An architect performed services for Bill and Sue and, in lieu of her normal fee,

Question

An architect performed services for Bill and Sue and, in lieu of her normal fee, accepted a 10 percent interest in a partnership with a fair market value of $10,000. How much income from this arrangement should the architect report on her income tax return?

A. The architect does not have any currently taxable income.

B. The architect has realized $10,000 in capital gains.

C. The architect must recognize $10,000 in compensation income.

D. The architect has realized $10,000 in compensation income, but does not have to recognize it until she sells her interest in the partnership.

A. The architect does not have any currently taxable income.

B. The architect has realized $10,000 in capital gains.

C. The architect must recognize $10,000 in compensation income.

D. The architect has realized $10,000 in compensation income, but does not have to recognize it until she sells her interest in the partnership.

Explanation / Answer

The correct choice is C

Explanation : -  A taxpayer must recognize ordinary income when a capital interest in a partnership is received as compensation for services rendered. The amount of ordinary income to be included on the architect's return is the fair market value of the partnership interest received i.e. $ 10,000

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