We are both confused.

They don't have a business account. They have only one account, into which they deposit all income (business income, a few pensions, and their social security), and from which they pay all expenses (business and personal).

Their home, which is fully paid off, but still has property tax and utilities, is the legal business address for their business. For over 10 years, they've been a sole prop. It's easy to account for business use of home in a sole prop. The % of exclusive-use is figured and charged to the business, and the remainder flows through to Schedule A (property tax), or is non-deductible. Easy peasy lemon squeezy.

They had been paying him on a Form 1099-MISC, but did not do that this year, since he was a partner, and the lawyer told them his % of the business would be his pay. (Which I thought was the case, as well, but I haven't been able to get it to count as Earned Income for the EITC, which is why I posted this originally). So that's one question. And I think we've figured that out. His % of the home expenses are "guaranteed partner payments," even though they weren't in cash I list them as partner draws out, and then they get reported on the K-1s correctly. I hope.

But now there's another issue: How do I account for the business use of the % of the home -- including property tax, utilities, and depreciation. I had booked it as "rental expense" on the partnership return, in the exact amount of their % of those things, and then rental income to the couple, so they would pay tax on it. Is there a different way to deal with that? If so, what? 

If I don't do this, the business has a much higher income, because it basically functions rent-free. The couple also doesn't have business-related depreciation to recapture (if and when they sell the house). Not sure if that's an issue? Or is this what the IRS expects?