Compensation Via Share Of Profits Did Not Establish A Partnership


Parties that jointly conduct a business or venture and share the profits and losses will typically meet the definition of a “partnership” for income tax purposes and be taxed accordingly. Such partnership treatment can arise, even though the parties did not intend to create a partnership and merely have some other type of contractual arrangement between them.

This issue often arises when an individual or an entity provides services to another that is conducting a venture or business, and is paid for its efforts in whole or in part with a percentage of the profits of the venture. Since there is a sharing of “profits,” there is a reasonable risk that the IRS may find the arrangement to be a partnership, and not a non partnership contractual arrangement.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Charles (Chuck) Rubin, Gutter Chaves Josepher Rubin Forman Fleisher P.A. | Attorney Advertising

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