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The IRS has ruled that a partner, whether they hold only capital or profits interest, is a partner and is excluded from being a W-2 wage employee at that time.Can a partner be both a partner and an employee?
Because the IRS does not permit a partner to be both a partner and an employee, continuing to treat an employee who has received an unvested profits interest as an employee for employment tax purposes by issuing the partner a Form W-2, Wage and Income Statement, etc., presumably runs afoul of the above requirement.Is a partner an employee for federal tax purposes?
Even a very small partnership interest, however, can cause the employee to be treated as a partner, not an employee, for federal tax purposes, while the partnership often mistakenly continues to treat the partner as an employee. This article examines problems raised by this incorrect treatment.Can a pass-through entity pay an employee on a W-2?
Unlike in an S-Corporation (another pass-through entity), members or partners of this type of entity are not eligible to be paid as a W-2 employee, but they make take owner draws.