Siblings inherited a farm. My client lives far away and did not participate in farm decisions. Is she a general partner with S/E tax?

Forum|Forum|3 years ago
March 17, 2023
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dkh

Level 15

Has a partnership been setup ? Did your client receive a K1?

Sorry need more details.

G

GretaAuthor

Level 7

(Sorry Details box doesn't always open.) Yes, partnership was set up, my client received K-1 with all income subject to S/E tax. Accountant who prepared the 1065 said that "partners are always subject to S/E tax." All four siblings inherited the farm from father who recently died who actively ran the farm. My client owns 25% but had no participation in farm operation or decisions, lives far away. Can she qualify as a limited partner, even though she is a 25% owner?

BobKamman

Level 15

I'm always surprised by how many partnership returns are floating around out there, especially for new businesses that can't use the excuse of "that's how it has always been done." If she wanted to be a limited partner, why didn't they do an LP or LLC? Preferably taxed as an S corp. If she didn't participate last year in decision making, that means her decision was to go along with what her siblings decided. This year, she still has 25% of the vote, right? And for all we know, the partnership agreement requires unanimity.

Maybe there's a way to get out of paying SE tax, that others can provide here. You have my sympathy, for coming in on this after the fact, rather than being asked about the tax consequences before she made such an important decision.

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