Sourcing Guaranteed Payments

May 2, 2018

Guaranteed payments remain with the partner receiving the payment as reflected on the federal Schedule K-1. The portion of the guaranteed payment that represents Montana source income is reported on part 4, line 4 of the partner’s Montana Schedule K-1. A guaranteed payment is considered Montana source income if the payment is considered a priority allocation of capital or if the payment compensates a partner that performed a service in the state or while a resident of the state.

Guaranteed payments that result from the individual efforts of the partners are treated, both to the partnership and to the individual partner, as compensation for services and, like other compensation for services provided, sourced in the state where the services are performed.

Guaranteed payments that are a priority allocation of capital are treated as a share of the profits from the partnership’s business activities generally. This portion is apportioned according to the partnership’s property, payroll, and sales factors.