A taxpayer is a general partner in a partnership. The partnership agreement provides for a guaranteed payment for services. Which of the following taxes is the guaranteed payment subject to?

Answer options:

Income tax only.

Self-employment tax only.

Both income tax and self-employment tax.

Neither, it is a tax-free distribution.

How to approach this question

Guaranteed Payments for Services = Salary for Partners. Taxed as Ordinary Income AND Self-Employment Income.

Full Answer

C.Both income tax and self-employment tax.✓ Correct

Guaranteed payments for services are treated as ordinary income to the partner and are subject to self-employment tax (because the partner is acting in a capacity similar to a self-employed individual).

Common mistakes

Thinking it's just a distribution (tax-free).

Question 69 All questions Question 71

Practice the full CPA REG Practice Exam 4

72 questions · hints · full answers · grading

More questions from this exam

Q01A CPA is representing a client in an IRS examination. The client has requested that the CPA not p...Hard Q02A tax return preparer is engaged to prepare a tax return for a client who has a significant deduc...Hard Q03Regarding the burden of proof in a civil tax proceeding, which of the following statements is cor...Hard Q04A taxpayer filed their Year 1 individual income tax return on April 1, Year 2. The return reporte...Hard Q05Under the Ultramares doctrine regarding a CPA's liability for negligence to third parties, which ...Hard

View all 72 questions →