He Thought the Lawyer Set Up the Partnership—Then the IRS Called – Disclaimer: This fictional scenario reflects real-world issues faced by business owners. It’s for illustrative purposes only and not based on a specific individual.
He Thought the Lawyer Set Up the Partnership—Then the IRS Called
Two friends. One exciting idea. A handshake and a fast-moving startup.
Darren and Tom decided to launch their web design agency as a partnership. Their attorney drafted basic documents, and they hit the ground running. No CPA involved—just legal paperwork and enthusiasm.
What they didn’t realize was that their tax structure was… a mess.
One partner had contributed most of the capital, while the other brought sweat equity—but they split profits 50/50 without a clear tax agreement. Their attorney hadn’t addressed guaranteed payments or unequal capital accounts. And when tax time came? The IRS flagged several inconsistencies in their filings.
End result? A tax audit, a $15,000 adjustment, and a fractured partnership that didn’t survive.
Legal Docs Aren’t Enough
Many business owners believe that forming a partnership is as simple as drafting an LLC agreement and obtaining a tax ID number. But without a CPA’s input, you could be exposed to:
- Improper income allocations
- Missed deductions
- Capital account tracking issues
- Unexpected audit risk
Where MSM Advisors Steps In
At MSM Advisors, we work alongside legal teams to ensure partnerships are structured for both legal clarity and tax efficiency.
We help clients:
- Understand the tax impact of their ownership structure
- Set up guaranteed payments and capital contributions properly
- Track profit sharing accurately from day one
- Avoid common pitfalls that trigger IRS red flags
Whether it’s a startup or a mature business, partnership tax planning isn’t a checkbox—it’s a strategic move.
Partnerships are about trust. So is your relationship with your CPA.
Work with MSM Advisors to structure your future the right way.
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