Discussion:What's the authority? (No W-2 for partners)

"Bona fide members of a partnership are not employees of the partnership within the meaning of the Federal Insurance Contributions Act, the Federal Unemployment Tax Act, and the Collection of Income Tax at Source on Wages (chapters 21, 23, and 24, respectively, subtitle C, Internal Revenue Code of 1954). Such a partner who devotes his time and energies in the conduct of the trade or business of the partnership, or in providing services to the partnership as an independent contractor, is, in either event, a self-employed individual rather than an individual who, under the usual common law rules applicable in determining the employer-employee relationship, has the status of an employee. Sections 1402(a) and 3121(d)(2) of the Code.

Remuneration received by a partner from the partnership is not "wages" with respect to "employment" and therefore is not subject to the taxes imposed by the Federal Insurance Contributions Act and the Federal Unemployment Tax Act. Such remuneration also is not subject to Federal income tax withholding.

S.S.T. 23, C.B. XV-2, 405 (1936), is superseded, since the position set forth therein is restated under current statute and regulations in this Revenue Ruling. "

Sometimes they keep an old partner around to tell war stories, and employ him as "bard" or something like that (office historian, reference librarian etc.).

"time and energies in the conduct of the trade or business of the partnership," trade or business of the partnership is the topline thing it does. It's code.

If you are a partner in a doctors practice, the top line is doctoring. Working in the practice's lab doing blood work (and getting a W-2 for it) is not the topline in a doctors office. The code on the return is physician practice, not independent laboratory. Why can't the doctor get a W-2 for fooling around with a little lab work? Most physicans practices have a little lab (or they used to have one).

Of course, I could certainly be wrong about this and I probably am.

Let me put words in your mouth: you're saying there isn't any statute or regulation that prohibits a partner from being, also, an employee of his partnership, right?

However, I must add that I have not done any research on this.

A Rev Ruling is an official pronouncement of the National Office of the IRS; it deals with the application of the Code and Regulations to a SPECIFIC factual situation, usually one that has been submitted by the TP.

(Plagiarized from Federal Tax Research 7th Ed. Raabe, Whittenburg & Sanders). lol.

And opening or delivering mail supports the accounting firm or law firm.

However, I'm reading it more narrowly, the proximate cause of why the revenue comes in (by analogy). It comes in because they have a license to practice medicine. In the doctor fact pattern, they are a doctors practice which happens to have a lab.

They are not running a Laboratory LLC/partnership.

As I said, I have not researched this.

As you just did, Dennis: "...or in providing services to the partnership as an independent contractor...."

Whom are you chiding, anyway?

In Chief Counsel Memo 200117003, the IRS said, "Income received by a bona fide partner from a partnership cannot be wages."

After quoting Rev. Rul. 69-184, the IRS said, "to qualify as an employee for purposes of the employment tax provisions, the worker must be classified both as not a bona fide member of a partnership AND as an employee under the common law control test for distinguishing employees from independent contractors (unless a statutory exception applies)."

No, strike that. What I should've written is "To which I say, they can't even read correctly what they themselves wrote."

I don't understand why the IRS has taken the position it has when it could find higher authority for a different position.

But the rub is that they don't have anything to support that. It's both their premise and their conclusion. That doesn't work for me. How about you?

I hope your team is winning. My fridge is well stocked and the outflow seems manageable.

My team is now *losing*. You can probably tell.

You will all recall that the 69-184 was issued in response to the 5th Circuit deciding the other way in Armstrong v. Phinney, 394 F.2d 661 (1968). The IRS decided it wasn't worth trying to get the Supreme Court to reverse, and just to announce its dissatisfaction by issuing a revenue ruling. See the explanation in the Action on Decision on Armstrong (1968 AOD LEXIS 277, Dec. 19, 1968). Armstrong has never been overruled in the 5th Circuit (or the 11th Circuit, which inherited its precedent when it was split off). Armstrong has been followed elsewhere by Dilts v. U.S., 845 F. Supp. 1505 (D. Wyo. 1994) ("This Court agrees with the Armstrong court's conclusion that under some circumstances, a partner of a partnership may be considered an employee..." [but held that the Diltses weren't employees, on the facts there]); similarly, the Tax Court in Zahler v. Commissioner, T.C. Memo 1981-112, cited Armstrong and didn't express disagreement, but found the particular partner wasn't an employee; in the well-known case of Miller v. Commissioner, 52 T.C. 752 (1969), it cited Armstrong and declined to reach a conclusion on whether it was right.

Robinson v. Commissioner, 273 F.2d 503 (3rd Cir. 1959), Doak v. Commissioner, 234 F.2d 704 (4th Cir. 1956), Moran v. Commissioner, 236 F.2d 595 (8th Cir. 1956), U.S. v. Briggs, 238 F.2d 53 (10th Cir. 1956), and Wilson v. U.S., 376 F.2d 280 (Ct. Cl. 1967), all held that partners are necessarily ineligible to exclude meals and lodging as employees, though they mostly don't address the issue very directly. That's 4 circuits against, or 5 if you assume the Federal Circuit will follow the old Court of Claims.

Again, I don't think it makes any sense at all for someone to be both a partner and an employee (or an independent contractor), and several courts agree, but it's not possible to say that the law is clear, and IRS pronouncements don't override the courts' interpretations.

Does anyone know what happened upon remand? Did the District Court find wages?

Additionally, paragraph 1.707-1(c)ends with the following 2 sentences:

Thus, a partner who receives guaranteed payments for a period during which he is absent from work because of personal injuries or sickness is not entitled to exclude such payments from his gross income under section 105(d).

Similarly, a partner who receives guaranteed payments is not regarded as an employee of the partnership for the purposes of withholding of tax at source, deferred compensation plans, etc. The provisions of this paragraph may be illustrated by the following examples'':

I believe none of the 4 examples illuminate these 2 sentences.

But, are these 2 sentences sufficient authority for no W-2 treatment? And, I am unable to tell (from my resources) if these sentences were written in 1960, or they were part of the revision of 1984. And, having a senior moment (moment may not be the best word) I cannot remember the two types of regs; I think some are interpretive and some are unassailable since the Code requires them to flesh out the Code. But, my point is, I do not know which type of reg this would be, even if I knew the proper labels.

Under the Armstrong reasoning, the fact that a service-performer is a partner should have no relevance: if he would have been considered an employee but for being a partner, then he should still be considered an employee despite being a partner. (PLR 6901296850A says that "...Armstrong v. Phinney does not appear relevant to the federal employment taxes or self-employment tax," but that doesn't make a lot of sense; if you read the PLR and the GCM it's based on (34001), it's clear that the only reason they think Armstrong is irrelevant is that it's wrong. I guess that no case has actually held that it's possible to be an employee for purposes of FICA, withholding, and other non-Chapter 1 purposes, but I think that's the inescapable result of Armstrong's reasoning; I don't see how Armstrong and the PLR can both be correct any more than Armstrong and the revenue ruling (or the contrary cases in other circuits.)

Reg. sec. 1.707-1 has been amended just once since its original adoption in 1960; the amendment did add some language at (c), but not what you quoted.

Seems very consistent to me, and I really can't understand the problem, why you'd WANT to overcome or circumvent that...what would it provide?