When the PDQ Partnership Formed, It Knew It Had a Good

Essay

When the PDQ Partnership formed, it knew it had a good product, but it was a bit short on cash. After seeing the product, Jim, a CPA, said that he would set up an accounting system for the partnership in exchange for a 15% profits interest in the partnership. The partners agreed to this, as Jim was receiving only a profits interest and not a capital interest in the partnership. Jim's usual fee for this type of service would be approximately $5,000. What tax issues should Jim and the PDQ Partnership consider with respect to the payment made for the services?