Discussion:Informal Partnership
From TaxAlmanac, A Free Online Resource for Tax Professionals
Note: You are using this website at your own risk, subject to our Disclaimer and Website Use and Contribution Terms.
From TaxAlmanac
Discussion Forum Index --> Tax Questions --> Informal Partnership
| 21 January 2007 | |
| I represent a family (extended) who formed an "informal partnership" and purchased a rental house. The rental house is always occupied, and they split the profits and expenses according to their initial deposit percentage. No formal partnership papers have been drawn up or filed -- it's just an agreement between family members. Do I have to submit any partnership forms to all members? My first instinct is to submit to each member a report covering all income and all expenses, calculating the gain(loss) of each partner, according to initial deposit percentage, and suggest they report the gross income, as well as all deductions therefrom, under Schedule E on their return. Their former tax preparer (who passed away) submitted Partner's Share of Income documents, and since nothing has been filed as a formal partnership, I'm concerned that documents of that nature may cause them problems. Your thoughts? Thanks for sharing your time and knowledge. jehipp | |
| 21 January 2007 | |
| There is no EIN for partnership and yet the preparer divided the income/expense between individuals in an informal partnership? | |
| January 21, 2007 | |
| That's the way I take it, Sandy. I think he could continue to write up an informal report that lists the total income and expenses in one column and another column listing each partner's share of the income and expenses. Then give each informal partner a copy of the sheet. | |
| January 21, 2007 | |
| Never mind.. I guess they each have their own "initial deposit percentages", so maybe the sheet should have a column for each partner. | |
| 21 January 2007 | |
| Could and should cause problems if each partner lists rental property at the same address on their 1040 without a K-1 from a partnership....informal or not, it is essential that they apply for and receive an EIN I would think :) | |
| 21 January 2007 | |
| That's correct -- no EIN. Am I better not to submit partnership tax documents and simply submitting an accounting, noting each partner's interest (I could calculate their percentage of income and each expense by using the percentage of their initial investment)and then suggest they use that on their own Schedule E?? Would that work? Thanks for all. | |
| January 21, 2007 | |
| Yes, I'm sure you're right, Sandy. That would be the best thing to do, but do you think the IRS matches rental addresses listed on Sch E forms filed? | |
| 21 January 2007 | |
| I see this a lot in my area with rentals. If the underlying ownership is TIC they just split the income and expenses as they agree to onto their E. The only way to separately allocate these items if not TIC is to form up a formal partnership as far as I am aware. | |
| 21 January 2007 | |
| The instructions for schedule E (page 3) -sorry I don't know how to link you to it, but it says "if you own a part interest in rental real estate property, report only your part of the income and expenses on schedule E". I have done this and never had a problem with it. In Lacerte you can put the total income and expenses and there is a place to put what your percentage ownership is in the property and it splits it for you. With the property description I just put "1/5th interest in ...." | |
Death&Taxes (talk|edits) said: | 21 January 2007 |
| And I think each can choose their own method of depreciation, though this does not really apply anymore, but I recall doing that with ACRS | |
| 21 January 2007 | |
| Also, beware of formalizing these things many years after the fact. If the associated debt is somehow higher then their tax basis you may be open for gain recognition. On an s-corp I am sure of it, would have to hunt for a partnership cite.
| |
| January 21, 2007 | |
| I have some like this, too, and I really see no reason why it couldn't stay informal. | |
| 21 January 2007 | |
| <formed an "informal partnership" and purchased a rental house.>
<and I really see no reason why it couldn't stay informal> No reason it can't stay informal. BUT it would seem to me crazy to hold a rental house outside of some corporate structure for general liability purposes. Tenants are crazy, for instance they might try to plug their new bigscreen TV into a 240 volt outlet (yes, I have no idea how or why but they tried and fried the tv) and then wanted to sue the landlord personally for damages and injuries. | |
To join in on this discussion, you must first
log in.
