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USTaxAdvising
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Can an S-Corp partner, of a CA general partnership receive

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Can an S-Corp partner, of a CA general partnership receive guaranteed payments? I suppose the basic question is, can guaranteed payments go to an entity as opposed to an individual?

GP is paying for health benefits for the S-Corp partner (owner). S-Corp is paid for management services of the business and that has been deducted as management fees on the partnership, not as guaranteed payments. Now introduce health insurance for that individual.

USTaxAdvising :

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.

USTaxAdvising :

Your fact pattern is interesting. I am going to re-iterate to confirm my understanding.

USTaxAdvising :

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.

USTaxAdvising :

The S-corp would then pass the health insurance on to the shareholder for inclusion on the shareholder's return.

USTaxAdvising :

I hope this helps. Please let me know if you have any further questions.

USTaxAdvising :

Best regards,

Customer:

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?

USTaxAdvising :

Yes, generally it would always be a gauranteed payment (the management fees).

Customer: Sorry, I just re-read this. GP is making payments for the health insurance, not expenses.
USTaxAdvising :

Okay that is what I had expected.

USTaxAdvising :

Do you have any further questions on this?

Customer: No. I read the pub cite, it is the general rule on partnership payments. Thank you.
USTaxAdvising :

No problem. Please remember to provide a rating if I have answered your questions. Glad I could help.

USTaxAdvising :

Best regards,

USTaxAdvising and other Finance Specialists are ready to help you

Hello Annette,

 

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.

 

Best regards,