Bruce Ely Talks with Law360 on State and Federal Taxation of Partnerships

Bradley attorney Bruce Ely talked with Law360 after attending a virtual Multistate Tax Commission Partnership Work Group meeting on the issue of sourcing state income from partnerships to partners for guaranteed payments and services.

Ely told Law360 that there’s a need for uniformity on state handling of the sourcing for guaranteed payments. Ely explained that taxing guaranteed payments at the federal level is “relatively straightforward.” Generally, the payments are taxed to the recipient partner “in essence as salary subject to self-employment tax” where that partner performed the services, he said.

Distinctions that are key at the state level — such as whether the income is classified as business or nonbusiness or whether the partner is a state resident or nonresident — are not material at the federal level, Ely noted.

“The MTC speakers today and the current version of their white paper properly ask if state sourcing rules should follow the federal rules," he said.

The full article, “MTC Group Weighs Sourcing Partners’ Guaranteed Payments,” was published in Law360 on February 15, 2023. (login required)