On January 1, 20X1, C made a gift of 25% interest in the Mariner Partnership to

Question

On January 1, 20X1, C made a gift of 25% interest in the Mariner Partnership to his son, P. The partnership's business was bookkeeping--: capital was NOT a 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. During 20x1, Mariner had a profit of $130,000 before any quaranteed payments. How much income should P include in his return for 20X1? A. 0 B.$25,000 C. $30,000 or D. $32,500

Explanation / Answer

Profits after guaranteed payments to partners = 130000 - 10000 - 20000 = 100000

P's share of partnership income = 100000 * 25%

= 25000

Hence P should file a profit from partnership of 25000

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