Gift of capital interest. It must be figured by reducing the partnership income by reasonable compensation for services the donor renders to the partnership. The donee's distributive share of partnership income attributable to donated capital must not be proportionately greater than the donor's distributive share attributable to the donor's capital. For purposes of determining a partner's distributive share, an interest purchased by one family member from another family member is considered a gift from the seller. The fair market value of the purchased interest is considered donated capital.
Capital is a material income-producing factor.
If spouses carry on a business together and share in the profits and losses, they may be partners whether or not they have a formal partnership agreement. If so, they should report income or loss from the business on Form 1065. This generally does not increase the total tax on the return, but it does give each spouse credit for social security earnings on which retirement benefits are based. The partnership agreement includes the original agreement and any modifications. The modifications must be agreed to by all partners or adopted in any other manner provided by the partnership agreement.