Contract Partner on K1?

[BG5150]

I have a client that has a former owner (50%) still paid via K-1. They say he is a "contract" partner, and shares no part of capital nor profits.

Would I consider this person a former key?

Can/should he be paid on a K-1? The K instructions say its for people who share in the profits or the capital.

[BG5150]

No one?

[Bird]

Probably shouldn't be on a K-1, but accountants do lots of things they shouldn't.

I'd probably consider him a former key.

[SheilaD]

I have a similar question. I have a client with "real" partners and "contract" partners. The contract partner is described to me as follows:

• They receive a guaranteed payment regardless of profits and losses.
• They receive the income in the form of a K1 (no W2).
• They have no equity ownership of COMD.
• They have no voting rights.
• Unlike other employees, they can assign/attest to client tax returns.

Since the person has no equity ownership and does not share in profits my first instinct is that he is NOT HCE (first year of employment so no compensation last year). I'm just antsy about the whole K1 form which seems to imply some type of membership in the partnership - which if over 5% would make him an HCE. Given the size of the client I am recommending that they get a legal opinion but wondered what you'all thought.

Thank you.

[Bird]

I understand the antsyness about ownership when someone gets a K-1, but it doesn't sound like there is any ownership.

(FWIW, I think my prior comment was incorrect - after seeing more of these, there's (probably) nothing wrong with it being on a K-1.)

[SheilaD]

Thanks.

[Bill Presson]

I understand the antsyness about ownership when someone gets a K-1, but it doesn't sound like there is any ownership.

(FWIW, I think my prior comment was incorrect - after seeing more of these, there's (probably) nothing wrong with it being on a K-1.)

Antsyness.

Yay for new words!