We pay rent to one partner. I assume that appears only as a guaranteed payment and NOT a rent expense?

Forum|Forum|6 years ago
June 1, 2019
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The payment is for inventory storage. Don't want to subtract this expense twice, so I assume it goes as a guaranteed payment and not as rent expense. Correct?

TurboTax Business Windows

Best answer by RichardG

You are correct in wanting to avoid claiming the same expense twice. But the more accurate approach is to record the payment as a rent expense, and not a guaranteed payment. The IRS explains:

For certain transactions between a partner and his or her partnership, the partner is treated as not being a member of the partnership. These transactions include the following

Performing services for, or transferring property to, a partnership if:

There is a related allocation and distribution to a partner; and
The entire transaction, when viewed together, is properly characterized as occurring between the partnership and a partner not acting in the capacity of a partner.

Guaranteed payments are typically for services or capital related to the partnership business. Put another way, if it's an expense you have just as easily incurred with a third party, it's more like an expense and less like a guaranteed payment.

RichardGAnswer

Employee

You are correct in wanting to avoid claiming the same expense twice. But the more accurate approach is to record the payment as a rent expense, and not a guaranteed payment. The IRS explains:

For certain transactions between a partner and his or her partnership, the partner is treated as not being a member of the partnership. These transactions include the following

Performing services for, or transferring property to, a partnership if:

There is a related allocation and distribution to a partner; and
The entire transaction, when viewed together, is properly characterized as occurring between the partnership and a partner not acting in the capacity of a partner.