I just a read case, Zampa v. Commr (T.C. Memo 1990-561), where a husband/wife Amway distributorship was determined to be a partnership. The taxpayer filed a Schedule C since 1981 showing the husband as the owner. In the years under audit, 1984 and 1985, the wife was paid wages from the husband's Schedule C.
https://www.leagle.com/decision/1990119260hytcm11321960
The Tax Court ruled, "We find that petitioners Mr. and Mrs. Zampa were partners for self-employment tax purposes under sections 1401 and 1402." The Tax Court commented, "...we dismiss petitioners' argument that because respondent did not object to petitioners' characterization of the distributorship as Mr. Zampa's sole proprietorship on their 1981, 1982, and 1983 tax returns, the distributorship's earlier status should govern its tax status for 1984 and 1985."
I'm confused because there is no mention of not filing partnership tax returns for any of the years nor the penalties that result therefrom. All the Tax Court (and the IRS) were concerned with is getting additional SE tax. Moreover, the court wasn't bothered whatsoever that 1981-1983 tax returns were Schedule C and not filed as a partnership.
My biggest concern with an Amway client I have is failure to file penalties if a partnership tax return is not filed. I considered treating them as a qualified joint venture (QJV) but not convinced they each can satisfy one of the seven material participation requirements needed to elect to be treated as a QJV. I recently had a thread about this:
viewtopic.php?f=8&t=14338
Can anyone make sense of the IRS and Tax Court lack of concern for filing partnership tax returns?