an existing partnership. As I interpreted the post, I assumed there were already at least two partners, and they took on a third partner. Hence, I didn't bother to check the rules (which I've not done in the past in well over 2 years.)

Rick19744

Level 13

There is no difference between a change in partnership interest and taking on a new partner. Either case causes a change in the ownership allocation.

Example: 2 partners 50/50 take on a new partner. There is no longer a 50/50 ownership. The allocation and ownership percentages have changed to what ever this new 3rd partner acquired.

In another example, you can have a 50/50 ownership with A and B. If C buys out B, then you still have a 50/50 ownership, however, there has once again been a change in ownership and requires specific allocation as noted in my original reply.

*A reminder that posts in a forum such as this do not constitute tax advice.Also keep in mind the date of replies, as tax law changes.