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I have some business tax questions; my “partner” didn’t

acquire an EIN (Texas). We...
I have some business tax questions; my “partner” didn’t acquire an EIN (Texas). We only hav a DBA. The business provided healthcare services. In 2017 business had a net profit of $5,700 (part time for both of us). We both took disbursements & will report on personal returns but since no EIN/not legally a general partnership didn’t file a 1065. What are (if any) penalties for this? Need EIN ASAP & file ammended 1065? Help? Thanks!
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Answered in 26 minutes by:
3/25/2018
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 32,699
Experience: Taxes, Immigration, Labor Relations
Verified

We need to know if you run the business as self-employed person and hire your partner as a contractor

OR

if that is a partnership?

If that is a partnership - form 1065 is required if there were any business activities - either income or deductions.

You do need to apply for EIN for the partnership - otherwise you will not be able to file.

.

You may apply for an EIN online - that is the simplest and fastest way.

https://sa.www4.irs.gov/modiein/individual/index.jsp

.

If the first option doesn't work for you - can fax the completed Form SS-4 application to the appropriate fax number (see Where to File Your Taxes (for Form SS-4)), after ensuring that the Form SS-4 contains all of the required information.

If the taxpayer's fax number is ***** a fax will be sent back with the EIN within four (4) business days.

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Customer reply replied 29 days ago
It’s what I get for trusting & not verifying. :/. Hmm. I don’t recall discussing that specifically w/ partner but we considered ourselves equally invested, have equal access to account capitol, & share equally in profits. She did bizness & marketing side; I provided the service. So, didn hire as contractor. Not b surprised if thats gonna the claim. :). On the DBA we r listed as general partnership; which is the only official record of bizness other than opening a joint bank account n DBA name. So r we technically a general partnership (like common law or something?) but not legally? We become legal one we get EIN? Then file 1065. ?? We did have income & deductions they the DBA , all went thru DBA account; then each partner gets k-1basrd off that showing individual profits, etc.?
This HAS TO BE DONE? Or else what? Penalties?
I’m asking so that things are nice & tight & legal. Ain’t got no time for IRS mess. :).
I’m asking, b/c my partner suggested only that we list only our income on our personal taxes & deduct as well. Partner hasn’t mentioned filing a 1065. Said we didn make more than $10k so no need k-1; plus no need k-1 b/c not real partnership. How do u spell conundrum? Guess I right. Help. Victory!

On the DBA we r listed as general partnership; which is the only official record of bizness other than opening a joint bank account n DBA name. So r we technically a general partnership (like common law or something?

Yes - that is correct - as soon as you agreed to run business activities together - that is a starting day of your general partnership.

You are not required to have any contracts or signed documents.

So legally - you have a partnership.

DBA doesn't create any separate entity

What DBA does - it allows you to use a fictitious name for your partnership.

But from legal point of view - you do have a partnership.

That is absolutely legal.

We become legal one we get EIN?

That is opposite - you are applying for EIN after the partnership is formed.

When EIN is assigned - the IRS becomes aware of the partnership.

Then file 1065. ?? We did have income & deductions they the DBA , all went thru DBA account; then each partner gets k-1basrd off that showing individual profits, etc.?

That is correct - if the partnership had business income and deductible expenses - filing is required.

If the tax return is not timely filed - there will be late filing penalties.

Partner hasn’t mentioned filing a 1065. Said we didn make more than $10k so no need k-1; plus no need k-1 b/c not real partnership.

That is not correct interpretation - ANY income will be required to file.

Questions?

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Customer reply replied 29 days ago
Wow. Thank you!!! Just a couple more questions just to tie a big ribbon on this.
The same process my partner suggested (no 1065 or k-1, u claim ur $ & I claim mine) was also used during 2016. Should I expect the IRS to b contacting me soon? Or, how long before they typically go looking? I’m gonna get right on it but since 2016 not filed correctly might already be hit with penalties?Partner said they provided me with same type of info last year (I have no record). Two words I’ve learned frm this experience: due diligence. :). Thank u! Victory!
Customer reply replied 29 days ago
For the record; if this becomes part of the record, when we agreed to equal partners under the DBA with two distinct roles: business & marketing- partner 1 and providing healthcare services partner 2- me; so was in full confidence & total trust I never double-checked the filing data, tax records, or even the un-even distribution of business income. Which brings me to
one last issue & question
(I promise, unless your reply warrants another. :)).... My partner withdrew $ as their disbursement/income greater than the 50% of net profit as agreed upon. Like, 90% in 2016 & 2017 of Net income. They have agreed to pay back & will discuss options to do so (including a time period in which to do so).
Question: What recourse do I have if they don’t repay in full by allotted time? Also :), (sorry) would this be considered theft or embezzlement or whatever the proper/legal term? Thank you soooo very much! You have shined a light into a very dark place! Victory!

The same process my partner suggested (no 1065 or k-1, u claim ur $ & I claim mine) was also used during 2016.

Yes - same requirements for 2016.

If the partnership have income and deductions - filing is required.

Should I expect the IRS to b contacting me soon?

Depending on situation...

If income was reported to the partnership - then the IRS will have a record and may send a letter.

If there were no reporting and the IRS has no record of partnership income - they would not know about the existence of the partnership.

Question: What recourse do I have if they don’t repay in full by allotted time?

All will be based on the agreement between partners.

As you do not have any written agreement - for either party it will be hard to proof what you actually agreed...

If you are not able to negotiate or agreed - you may use any mediation service or sue the partner.

There is no embezzlement or any wrong doing from legal prospective as you are partners.

Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 32,699
Experience: Taxes, Immigration, Labor Relations
Verified
Lev and 87 other Tax Specialists are ready to help you
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Customer reply replied 26 days ago
I started this line of questioning suspicious of partners directions on how to file; and already requested to dissolve partnership so I want to make sure that I file correctly but also that I’m not stuck paying any fines alone d/t parnter’s errors. Partner wanting to remove name frm DBA but seems to me that would remove partner frm any obligation to pay penalty/fine previously discussed. Oh, we DID sign Partnership Agreement; found it.
Question: Should I go ahead & get EIN & file 1065 for 2016 & 2017 w/ partnership still intact and then dissolve partnership? Or is ther a better way/order in which to “do it the right way”?
Thank you! :)

The right way - is to as you outlined - to obtain EIN - file partnership tax returns - issue K1 to each partner - and each partner will use K1 for personal tax return.

Having DBA doesn't creates a business entity - that is a just a name of the entity which doesn't exists.

You may want to have "work around" - and report all income and deductions ofr you personally as self-employed - and issue 1099misc to your partner as subcontractor.

That will result same tax liability - so most likely - the IRS would not have any objections.

However - formally - that would be not correct.

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Customer reply replied 26 days ago
Awesome!! Thank you so very much!! I’m gonna hype you in comments & tip you. :).

Appreciate your warm words and the bonus.

You are welcome back for all your tax related issues.

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Customer reply replied 26 days ago
Thank you! Found P-ship Agree.; roles & duties as (me- CEO & partner- CFO & CMO) and the 50/50= equal split of profit & liabilities. Last question(s), promise. :)
I assume that once I file 1065 for 2016 & 2017 the IRS will now b aware of improper filing & could impose fine/penalty? Which the bizness partners would be equally responsible for paying? If possible, I’d rather not pay for partner’s incompetence/mistakes/illegal(?) management of tax filing; guessing both legally liable? How reconciliation occurs dependent on P.A. but filing taxes not w/in my duties therefore to me, partner solely at fault. ?? But b/c we 50/50, we both at fault? Thanks!

Yes - as soon as you file past tax return - the IRS will assess late filing penalties and interest charges.

Both partners will be responsible - the IRS will NOT divide liability - and both partners are jointly and severally liable.

Joint and several liability means that each taxpayer is legally responsible for the entire liability.

If there are arguments between partners - that should be negotiated or decided in the court when there is no agreement.

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Customer reply replied 26 days ago
Thank u! The IRS mite not divide liability for penalties/charges but I am. :). Found our Partnership Agreement; includes titles & roles, I still need to read thru closely again as I believe all bizness/financial/tax/marketing duties were partners responsibility & all the service providing was done by me.
Could get ugly at meeting but I not gonna let it. :). Amen.
Will keep u posted. Thanks again! Victory!

Yes - each partner may be liable - BUT the IRS will not have any concern about that.

These will be issues between partners ONLY.

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