C and D are equal partners in a general partnership formed to design and produce clothing for sale to retailers located throughout Europe and the United States. D is a nonresident alien. At the beginning of the tax year, the relative dollar amount of United States and foreign source income cannot be predicted. Any foreign source income allocated to D is exempt from the United States taxation. Assume that all the following allocations have economic effect.

(a) What result if the partnership agreement provides that all U.S. source income will be allocated to C, and all foreign source income will be allocated to D?

(b) What result if the agreement provides that all income will shared equally but that D will be allocated all the foreign source income up to the dollar amount of her 50% share of income?

(c) Assume, instead, that at the beginning of the tax year it can be predicted that the relative dollar amounts of U.S. and foreign source income will be roughly equal. What result if the agreement provides, as in (a), above, that all U.S. source income shall be allocated to C, and all foreign source income shall be allocated to D?