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Guaranteed Payments Under IRC 199A Regulations: Year-End Strategies to Maximize QBI Benefits

Restructuring Section 707 Payments to Partners Through Priority Allocations, Using Lower Tier Partnerships

Recording of a 110-minute CPE webinar with Q&A

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Conducted on Monday, December 3, 2018

Recorded event now available

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This course will provide partnership tax advisers with a practical exploration of the impact of the Section 199A Qualified Business Income (QBI) deduction on the tax treatment of guaranteed payments to partners for services. The panel will discuss the default treatment of payments for services to a partner under Section 707, and how the W-2 wage limitation for QBI calculations can make a guaranteed payment disadvantageous to the partnership as well as the receiving partner. The webinar will also provide concrete strategies for structuring payments to service provider partners so that the payments can fit into the QBI calculations.


One of the most significant changes the new Section 199A QBI deduction made to partnership operations is its disfavored treatment of guaranteed payments. Advisers to partnerships using guaranteed payments should include steps to mitigate the harsh impact of §199A on these compensation structures as part of their year-end planning.

Section 707 guaranteed payments are amounts paid to a partner outside the scope of his capacity as a member of the partnership, such as when a partner provides services to the partnership. These payments are determined without regard to the partnership’s net income. Under Section 199A and its proposed regs, guaranteed payments are not considered QBI to the recipient partner and thus not eligible for the pass-through deduction.

Further, the payments are not treated as W-2 wages for the partnership’s calculations of wage-based limits as required by 199A. Taken together, these changes effectively end the usefulness of guaranteed payments as a means of compensating partners beyond allocation of net income.

Among the available options are using special or priority allocations to impacted partners instead of guaranteed payments, or setting up a lower tier partnership and structuring the payment as W-2 wages to the indirect partner. Each of these structures can have serious consequences for both the recipient and remaining partners, so advisers need to know the implications of these strategies.

Listen as our experienced panel provides practical guidance on mitigating the impact of Section 199A on partnerships with guaranteed payment structures.



  1. Structure of Section 707 payments
    1. 707(a) provisions
    2. 707(c) payments for services provided outside the scope of the role as a member
    3. Tax treatment before enactment of 707(a)
  2. QBI W-2 wage limitations under Section 199A
  3. Proposed regulations and IRS position on the treatment of guaranteed payments for QBI calculation purposes
  4. Using priority allocations to compensate partners for capital or services outside the scope of his role as a partner
  5. Using lower-tier partnerships to pay W-2 wages to partner instead of guaranteed payments


The panel will discuss these and other important issues:

  • How Section 199A regulations make guaranteed payments no longer a viable compensation strategy for partnerships
  • Implications to partnerships, recipient partners and remaining partners of using priority allocations instead of guaranteed payments
  • How to structure a lower tier partnership to pay W-2 wages to service-provider partners to apply those payments to the upper tier partnership’s QBI W-2 wage limitation calculations


Loy, Olga
Olga A. Loy

Winston & Strawn

Ms. Loy represents funds and fund sponsors in structuring, negotiating, and forming private equity and venture capital...  |  Read More

Mandarino, Joseph
Joseph C. Mandarino

Smith Gambrell & Russell

Mandarino is a Partner in the Tax Practice of Smith, Gambrell & Russell, LLP.  His practice focuses on...  |  Read More

Trapp, T. Justin
T. Justin Trapp

Winston & Strawn

Mr. Trapp was elected to the order of the Coif, received the Rickert Award, and served as a law review editor while...  |  Read More

Wimer, Ruth
Ruth M. Wimer

Winston & Strawn

Ms. Wimer is an attorney and a CPA with nearly 30 years of experience previously serving as a senior partner in the...  |  Read More

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