On SF Payroll Tax, Managing Partners And Pirate Captains
CPDB filed the lawsuit to recover a potion of the payroll tax paid on the compensation of its equity partners – $194,903. That’s just shy of $13 million in compensation they were splitting up if I did the math right. The argument is that that equity partner compensation should only be subject to the payroll tax to the extent that it is guaranteed. Essentially, CPDB was trying to smuggle federal income tax principles into the city’s payroll tax computations.
The Internal Revenue Code defines guaranteed payments as amounts paid to partners that do not hinge on partnership profits. Such payments are deductible to the partnership and included in the partner’s income. When it comes to equity partners, that can be a meaningless distinction. One way to split things is to have fixed draws and then some sort of convoluted formula to split up the balance possibly involving the arbitrary rulings of a dictator of greater or lesser benevolence, who usually is just a bit of a sociopath. On pirate ships he is called the captain. The modern term is managing partner. What happens if you don’t make draw? After having a couple of people walk the plank so such a travesty does not happen in the future, the pain has to be spread one way or another. Ultimately there have to be some partners who have none of their compensation guaranteed, should the sky fall in.
IRS Revokes Exempt Status Of Faux Veterans Groups
One of the rather curious things about the IRS scandal narrative is that the investigation of groups causes quite a bit of angst, but when the IRS actually takes action either denying or revoking exempt status, there is hardly a ripple on the tax blogosphere. There have been a few denials of 501(c)(4) status, that have gone largely unremarked and now we have two revocations of 501(c)(19) status – Veterans Organizations. The rulings Private Letter Ruling 201451042 and Private Letter Ruling 201451041 give a history of the evolution of the tax treatment of Veterans’ Organizations and highlight the abuse that the IRS was concerned about in the audits that created the flurry of stories last year and perhaps a chance to reflect on how the road to hellish tax complexity is paved with good intentions .
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Over and over again courts have said that there is nothing sinister in so arranging one’s affairs as to keep taxes as low as possible. Everybody does so, rich or poor; and all do right, for nobody owes any public duty to pay more than the law demands: taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant.