Can partnership distributions to partners be treated as capital or dividend payments for tax purposes?

Answer 1

Only if that was the nature of the monies to the partnership in the first place. CG, dividends, and interest earned by the partnership are distributed to the partners as such and reported on their tax returns in the same manner. Ordinary income is distributed as ordinary income and is reported as ordinary income on the partners' tax returns.

Answer 2

It appears that pay/distribution of profits for managers/general partners of private equity funds, hedge funds and other investment partnerships contains a component called "carried interest.". this distribution of profits is taxed at the 15-percent capital gains tax rate, not the ordinary income tax rate of up to 35 percent. Of course Congress is currently trying to outlaw this "loop hole" to have these partnership payouts taxed as ordinary income as is the norm for "ordinary partnerships"

Answer 3

Dividends are from "Corporations". Partnership income distributed is taxed as ordinary income subject to ordinary income tax and self-employment tax if general partners.

No way around that.