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Yes guaranteed payments can go to an S-corp as well as individual. Per Publication 541 -
Guaranteed payments are those made by a partnership to a partner that are determined without regard to the partnership's income. A partnership treats guaranteed payments for services, or for the use of capital, as if they were made to a person who is not a partner. This treatment is for purposes of determining gross income and deductible business expenses only. For other tax purposes, guaranteed payments are treated as a partner's distributive share of ordinary income. Guaranteed payments are not subject to income tax withholding.
Your fact pattern is interesting. I am going to re-iterate to confirm my understanding.
The GP is making guaranteed payments to an S-corp for the S-corp's shareholder's medical expenses. Hmmm.... This is reasonable with respect to health insurance but not with respect to medical expenses. Medical expenses of a partner/shareholder should not be deducted on the partnership books. Health insurance can be deducted so long as it is footnoted on the Schedule K1 and the amount is classified as a guaranteed payment.
The S-corp would then pass the health insurance on to the shareholder for inclusion on the shareholder's return.
I hope this helps. Please let me know if you have any further questions.
I will check the publication 541 you cite, however, what about the "management fees" for service that are being paid to the General Partner (S-Corporation)? Same treatment? Guaranteed Payment?
Yes, generally it would always be a gauranteed payment (the management fees).
Okay that is what I had expected.
Do you have any further questions on this?
No problem. Please remember to provide a rating if I have answered your questions. Glad I could help.
Please let me know if you have any further questions on this. If I have answered your questions please provide a rating.
Thanks for your time.
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