Owner-Employee [Internal Revenue] Law and Legal Definition
Pursuant to 26 CFR 1.401-10 (d) [Title 26 Internal Revenue; Chapter I Internal Revenue Service, Department of the Treasury; Subchapter A Income Tax; Part 1 Income Taxes; Normal Taxes and Surtaxes; Deferred Compensation, Etc.; Pension, Profit-Sharing, Stock Bonus Plans Etc.], for purposes of section 401 [26 USCS § 401] and the regulations thereunder, the term Owner-Employee means “a proprietor of a proprietorship, or, in the case of a partnership, a partner who owns either more than 10 percent of the capital interest, or more than 10 percent of the profits interest, of the partnership. Thus, an individual who owns only 2 percent of the profits interest but 11 percent of the capital interest of a partnership is an owner-employee. A partner's interest in the profits and the capital of the partnership shall be determined by the partnership agreement. In the absence of any provision regarding the sharing of profits, the interest in profits of the partners will be determined in the same manner as their distributive shares of partnership taxable income. However, a guaranteed payment (as described in section 707(c) [26 USCS § 707(c)]) is not considered a distributive share of partnership income for such purpose. See section 704(b) [26 USCS § 704(b)], relating to the determination of the distributive share by the income or loss ratio, and the regulations thereunder. In the absence of a provision in the partnership agreement, a partner's capital interest in a partnership shall be determined on the basis of his interest in the assets of the partnership which would be distributable to such partner upon his withdrawal from the partnership, or upon liquidation of the partnership, whichever is the greater.”
Legal Definition list
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