As I understand it Guaranteed Payments from a partnership or LLC reduce the use of the 20% reduction in taxable income when it falls within the qualifications regarding a 1065. My guess is that this misfortune will not pertain to a one person LLC which is planted on a 1040 schedule C?

Regarding a 1065 situation my question is what will the IRS expect to see on the Guaranteed Payment line?  What is their exact definition or requirement for that line besides medical insurance and anything found in an operating agreement?  My guess is that many K-1s will show very little on that line and perhaps the "distribution" line absorbing most of the activity.  Section 707(c) does little to give us guidance on the issue.  It is quite vague.  For the small family owned 1065s I see the second partner, if a wife or other relative having only 1% to 10% of the shares being dropped reverting it to a One Person LLC.  AND......what if there is no operating agreement.  What would IRS expect to be put on that line? Wouldn't these new rules require every LLC to have an operating agreement?  If so it still could be orchestrated to show little requirement for guaranteed payments.   However if the IRS is going to default to a definition unannounced to date to reflect some fair market value of services performed to be put there it would defeat the whole purpose of a small business being a two or more person LLC vs a One Person LLC or a proprietorship.  The rule makes no sense to me unless I am missing something.  What say you?    Thank you.