Yes, they are registered as a multi-member entity with the state, and they have an FEIN. 

And yes, the space is exclusive-use. It's a construction company, and the space is the shop. It's a separate space, and completely unlivable for anything but a shop. (I've been there.)

The family still doesn't have a separate business account (which I still wag my finger at them about, but they have impeccable records, so I can easily see what is what).

We figured out what % of the property was the shop years ago, and have been using that % for "Business Use of Home" while they were a sole prop. That % was used for property tax, utilities, and depreciation (the house was paid off years ago, so there's no mortgage interest). The business still uses that space.

So explain to me how to account for the business use of their home, if not by booking a rent expense on the partnership return, and as rent income on the personal return? If I don't do that, they basically avoid paying taxes on the benefit of living in a company-owned house, which I'm pretty sure is tax fraud.