When the PDQ Partnership Formed, It Knew It Had a Good

question 71

Essay

When the PDQ Partnership formed, it knew it had a good product, but it was a bit short on cash. After seeing the product, Jim, a CPA, said that he would set up an accounting system for the partnership in exchange for a 15% profits interest in the partnership. The partners agreed to this, as Jim was receiving only a profits interest and not a capital interest in the partnership. Jim's usual fee for this type of service would be approximately $5,000. What tax issues should Jim and the PDQ Partnership consider with respect to the payment made for the services?

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Definitions:

Advanced Widget Press

A sophisticated machine or equipment used for producing widgets with advanced features or capabilities.

Caveat Emptor

A Latin phrase meaning "let the buyer beware," which suggests that the buyer is responsible for checking the quality and suitability of goods before a purchase is made.

Legal Concept

Fundamental principles that are recognized and enforced by the legal system to regulate conduct.

American Business Culture

A set of norms, values, and practices that characterize the conduct of business in the United States, including communication styles, work ethics, and corporate governance.