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IRS: Partners Are Not Employees

irs-small-3 new rules §301.7701-2(b) , then it is considered a disregarded entity. The IRS noted that, for employment tax purposes, the disregarded entity, rather than the owner, is considered the employer. This, however, has led certain taxpayers to take a broader interpretation of the statute than was intended, at least when that owner is a partnership, said the IRS. 

"It has come to the attention of the Treasury Department and the IRS that even though regulations set forth a general rule than an entity is disregarded as a separate entity from the owner for self-employment tax purposes, some taxpayers may have read the current regulations to permit the treatment of individual partners in a partnership that owns a disregarded entity as employees of the disregarded entity. ... Under this reading, which was not intended, some taxpayers have permitted partners to participate in certain tax-favored employee benefit plans," according to the IRS.