On Fri, 6 Feb 2009 00:39:58 EST, Vijay Sharma
<vj445[at]hotmail.com> wrote:

snip

- quote -

You need to hire a tax professional to help with this. For
practical purposes the capital can't be 50/50 if all the
profit is allocated to one partner. Lets look at a really
simple example. 1/1/08 the capital accounts and basis are
$100 for John and $100 for Janice. Income for the year is
$50. Nothing else happens. So as of 12/31/08 the capital
accounts are John $150 and Janice $100 for a total of $250.

Simple math tells us that John now has $150/$250 or 60% of
the capital while Janice has 40%.

The $50 of income can't be 100% taxable to John but split
$25 to John and $25 to Janice for capital account purposes.
The same rule has to be used for both purposes or IRS will
cause you to recast the transactions.

--
Drew Edmundson, CPA
Cary, NC

--
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On Feb 4, 7:33*am, Drew Edmundson <drewsbeag...[at]hotmail.com> wrote:
- quote -

Thanks for your response.

Yes, this is a one year thing. Also, because one partner runs the
operation while the other is employed elsewhere. So on this basis,
can one partner take 100% profit for one year while keeping the
Capital 50/50? This would help in their individual tax returns. But
In the past, they have shared profit 50/50. Or will this be a red
flag to IRS?

--
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On Wed, 4 Feb 2009 00:20:11 EST, Vijay Sharma
<vj445[at]hotmail.com> wrote:

- quote -

Yes, but there are complex rules to follow. Briefly the
allocation has to have economic effect.

- quote -

Yes, but it may not be respected by IRS unless the economic
reality follows the allocation.

- quote -

Effectively no. But you can keep three sets of books - tax,
the 50/50 books, and books with the 100/0 allocation. But
the 50/50 books aren't respected by IRS.

- quote -

Why is this going on? You have left out something. Is this a
one year thing? Why will Mr. 0% stick around if he is never
going to get anything?

- quote -

You really need to see a tax professional who can review the
legal documents and all the facts before they provide
advice. It also sounds like Mr. 0% needs to talk to his
lawyer.

--
Drew Edmundson, CPA
Cary, NC

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >