Discussion:Guaranteed payment to foreign partner
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Discussion Forum Index --> Advanced Tax Questions --> Guaranteed payment to foreign partner
Discussion Forum Index --> Tax Questions --> Guaranteed payment to foreign partner
Johnhuddleston (talk|edits) said: | 4 September 2008 |
| My client is a partnership with one US partner and one foreign partner. The foreign partner (programer) performs all work outside of the US. Both partners now want to subcontract more work to other unrelated foreign vendors. As it is currently structured, the foreign partner pays US tax on his k-1 share of profits. If he received a guaranteed payment instead, wouldn't there be no US tax since he is performing all his work outside of the US? Additionally, is there any restrictions prohibiting the partnership from subcontracting more work to unrelated foreign vendors? | |
| 4 September 2008 | |
| Good question. Believe that the 1446 regs restrict taxation of a foreign partner to this share of distributive income under Sec. 704. Sec. 707 guaranteed payments appear to be exempt from the 1446 withholding requirements. See Reg ยง 1.1446-2(b)(1). | |
| 4 September 2008 | |
| I agree with Riley2. You just want to be sure that any payments classified as guaranteed payments are truly guaranteed in accordance with the partnership agreement. You don't want to adjust the guaranteed amount on Dec. 31 to "fit" the net income for the year. I recommend that the guaranteed payment be in the written partnership agreement and that it not be adjusted after the beginning of the year. | |
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