Exam Question 13 of 35 Select the best answer. On January 1, of the current year

Question

Exam Question 13 of 35 Select the best answer. On January 1, of the current year, C made a gift of a 25% interest in the Mariner Partnership to his son, P. The partnership's business was bookkeeping; capital was nota material income-producing factor. P had no interest in working as a bookkeeper. C who retained a 35% interest, and X, the other partner, performed all the work. A reasonable salary for C was $20,000 and for X was $10,000, which they received as guaranteed payments ring the year, Mariner had a profit of $130,000 before any guaranteed payments. How much income should FP include in his tax return for the current year? O B. $25,000 C. $30,000 O D. $32,500 Exam, Question Q 13 100% Complete

Explanation / Answer

Solution:

(1) : Computation of How much income Should P include in his tax return for Current year

profits after gauranteed payments to partners =$1,30,000-$10,000- $20,000

= $1,00,000

p's share of partnership income = $100,000*25%

= $25,000

Therfore P should include $25000 in his tax returns for the current year -

Hence, Option (b) is correct that is $25,000 .

(2) : Which is deemed to occur ?

Option (c) is Correct That is

Partner V must Recognize Ordinary income of $3,000.

Clarification -

According to IRS , Accounts receivables is a Hot Asset , Hot Assets are the Assets Except money ,capital Assets ,and Section 1031 Assets . On Hot Assets just Ordinary gain is perceived rather than capital gain. Capital Assets at the season of appropriation organization premise turned into accomplice's premise $16,000 .

Partner's V share ($16,000/4) = $4,000

Fair value of distribution =$7,000

Ordinary Income on complete Distribution of V's interest ($7,000-$4,000) = $3,000 .

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