Law Firm Partner Salary/Pay

[luckyboy]

Ok, so I just finished my corporation/partnership tax class.  If you are a partner in a law firm, are you paid a salary which would be ordinary income, or would it be considered a capital gain, or a combination of the two?  Just a random question, but meaningful since that 20% tax difference would be nice...

[Jumboshrimps]

Unless I'm misunderstanding your question, a salary is always ordinary income. This is true whether it comes from a corporation, partnership, or any other entity. Capital gain is a return on an investment. Your compensation for services is not a return on any investment.

[luckyboy]

Yes.  Salary is always ordinary income.  But lets say the partner recieves 750,000 a year.  I think its quite plausible that say half is for salary, for the services he provides, but the rest is generated from associates under him.  And thus more of a return from investment, and a capital gain.

Since I originally posted, thought about it some more.  I don't think it matters all that much.  The main difference is whether there is employment taxes???  The partners would probably pay the 35% regardless of what its called since it would be ordinary income for the partnership.  I need to drink lots to stop thinking about things like this!!

[xferlawstudent]

That is not gonna fly with the IRS.  Any compensation is for services (even associates work) is ordinary income.

[nofrills]

why don't you bloody concentrate on getting a job first. damn.

[lakerat]

Ok, so I just finished my corporation/partnership tax class.  If you are a partner in a law firm, are you paid a salary which would be ordinary income, or would it be considered a capital gain, or a combination of the two?  Just a random question, but meaningful since that 20% tax difference would be nice...

I am pretty sure that partners are not usually paid a salary, and if they are it is called a guaranteed payment. The guaranteed payment can create a loss to the partnership and is ordinary income to the partner receiving it.

[vaplaugh]

I'm a 0L, but my current job deals with partnership taxation.  My understading would be as follows:

You are a partner in a business.  The employees of your business generate income for the partnership.  Guarenteed payments are taxable as income.  Profits of the partnership flow through to the partners as income.

[squarre]

It is ordinary income.  Even if you tried to call it something else it would be recharacterized by the IRS as ordinary income.  There are cases and I believe revenue rulings on the issue.