Partnership Tax filing with Cash Investors and Sweat Equity

[Alissa Thompson]

Hello Bigger Pockets Community, 

My husband and I partnered on a triplex with my aunt and uncle. They brought a majority of the funds to the deal and we brought sweat equity for renovation, on going management and maintenance. We agreed on a 50/50 ownership of the property based on what each party was bringing to the deal. We are preparing for taxes and even though our LLC documents say that we are equal partners, our accountant is telling us that we need to build up our cash equity to be equal to theirs if we are going to file as equal partners. He is telling us that we can do this by getting "paid" for the work that we have put into the property but the money would never leave the property as it would go towards our equity. We would then need to claim this "income" on our taxes and pay self-employment tax on this amount even though we never received payment for anything.

Looking for any advice on if this is the right way to handle equity split when the partners brough different values of funds to the deal but are equal partners. My understanding is that you can create a partnership and divide the equity however you want  as long as all the partners agree on the structure.