Discussion:Received Distribution on Sale of Business (Sweat Equity)
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Discussion Forum Index --> Advanced Tax Questions --> Received Distribution on Sale of Business (Sweat Equity)
Discussion Forum Index --> Tax Questions --> Received Distribution on Sale of Business (Sweat Equity)
| May 20, 2008 | |
| I have a client that received a check for $98,000. He said it is from the sale of a restaurant where he used to work. While at this restaurant, he was on the payroll and received a W-2 each year. He claims to have had an interest in the partnership of 10% as "sweat equity". He cannot prove that he is an actual partner, but he does not believe that he is listed on the partnership agreement.
He has not received any form for the distribution(as I currently call it)such as a 1099 or K-1. I don't think we're going to be able to get much information on this since they are currently in a legal suit against each other over another matter. Any thoughts on how to report this income? Would listing it as a L/T Capital Gain be appropriate, or is this considered ordinary income? I would appreciate any comments or thoughts...this is a new one to me. Thank you, Steve, EA | |
| 20 May 2008 | |
| I think there's more to the facts that your client is not telling you. How can he be a W-2 employee if he's a partner?
How can he claim to be a partner without knowing about the receiving of a K-1? If you can't get straight answers from this guy - walk away. | |
| 20 May 2008 | |
| Actually you can get a W-2 as a partner, although the IRS doesn't like it. It isn't specifically prohibited. However, unless he can show you a K-1, that is self-employment income on top of his compensation. He has some work to do to prove it isn't SE income. | |
| May 21, 2008 | |
| New info. He was not a shareholder or partner of the business. He was the manager for many years. When the actual owner sold the restaurant for $1 million, he sent this guy a check for $98,000 (about 10%).
My client then turned around and purchased another business from this same guy for $150,000 ( I finally got a hold of the other guys accountant who will be sending me the sales agreement, note payable, etc). So would the $98,000 be classified as a bonus subject to S/E? He was no longer working for the restaurant at the time he received the $98,000. My client is not being deceptive, he has told me everything, but didn't receive any documentation with the check. He also believes he was a sweat equity partner, but that is not the case. Thanks. Steve | |
RoyDaleOne (talk|edits) said: | 22 May 2008 |
| I would suggest that someone just ask the party writing the check how they treated the payment. No 1099? Remember if the payment is being treated as a bonus it should have been on a W-2. The payer may have treated the amount as basis. | |
| 22 May 2008 | |
| Hi has nothing to do with how the "giver" treats it. I would treat it as income s/t S/E. bye | |
