Report Offering New Proposed Guidance on the Treatment of a Partner as an Employee For Federal Tax Purposes

SUMMARY

The Committee on Taxation of Business Entities issued a report proposing that a partnership be allowed to elect to treat individual partners whose share of partnership profits is 10% or less as employees with respect to fixed compensation paid to them if, but for such share of partnership profits, the relationship between the partner and the partnership would be that of an employee with an employer. Once made, the election would be effective for all qualified payments made to all such partners in the electing partnership. The Committee believes such treatment would greatly simplify tax reporting and compliance, without adversely affecting the fisc, and would eliminate the need for alternative structures to try to achieve the same results.