ExpertMedium1 markMultiple Choice
CPA · Question 39 · Area II: Entity Tax Compliance
A partner performs services for a partnership and receives a Guaranteed Payment of $20,000. The partnership has $50,000 of ordinary income before the guaranteed payment. What is the partner's total ordinary income inclusion if they own a 50% interest?
A partner performs services for a partnership and receives a Guaranteed Payment of $20,000. The partnership has $50,000 of ordinary income before the guaranteed payment. What is the partner's total ordinary income inclusion if they own a 50% interest?
Answer options:
A.
$25,000
B.
$35,000
C.
$45,000
D.
$20,000
How to approach this question
1. Deduct GP from Partnership Income: $50k - $20k = $30k Net Income. 2. Allocate Net Income: $30k * 50% = $15k. 3. Add GP to Partner's Share: $15k + $20k = $35k.
Full Answer
B.$35,000✓ Correct
B
IRC §707(c). Partnership Net Income = $50,000 - $20,000 (GP) = $30,000. Partner's Distributive Share = 50% * $30,000 = $15,000. Total Income = Guaranteed Payment ($20,000) + Distributive Share ($15,000) = $35,000.
Common mistakes
Forgetting to deduct the guaranteed payment from the partnership income before calculating the distributive share.
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