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Dissolved Partnership ~ Who's Responsible for Taxes?

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babydolphindjg

Guest
Hello, In November of 2002, my boyfriend decided to go into business with our neighbor. They called themselves "WTB," (not actual name) I typed up a general partnership agreement and they landed their first account. They went to zoning and got a license, and then applied for a tax id number through state and federal. The agreement they signed was never notorized, or made official in any way. The tax id was all done in the partners name, not my boyfriends.

They landed their first account relatively quickly, and began to do punch out work for a big name company. My boyfriend was not experienced in punchout, and the deal was they were supposed to work together so DW could show him how to do certain things. The company split them up and about two weeks later, they decided they didn't need two punch out operators just one. Since DW had the experience, my boyfriend gave the job to him.

One month later, the partner, we'll call him DW, got snippy with the client about when they were going to get paid because he wanted to see a check before Christmas. The company decided to cut him a check immediately and cease all business practices with him. Since WTB did not have a checking account to date, the check was made out to DW. I believe there were two checks, not totaling over $5,000.00. DW gave a portion of the money to my boyfriend, but not half since he did not work the entire contract. This was the only account they had for the last month of the year 2002. My boyfriend did not work any more contracts for WTB.

In March 2003, my boyfriend and I broke up and in April 2003, DW decided he wanted to dissolve the partnership. He sent my boyfriend a letter saying he was dissolving the partnership and was going to continue the business as a sole propriorship (sp). My boyfriend didn't care. Since nothing was notorized or legalized, there wasn't anything that we could legally do, and at this point he didn't really care.

To my knowledge, DW claims to this day that he is still working under this business name, although he has a job where he is employed with another company, not through WTB. My boyfriend and I did get back together, and DW's wife called me and told me that WTB owed taxes totalling $6500.00 and he wants my boyfriend to pay half. Now my boyfriend only worked that one job, in 2002 for about two or three weeks before they lost that contract. DW first said the $6500.00 was taxes owed because they started a business, regardless of whether or not they made any money, and then he tried to say it was taxes on the money that was paid to them, keep in mind they did not make enough to have a $6500.00 tax payment. When I said that then he said it had to do with paying taxes on the tools and things they have, which none were bought through WTB, all the tools they had were their own and they brought them to the business.

I feel my boyfriend should be liable to pay taxes on what was given to him in the few weeks that he worked, but he was given cash by DW, there was no check cut to him from a business account, and he has no record of knowing how much he actually made. I do know that DW took more of the money than he did, because he worked the contract longer.

My question is, should my boyfriend be liable for this $6500.00? I don't know where this amount came from, since I know WTB did not make that much money in the one month my boyfriend actually worked the contract, and my boyfriend did not make enough to owe $3250.00 which is half of that $6500.00 DW claims he owes. DW claims he is still working under this name, and since the tax information was placed in DW's name, wouldn't he be liable himself for this? My boyfriend did not voluntarily give up his partnership, DW literally "squeezed" him out. I tried telling DW that it's not the partners that owe this amount, it's the business itself, and since he owns it, he's the one liable, not my boyfriend. Am I correct? We live in Maryland. Keep in mind this was not a legalized or notorized partnership agreement, just one that I typed up from a general partnership agreement I found on the internet. Any legal ties such as tax information, was done soley in DW's name, as the checks were also cut in DW's name. Thanks for your input.
 


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chrissie

Guest
First, about the partnership agreement. It doesn't matter whether or not it was notarized or whether it was a cookie-cutter agreement. If your bf and DW signed it, it was a binding agreement. Period. It would be in everyone's best interest to review that partnership agreement, esp. where dissolution or termination of the partnership is concerned.

Second, a partnership is a pass-through entity, meaning that the income of the business is passed through to the owners who are then personally responsible for the taxes. What's supposed to happen is, at tax time, each partner fills out a 1065 (IRS form) which states what each partner's share of the business income (or loss) is. That amount gets reported on the individual's 1040 along with income from other sources and the tax due is calculated from there. Sounds like DW could be blowing smoke up your bf's you-know-what. Tell him to show you the letter from the IRS or the tax return showing what your bf purportedly owes in taxes.

Did your bf file a 1065 and 1040 for the year 2002? My first instinct would be to say it's not too late to do so, but since you said that DW got the check written to his name, things get fuzzier. Have you seen the contract for the punchout work? Whose name is it in? WTB's? If so, I would still play safe and make sure your BF has filed taxes and paid tax on his share of income in 2002. Then let DW deal with the IRS for the portion he has or hasn't paid.

Taxes on "tools and things" sounds like it could be a reference to property tax assessed on the business. If such taxes were incurred in 2002, your BF would be liable for his share, so again, I say tell DW to show him the official tax bill. Otherwise, I could just call you and tell you that you owe me $6500, but saying it doesn't necessarily make it so.

It sounds like that letter DW sent in April 2003 may be your bf's only proof in writing that the partnership ended. I am not a lawyer but, if I were him, I would hold onto that paper for dear life indefinitely, in case DW or the IRS comes back later looking for payment for taxes incurred in 2003 and later.

As I said, if your bf didn't file/pay taxes for 2002, he would be wise to file now. Better still, get a CPA or tax professional to assist with that, explain to him/her the full situation, so they can guide you as far as the best way to let the IRS know he is no longer associated with the business.
 

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