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Name Only Partnership? You May Have a Problem…

For my nerds, today’s topic is Nwabasili Tax Court Memo 2016-220.

USTaxCourt Link

Do you have a business with someone and don’t file a partnership tax return?  Perhaps you and your friend have a graphic business together, perhaps you bought a rental home together. Well, in the Nwabasili case, the taxpayer reported his part of his income and expenses on a Schedule C (tax form titled Profit or Loss from Business – for a sole proprietor).  The Tax Court determined that the brothers intended for the business to be a partnership.  It then disallowed the taxpayer’s write-offs for certain costs with the ventures stated that ‘they are partnership deductions that must be taken on Form 1065’.

Many of you know that I insist that all partnership agreements be in writing.  I explain that a partnership is like a marriage without the love. It’s about the money.  Put it in writing when you are in the ‘honeymoon’ state.  File a LLC with the state (seek an attorney) and then file properly either as a partnership or S Corporation.  Do not leave yourself open for an audit.

Remember, you don’t mess with the IRS.

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