Thanks for the suggestion, but unfortunately that's not feasible in our case. There are specific reasons (including some health insurance and retirement benefits) why this person needs to remain employed by the S-Corp rather than directly by the partnership. We looked into changing the employment structure earlier and determined it would create more problems than it would solve.

I understand the constraints with benefits. In that case, I think your best option is to follow the special allocation approach mentioned earlier. You'll need to amend your partnership agreement to specifically state that the $25k is first allocated to S1 as a special allocation to compensate for the employment expense, with the remaining profits split 50/50. This maintains economic substance while ensuring your allocations match the reality of your situation. Just make sure the special allocation language complies with the "substantial economic effect" requirements in Treas. Reg. 1.704-1(b)(2).

Accountable plans are typically for employee expense reimbursements, not for reimbursing one partner for paying another partner's compensation. I don't think it applies here since the partnership isn't reimbursing an employee for business expenses - it's a structural compensation arrangement between partners.

7 That's actually super smart! Would you also recommend printing these out or is digital storage enough?

22 Digital storage is generally fine, but I always do both. I keep a digital folder for each tax year, and I also print important items for a physical folder. The key is making sure you can easily find these documents for at least 3 years (the standard IRS lookback period for audits), though 7 years is even better. For something like this payment situation, I'd definitely print the TurboTax acceptance, the IRS $0 balance screen, and your payment confirmation. It's that extra layer of protection that can save you tons of stress if there's ever a discrepancy.

16 It's because Congress has been underfunding the IRS for years. They're running on systems from the 1960s and 1970s in some cases. I read that they still have code written in COBOL which hardly anyone knows how to program anymore.

1 That's a really good point about the withholding! I'll definitely ask her if she received the full $25,500 or if taxes were already taken out. The tax paperwork they gave her was kind of confusing - it had both USD and CAD amounts on it, but I'm not sure if it showed whether any Canadian taxes were withheld. Do you know if the US-Canada tax treaty affects the withholding rate at all? Someone mentioned treaty rates in another comment.

17 Yes, the US-Canada tax treaty can definitely affect the withholding rate! The standard non-resident withholding for prizes in Canada is 25%, but the treaty might reduce that depending on the specific type of income. For certain prizes and winnings, it could be reduced to 15%. The paperwork with both USD and CAD is typical. They would have used the exchange rate on the day of the win to calculate the Canadian tax withholding. If you look carefully, there should be a line item showing "non-resident withholding tax" or something similar. It's crucial to know this amount for filling out Form 1116 correctly to claim the foreign tax credit.

8 That's actually not correct. US citizens and residents are taxed on their worldwide income regardless of where it's earned. Both your $500 poker winnings from Mexico and the OP's cousin's $25,500 game show winnings from Canada are reportable on US tax returns. The US is one of the few countries that taxes based on citizenship rather than just residency or the source of income. You were technically required to report that $500 poker winning as "Other Income" on your tax return. For small amounts like that, it's unlikely to trigger any issues, but for larger amounts like $25,500, failing to report could potentially lead to penalties if discovered.

5 Oh crap really? Nobody ever told me that before. I thought income earned outside the US stayed outside the US tax system. So I should have reported my Mexico poker winnings? Will I get in trouble for this?

Thanks for the warning! Just checked and yes, the refund was just deposited yesterday. That's part of what made me panic when I realized my mistake today. I'll definitely set that money aside until this gets sorted out. Do you remember how long your amendment took to process? I've heard it can take months.

My amendment took about 14 weeks to process last year. It might be different now tho since irs processing times change all the time. The good thing is that they'll send u a letter confirming they received your amendment within a few weeks, so at least you'll know it's in their system. My best advice is to file the amendment ASAP and include a really clear explanation. I think mine took longer because I didn't explain things well and they had to send me a letter requesting more info. Definitely use the explanation section on the 1040X to clearly state you used 1095-A instead of 1095-B by mistake.

Are you sure about not being able to e-file amendments? I thought they started allowing that a couple years ago. I e-filed an amendment last year through TurboTax.

That's actually a really smart idea I hadn't considered. If I added my personal vehicle to the fleet part-time, would I need to list it on all my rental sites/apps? And is there a minimum amount of time it needs to be available for rent to qualify?

You would need to make it legitimately available for rent, which typically means listing it on whatever platforms you use for your other rentals. There's no specific minimum time requirement in the tax code, but you need to be able to demonstrate genuine business intent and availability. What I do is block out certain days/times when I need the vehicle personally, but leave it available for rental during other periods. Then I keep detailed records showing when it was in service for the business versus personal use. This creates a clear paper trail showing business intent. Just make sure your business insurance covers this arrangement - that's often the biggest hurdle.

My CPA tried to use Section 179 for my business vehicle last year (a high-end SUV) and we got flagged for audit. Make sure the vehicle qualifies - has to be over 6000 lbs GVWR for the higher limits and you need to use it >50% for business which you have to be able to prove.