1 ANSWER KEY tbs.TESFC00431_0022 Rationale: TBSRCO0431 Basis in Partner's Interest Sophie's beginning basis is equal to the basis of her capital account ($20,000) plus her share of the partnership The UNA General Partnership, a cash-basis taxpayer, has been in existence since 2017. For its tax year ended December 31 , 20xX, liabilities ($10,000; one third of $30,000). UNA had the following items of income and loss: The tax law provides ordering rules for how basis is adjusted at the end of the tax year, as follows: SalesincomeInterestincomeMunicipalinterestincome$100,0009,0006,000 Section 1231 gain 9,000 Also note that Sophie is allocated one-third of all partnership items. To compute partnership ordinary incomerloss one must first identify the items that are separately stated. For UNA, the following items must flow Advertising expense to the shareholder separately: Supplies expense Depreciation expense Interest income 9,000 Taxes Charitable contributions Life insurance premium on partners' lives (proceeds to partnership) 3,000 UNA's balance sheet as of January 1, 20XX, was as follows: Sophie is a one-third partner in UNA. She received a guaranteed payment of $12,000 tor 20xX. Sophie received a $15,000 cash distribution from UNA on December 31, 20XX. Compute Sophie's basis as of December 31, 20XX and indicate the amount of gain or The only time that gain is recognized on a partnership distribution is if the cash distributed exceeds the partner's loss on the distribution, if any. Enter numbers to be added as positive and numbers to be subtracted as negative. basis in her partnership interest. Therefore, Sophie recognizes no gain. Note that the guaranteed payment does not reduce her basis in the partnership interest because it is not a flowthough item. It is a payment for services rendered. 1 ANSWER KEY tbs.TESFC00431_0022 Rationale: TBSRCO0431 Basis in Partner's Interest Sophie's beginning basis is equal to the basis of her capital account ($20,000) plus her share of the partnership The UNA General Partnership, a cash-basis taxpayer, has been in existence since 2017. For its tax year ended December 31 , 20xX, liabilities ($10,000; one third of $30,000). UNA had the following items of income and loss: The tax law provides ordering rules for how basis is adjusted at the end of the tax year, as follows: SalesincomeInterestincomeMunicipalinterestincome$100,0009,0006,000 Section 1231 gain 9,000 Also note that Sophie is allocated one-third of all partnership items. To compute partnership ordinary incomerloss one must first identify the items that are separately stated. For UNA, the following items must flow Advertising expense to the shareholder separately: Supplies expense Depreciation expense Interest income 9,000 Taxes Charitable contributions Life insurance premium on partners' lives (proceeds to partnership) 3,000 UNA's balance sheet as of January 1, 20XX, was as follows: Sophie is a one-third partner in UNA. She received a guaranteed payment of $12,000 tor 20xX. Sophie received a $15,000 cash distribution from UNA on December 31, 20XX. Compute Sophie's basis as of December 31, 20XX and indicate the amount of gain or The only time that gain is recognized on a partnership distribution is if the cash distributed exceeds the partner's loss on the distribution, if any. Enter numbers to be added as positive and numbers to be subtracted as negative. basis in her partnership interest. Therefore, Sophie recognizes no gain. Note that the guaranteed payment does not reduce her basis in the partnership interest because it is not a flowthough item. It is a payment for services rendered