Question

Partnership Transactions: Partner and Partnership

Partnership EFGH is a calendar year, accrual basis partnership. Partner G is a calendar year, cash basis partner. Partnership EFGH rents property from Partner G. EFGH pays market rate rent of $4,000 per month. EFGH also pays G a guaranteed payment of $10,000 per month for services performed.

The following transactions occurred near year end:

• The December rent payment for the current year was not received by G until January 5th of the subsequent year.
• The December guaranteed payment was not received by G until January 10th of the subsequent year

1. In what tax year should EFGH deduct the December rent payment and in what year should G include this payment in his tax return? In what year should the EFGH deduct the December guaranteed payment and in what year should G include this payment in tax return

Answer 1

Part 1

EFGH should deduct the December rent payment in December (because accrual basis system being used for reporting)

Partner G should include this payment in his tax return in January of the subsequent year (January 10th) (because cash basis system being used for reporting)

Part 2

EFGH should deduct the December guaranteed payment in December (because accrual basis system being used for reporting)

Partner G should include this payment in his tax return in January of the subsequent year (January 10th) (because cash basis system being used for reporting)