Passive Activity with Guaranteed Payment

Technical topics regarding tax preparation.
#1
swgordon  
I have a new client that had a final K1 on a Partnership interest. It was historically a passive activity however several years ago, his CPA made it non-passive because he started to receive Guaranteed Payments for some consulting work he was doing on behalf of the entity. The payments were minor and only amounted to about 100 hours max per year. It definitely did not rise to the level of material participation.

In 2017 he had a Guaranteed Payment of $17,000 along with other ordinary income associated with this activity. Marking this as a non-passive activity will provide a lower tax amount since he has other passive activities with losses in 2017 that would offset.

I believe that I should just mark it as passive since that is what the facts support. My question is related to the 5 of 10 year rule. If the activity was non-passive for 5 of the last 10 years, then it is automatically non-passive regardless of the participation in the current year. It was never really non-passive, however it was treated that way on the tax return.

Am I OK treating this as passive on the 2017 return?
 

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