IRS wants to tax interests in partnership profits.(Internal Revenue Service)(Brief Article)

Kiplinger Tax Letter, The, June, 2005

IRS wants to tax folks who get interests in partnership profits as compensation for their services, such as for consulting work. In the past, the Service had said the receipt of most profits interests was not a taxable event because it was very difficult to value them. IRS now says the liquidation value of an interest is a proper measure of its worth, and income tax will be due when the interest is vested, or, if the taxpayer so elects, upon receipt. The change goes into effect once the regulations are finalized, which should occur by the end of 2006.

Employer deductions will be taken in the year employees are taxed.