June 23, 2016

Can Partners Be Considered Employees?

Not according to the IRS.
Last month, the IRS issued temporary regulations T.D. 9766 clarifying the employment tax treatment of partners in a partnership owning a disregarded entity. In the past, some partnerships treated the partners as employees of the disregarded entity, thereby allowing the partners to participate in employee benefit plans. These temporary regulations clarify Rev. Rul 69-184 and specifically state that partners of a partnership cannot be treated as employees of a disregarded entity owned by the partnership.
Rev. Rul. 69-184 remains in effect which states that: (1) bona fide members of a partnership are not employees of the partnership within the meaning of the Federal Insurance Contribution Act, the Federal Unemployment Tax Act, and the Collection of Income Tax at Source on Wages, and (2) such a partner who devotes time and energy in the conduct of the trade or business of the partnership, or in providing services to the partnership as an independent contractor, is, in either event, a self-employed individual rather than an individual who, under the usual common law rules applicable in determining the employer-employee relationship, has the status of an employee.
These regulations will apply on the later of: (1) August 1, 2016 or (2) the first day of the benefit plan year starting after May 4, 2016. For more information, you can read Treasury Decision 9766 (TD 9766) at http://federalregister.gov/a/2016-10383, or contact a Sansiveri tax professional at 401-331-0500.
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