PROBLEM 1, (a) + (b) ONLY
PAYMENTS FOR SERVICES: GENERAL RULE TE Section 707 (c) apparently was enacted to make it clear that a partne os ordinary income as a result of receiving payments for services in capacity. Section 707(a) makes the same conceptual point for tn partners who are compensated for their services while acting in a nonpartner pacty. The two provisions operate similarly except, for timing purpose paned payments are treated the same as a distributive share o gaorship profits. Do these differences make sense? Do they justify th d to distinguish between payments made to an individual in his partner or nonpartner capacity? se strange distinctions have prompted commentators to ss to take a closer look at Section 707(c) and possibly even repeal it 1997 review of partnership tax issues, the Joint Committee tion proposed to retain the present-law concept of guaranteed payments es but amend the treatment of such payments to conform artner service payments. The proposal treated both guaranteed s and payments for services performed in a non-partner capaci Congres on wit nonp pa ty in the same manner, applying the timing rules in Section 707(a)(1) (e.g including the payments in gross income under the recipient's method of accounting.).31 More recent proposals would simply repeal Section 707(c) and treat al payments by a partnership either as if they were made to the rvice provider in a nonpartner capacity under Section 707(a)(1) or as part of the partner's distributive share.35 The AB equal partnership is in a highly speculative business in which profits fluctuate widely. For the current year the partnership has profits of which $12,000 is ordinary income and $8,000 is long-term capital gain. A and B share profits and losses equally unless otherwise provided. A renders services to the partnership which are continuous, related to the f the partnership and not in the nature of a capital expenditure It to A, B, and AB if A worked for the partnership and was required to be paid $15,000 per year for his services regardless of the income of the partnership? (b) What result in (a), above, if A's services relate to improvements on land owned by the partnership? (c) What results if A renders the services under an agreement that he will receive $15,000 or 50% of the profits before taking 1., 1997); Banoff, "Guaranteed Payments for the Use of Capital: Schizophrenia in Subchapter 70 Taxes 820 (1992); Postlewaite &Cameron, "Twisting Slowly in the Wind: Guaranteed rayments After the Tax Reform Act of 1984," 40 Tax Lawyer 649 (1986) See Brannan, "The Subchapter K Reform Act of 1997," 75 Tax Notes 121, 126-129 (April " Joint Committee on Taxation, Review of Selected Entity Classification and Partnership ax Issues 47 (JCS-6-97), April 8, 1997. See Joint Committee on Taxation, Technical Explanation of the Tax Reform Act of 2014, f the Hause Comm. on Ways and Means to Reform the
