Partnership Income And IRS Tax Disputes: An Overview
Are you a member of a business partnership in Florida? If so, it is crucial that you understand your tax obligations. A significant number of IRS tax disputes are centered on business partnerships. In this blog post, our West Palm Beach partnership dispute lawyers provide an overview of the most important things that business owners should know about partnership income and IRS tax disputes.
The Basics: A Partnership is a Pass-Through Entity
As a starting point, you need to know how business partnerships are taxed. Similar to other types of businesses such as sole proprietorships and limited liability companies (LLCs), partnerships are generally taxed as a pass through entity. With a pass through business, income is reported by each partner on their individual tax return. In other words, the income earned by the partnership “passes through” the business and is assigned directly to one of the individual partners for taxation.
The Rule: Partnership Income is Taxed When it is Assigned
In most cases, people pay taxes on the income that they receive. For example, a W-2 employee pays income on the wages they get in their paycheck. A 1099 self-employed individual pays taxes when they receive income as part of the formal or informal contract that they are working on. With partnership earnings, taxation can sometimes prove to be more complicated.
One of the key distinctions is that partnership income is taxed when it is assigned. The IRS is not concerned with distribution. Under 26 CFR § 1.702-1, business partners are supposed to report and pay taxes on the income that they have been assigned in relation to the earnings of the partnership business. Taxes are generally due even if no actual distribution out of a partnership account has been made.
Disputes With the IRS Require Immediate Action
For business owners, dealing with the Internal Revenue Service (IRS) can be challenging. Disputes over the proper amount of taxes owed can arise in a wide variety of different situations. If you disagree with any assessment made by the IRS, it is imperative that you take proactive measures to protect your rights and your interests. The IRS sometimes makes errors—especially when they do not understand the true inner workings of a complex business. You have the right to challenge a tax assessment that is not justified by law. An experienced South Florida partnership law attorney can help you find the best solution to your IRS business tax dispute.
Get Help From a Partnership Dispute Lawyer in Southeastern Florida
At Pike & Lustig, LLP, our Florida business attorneys have the professional expertise to handle the full range of partnership law matters. If you have any questions about partnerships and IRS tax disputes, we are here to get you answers that you can count on. Call us now to arrange your case evaluation. From our law office locations in West Palm Beach, Miami, and Palm Beach Gardens, our firm handles partnership law matters throughout the surrounding area.