Partners income negative

Hello. 

Company A's business entity is partnership.  There are 6 owners of company A   Two of the partners' net earnings are negative before any calculations are made.  Profit sharing amount is determined for rank and file employees.  Do these owners also receive a share of the cost of the profit sharing (based on their ownership %)  taking their earned income to a greater negative amount?

Since there earned income  for plan purposes is negative, we are reflecting their comp as zero.  Should these two partners be included on the ADP/ACP test?

I would think/hope their partnership agreement spells out the (profit sharing) cost allocation.

Not sure about ADP/ACP test, but my guess is no because they are not benefiting/eligible to benefit. If an employee was on leave all year and had no comp, but was not terminated, I assume they would not be included in test. This seems similar to me, but just my opinion.

Forgive me but the premise here does not sound logical:  2 of the partners have negative earnings and the other 4 have positive earnings.  How is that possible? 

2 minutes ago, jpod said:

Forgive me but the premise here does not sound logical:  2 of the partners have negative earnings and the other 4 have positive earnings.  How is that possible? 

Different levels of compensation and or different allocations of partner expenses?

Partners do not have "compensation" in that sense.  If they receive guaranteed payments then that would be "positive" compensation, but that doesn't seem likely in view of the question presented.  It is possible that there are preferential allocations of certain types of income to the other 4 partners, but that would be unusual in a business partnership where all of the owners work in the business (as opposed, for example, to an investment partnership). 

8 hours ago, jpod said:

Forgive me but the premise here does not sound logical:  2 of the partners have negative earnings and the other 4 have positive earnings.  How is that possible? 

Absolutely possible and normal in many situations. Think of a law firm where you "eat what you kill".  The partnership agreement provides who the income (and expenses) are allocated.

10 hours ago, cpc0506 said:

Hello. 

Company A's business entity is partnership.  There are 6 owners of company A   Two of the partners' net earnings are negative before any calculations are made.  Profit sharing amount is determined for rank and file employees.  Do these owners also receive a share of the cost of the profit sharing (based on their ownership %)  taking their earned income to a greater negative amount?

Since there earned income  for plan purposes is negative, we are reflecting their comp as zero.  Should these two partners be included on the ADP/ACP test?

 

The question about the allocation of the PS cost to the individual partners is a function of the partnership agreement.  The question must be asked of the accountant: "how will the PS cost be shared among the partners?" It can be done any number of ways.