As discussed in an earlier post, SB 1912 will most likely result in partnerships paying more tax. For tax years ending on or after December 31, 2009, partnerships will only be allowed to deduct guaranteed payments for services rendered by partners, and will not be allowed to deduct "reasonable compensation."
If you operate a partnership that pays compensation on performance or some other measure that is not 'predictable' at the beginning of the year, this change may affect you the most.
If signed by the Governor, for tax years ending on or after December 31, 2009, partnerships would be permitted to subtract the greater of (1) income of the partnership that constitutes personal service income as defined in IRC Sec. 1348(b)(1) or (2) a reasonable allowance for compensation paid or accrued for services rendered by the partners to the partnership.
This would remove the negative impact of SB 1912.
The Governor is expected to sign it.