T sold his son a 30% interest in his partnership on January 1, of the current ye
ID: 2824819 • Letter: T
Question
T sold his son a 30% interest in his partnership on January 1, of the current year. T retained a 50% interest and the remaining partner is T's father. The partnership had taxable income of $100,000 for the year. T drew no salary from the partnership. Capital is a material income-producing factor. The partnership and the partners have a calendar-year tax year. What is T's share of taxable income if T performed services worth a reasonable compensation of $30,000 and the son performed no services?
A. $25,000
B. $40,000
C. $65,000
D. $80,000
Explanation / Answer
T's son = 30%
T = 50%
T's father = 20%
T did not draw the salary for his services performed. And hence the Taxable income is $100000.
T's Share will be = $30,000 + ($100000-$30,000)*0.5
i.e his salary + 50% of the after salary net taxable income (70,000)
= $65,000(C)
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