Earned income calculation when PLC members have separate expenses to a

[Guest Diane DuFresne]

In determining compensation for purposes of the ADP test for a PLC taxed as a partnership, we used earned income from the PLC.

I have a member of this entity questioning if there is any affect on the testing if each of the members have separate expenses as they relate to the earned income from the PLC (as shown on Schedule E on the Form 1040).

My reply was no as it seems that obtaining this information from each member whould be too much of a burden at the PLC level.

Any thoughts?

Thanks

[rcline46]

This is same as problem for all partnership plans. BUsiness expenses not charged to partnership but taken on the 1040 DO reduce the partnership income usable for benefits!

However, many disregard this information but do send a letter saying that these expenses should be reported to correctly calculate contributions and the partner is responsible for providing them.

[BeckyMiller]

Just wanted to chime in that I support rcline. I can find nothing that says that any answer other than that is correct. At the same time, I have to tell you that this is one of many ignored rules in practice. I have had very large, ERISA competent and well-informed law firms tell me that I am all wet on this.

In our partnership, we solicit the other expense information from each partner and take what they give us. We do not currently go back and ask for any verification such as a copy of their tax return.