DANRVAN

per 1065 instructions: Who Must File Domestic Partnerships Except as provided below, every domestic partnership must file Form 1065, unless it neither receives income nor incurs any expenditures treated as deductions or credits for federal income tax purposes.

Is this a property tax rebate?

And after giving it more thought I am changing my initial answer. Part of the note was used to purchase the Consulting fees so they need to be booked as a prepaid expense. Then I would recognize them over the life of the agreement rather than an allocation of the principal.

Yes it needs to be booked. I suppose that could be an option, but if the life of the loan is also 4 years with equal payments it should work out about the same. The issue I see in this whole deal is if the seller is actually providing a service? Otherwise, it could be reclassified as Goodwill by the IRS and subject to 15 year amortization instead of a short write off. I wonder what kind of tax advice the seller received on this which resulted in $345,000 in SE income. But with a $2 million plus gain it might not mean much. Maybe he will max out from other sources.

The consulting fee is a service deductible by the buyer when paid and taxable to the seller when received. Per the agreement, it appears 15% of each payment will be allocated to the consulting fee. This is a buyer friendly part of the agreement. Unlike the Goodwill which is amortized over 15 years. 1099 amount for the year is $23,550 by my math. allocated: 80%, 3% ,2%, and 15%

I believe there is some confusion in that statement. I am not aware of any reference to "ordinary income" in section 453. In regards to depreciation recapture, 453(i)(1)(B) basically states that any gain in excess of recapture income shall be treated as installment sale income. Also, there is not any reference given in the exceptions listed in 453(b)(2).

Thank you for the heads up, I haven't got there yet. Been working on business returns this week.

And ODR will treat as paid on 12/28 as well.

Clearly income in year received. Hard to imagine agent missed that on multiple audits. But that does not make any difference, doctrine of constructive receipt rules since he had control of the funds on 12/31, regardless of 1099s.

If you filed it correctly then there is nothing to do but move on.

SS-4 needs to use the state filing name. That should work. The bank probably just wants to see the correct name for their records. Hopefully you were not giving out legal advice.

My guess is that the P & L total revenue reports the gross amount from the fund raiser; and the cost is included with total expenses. The line 18 amount on 990-EZ should match the P & L bottom line net amount.

The relationship between the your client ( a partnership) and this other business is the key in determining whether there was a capital loss or ordinary loss. If it was another partnership and your client can pass the test to prove it was either worthless or their share was abandoned, then you will have a case that it was an ordinary loss vs a capital loss. It appears you are trying say the partners of your clients partnership need to claim their interest is worthless or abandoned to claim a loss. But that is not the case. Once the partnership has recognized the loss of the invested $150,000, the 50% partner will have a capital account of -$1,000. (But somebody must have contributed more capital to cover the admin expenses.) So at this point there is no further loss to claim from worthlessness or abandonment of your clients partnership; since the full loss of each partners contribution has been recognized on their K-1s. In other words, If the partnership is dissolved nothing is owed to the partners so nothing is lost!

Or something else?

It sounds like three partners each contributed $50,000 for total of $150,000. Partnership invested $150,000 in XYZ Company. Did they invest capital in another partnership or stock in a corp? Either way it appears an investment account should have been recorded as a debit on their books as "Investment in XYZ Company". Now the investment is worthless so the entry is debit to "loss on investment" and credit to investment account to zero it out. The result should be a $50,000 capital loss allocated to each partner. I don't follow, where does $75,000 come from if initial contribution was $150,000 total by three partners? Form 4797 is for gain on loss on disposition of business assets. What you are describing sounds like a capital asset, resulting in a capital loss reported on the K-1s. Are there two partners 50/50 instead of three? Sounds like those losses came from admin. of the original partnership? Someone kicked in extra cash to pay for them and additional capital?

Not at all. NPs hire accountants, lawyers, contractors, web designers......all the time.

Sounds to me like they are hiring the production company to provide services for the benefit of the NP. With who?

Why? What difference would that make if they are offering a generous benefit package to attract talented employee as allowed by the tax code? Not all, and that is the point. They could use non-elective contibutions as a means of E'R contributions. This is not just my opinion: " non-elective contributions can not exceed the annual contribution limits the Internal Revenue Service (IRS) set ($58,000 annually in 2022)." (note that information is outdated by two years) per: https://401go.com/how-do-non-elective-401k-contributions-work/#:~:text=Non-elective plans give businesses,(%2458%2C000 annually in 2022).

My example might be hypothetical but not unrealistic. Let's say generous employer #2 had a plan where the full annual addition was funded by employer and new hire met requirements for the plan in first year (2024). In that case it seems a $69,000 E'R contribution would be mandatory. As Tex cited above, the 415(c) annual addition limit is not aggregated by unrelated employers. So new hire is entitled to whatever amount is allowed by E'R #2 plan, whether it be the full $69,000 of another $46,000. Also, the employee could have an unrelated side business with contributions to a solo 401(k). Sect 415(c) and 1.414(c)–2 look black and white to me.

It sounds like the following would be true for an employee who switched jobs during the year: If employee's annual addition was maxed out at $69,000 with first employer plan. Then he takes a job with an employer unrelated to the first. The employee cannot make any contributions to the new E'R plan for the year, but looks like 2nd employer could contribute the full $69,000 annual addition under his plan. Maybe I am missing something?

That is also my understanding, although I have not dealt in this situation.

The limits were recently increased for 2024 per Notice 2023-75. The total sec 415(c)(1)(A) annual addition, which is the sum of E'R and E'E contributions is $69,000 for 2024. The E'E contribution limit under sect 402(g) for 2024 is $23,000. The annual addition limited by 415(c)(1)(A) is per plan participant as I read, as long as the two employers are not related. I am curious if you are planning for employee or employer?

For an authoritative cite see 1.16-2(c) which has been referred to in many cases. "Where, however, pursuant to an agreement or understanding, services are rendered to a person for the benefit of an organization described in section 170(c) and an amount for such services is paid to such organization by the person to whom the services are rendered, the amount so paid constitutes income to the person performing the services."

Sounds like a "Donations in Lieu of Honoraria", received under constructive receipt doctrine since he had control of the funds.

But there is a huge difference in the complexity and knowledge needed to prepare a K-1 (and related 1065..etc) vs a 1099. Also, self prepared 1099's are wide open to mistakes like reporting rents as SE income. I see it every year!