ExpertMedium1 markMultiple Choice
CPA · Question 37 · Area II: Entity Tax Compliance
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?
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:
A.
$90,000
B.
$70,000
C.
$50,000
D.
$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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