Income Tax Accounting Essay

When partnership agreement fails to offer special allocation and is silent, or special allocation is provided and the allocation does not have a substantial economic effect, then partner’s distributive portion of profit or loss can be re-evaluated by the IRS in agreement with the partner’s interest in the company. In partnership, there are guaranteed payments which are done to a partner for the capital use or services offered by the partnership. These payments may not be evaluated by partnerships’ reference income and they are normally depicted as a percentage of the capital or fixed dollar amount. Guaranteed payments are treated as interest or salary payments of other enterprises. Additionally, they are capitalized or deducted by the partnership in accordance with the nature of the payment.