"Of counsel" employee receiving K-1

[Laura Harrington]

We have a client with a 401(k) plan that is a law firm. They have several individuals they call "of counsel" employees who were former partners of the law firm.

Most years these "of counsel" employees receive a K-1 reflecting self-employment income on line 14, code A when they receive payment for prior services or when they perform current services for the law firm.

The client says that their former TPA told them they didn't have to report these individuals, because they are not employees. But I question this.

I know that "of counsel" relationships can be structured to be an employment relationship or an independent contractor relationship. But my thought is that since they are reporting the income on the K-1 (all as guaranteed payment), and the payment is for personal services rendered to the employer, that the individuals are indeed self-employed individuals, which makes them employees of the law firm.

If it was an independent contractor relationship they should issue them a 1099 instead of a K-1, right?

Any thoughts? Am I missing anything?

[Laura Harrington]

Just realized I was in the wrong section when I posted this. I will repost in the correction section.