ADC, Inc., is a corporation that was formerly a three-person partnership. It is in the Research Skills business of acquiring software and distributing it to accounting firms that need specialized software in their operations. ADC, Inc., is still owned and operated by the original three owners, who own 100% of its stock. ADC decides to invest in a limited partnership that buys old office buildings and converts them into condominiums.

ADC reports net income from its business of $400,000 and interest on investments of $12,000. ADC’s share of the limited partnership’s loss for the year is $100,000.

Prepare a memo to ADC’s president discussing the proper tax treatment of the loss from the limited partnership investment and the impact on the closely held business.