Partner A receives a guaranteed payment of $40,000 for services rendered to the partnership. The partnership has $100,000 of ordinary income before the guaranteed payment. Partner A has a 50% profit share. What is Partner A's total ordinary income from the partnership?

Answer options:

$90,000

$70,000

$50,000

$40,000

How to approach this question

1. Deduct GP from Partnership Income. 2. Allocate remaining income to partners. 3. Add GP back to recipient's income.

Full Answer

B.$70,000✓ Correct

IRC §707(c). <br/>Partnership Ordinary Income = $100,000 - $40,000 (Guaranteed Payment) = $60,000. <br/>Partner A's Distributive Share = 50% * $60,000 = $30,000. <br/>Partner A's Total Income = $40,000 (GP) + $30,000 (Share) = $70,000.

Common mistakes

Forgetting to deduct the GP from partnership income before calculating the share.

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