Choose one of the partners (Murray or Parker) and prepare a Schedule K-1 based on the information provided. You must include the name of the partnership, the name of the partner, the three items that must be reported separately, and the ordinary income. [6] For the current year, the Murray and Parker Partnership had book income of $100,000, which included the following: Long-term capital gain $ 7,000 Sec. 1231 loss (3,000) Dividends 200 Interest paid to partners for use of capital 12,000 The partners share profits and losses equally. What amount of partnership income (excluding all partnership items which must be reported separately) should each partner report in his or her individual income tax return for the current year? A. $47,900 B. $48,000 C. $50,000 D. $53,900 The correct answer is A. A. A partnership's ordinary income is the portion of taxable income not required to be stated separately (Sec. 702(a)(8)]. The interest paid to partners is a guaranteed payment which results in an ordinary deduction. Book income may be adjusted to ordinary income by excluding all items of income and adding back all deduction and loss items, which must be separately stated. The partnership's ordinary income is Book income $100,000 Add back: Sec. 1231 loss 3,000 Subtract: Long-term capital gain (7,000) Dividends (200) Partnership ordinary income $ 95.800 Because the partners share profits and losses equally, each partner's share of partnership income is $47,900 ($95,800 x 50%). B. The dividends must be subtracted to arrive at partnership ordinary income. C. The book income must be adjusted to arrive at partnership ordinary income. D. The partnership ordinary income does not equal $100,800. 2019 Part III Partner's Share of Current Year Income, Deductions, Credits, and Other Items 1 Ordinary business income (loss) 15 Credits 2 Net rental real estate income (loss) Schedule K-1 (Form 1065) Department of the Treasury Internal Revenue Service For calendar year 2019, or tax year beginning 2019 ending Partner's Share of Income, Deductions, Credits, etc. See back of form and separate instructions. Part Information About the Partnership A Partnership's employer identification number 3 Other net rental income (oss) 16 Foreign transactions 4a Guaranteed payments for services 4b Guaranteed payments for capital B Partnership's name, address, city, state, and ZIP code 4c Total guaranteed payments 5 Interest income C D 6a Ordinary dividends IRS Center where partnership filed return D Check if this is a publicly traded partnership (PTP) Part II Information About the Partner E Partner's SSN or TIN (Do not use TIN of a disregarded entity. See inst.) 6b Qualified dividends F Name, address, city, state, and ZIP code for partner entered in E. See instructions. 6c Dividend equivalents 17 Alterative minimum tax (AMT) items 7 Royalties 8 Net short-term capital gain (loss) 9a Net long-term capital gain (loss) 18 Tax-exempt income and nondeductible expenses TIN 9b Collectibles (28%) gain (loss) G D General partner or LLC D Limited partner or other LLC member-manager member H1 Domestic partner Foreign partner H2 D If the partner is a disregarded entity (DE), enter the partner's: Name 11 What type of entity is this partner? 12 If this partner is a retirement plan (IRA/SEP/Keogh/etc.), check here Partner's share of profit, loss, and capital (see instructions): Beginning Ending Profit Loss Capital Check if decrease is due to sale or exchange of partnership interest. 9c Unrecaptured section 1250 gain 10 Net section 1231 gain (loss) 19 Distributions 11 Other income (loss) U 20 Other information K Partner's share of liabilities: 12 Section 179 deduction Beginning Ending 13 Other deductions Nonrecourse . $ Qualified nonrecourse financing . . . $ Recourse . . . $ U Check this box if Item K includes liability amounts from lower tier partnerships Partner's Capital Account Analysis 14 Self-employment earnings (loss) Beginning capital account . Capital contributed during the year. . $ Current year net income (loss). S Other increase (decrease) (attach explanation) $ Withdrawals & distributions .. . SC Ending capital account. .. .$_ 21 U More than one activity for at-risk purposes 22 More than one activity for passive activity purposes * See attached statement for additional information. Did the partner contribute property with a built-in gain or loss? Yes No If "Yes," attach statement. See instructions. Partner's Share of Net Unrecognized Section 704(c) Gain or (Loss) Beginning . . . . . . . . $ Use Only For IRS Ending . . For Paperwork Reduction Act Notice, see Instructions for Form 1065. www.irs.gov/Form1065 Cat. No. 11394R Schedule K-1 (Form 1065) 2019 Choose one of the partners (Murray or Parker) and prepare a Schedule K-1 based on the information provided. You must include the name of the partnership, the name of the partner, the three items that must be reported separately, and the ordinary income. [6] For the current year, the Murray and Parker Partnership had book income of $100,000, which included the following: Long-term capital gain $ 7,000 Sec. 1231 loss (3,000) Dividends 200 Interest paid to partners for use of capital 12,000 The partners share profits and losses equally. What amount of partnership income (excluding all partnership items which must be reported separately) should each partner report in his or her individual income tax return for the current year? A. $47,900 B. $48,000 C. $50,000 D. $53,900 The correct answer is A. A. A partnership's ordinary income is the portion of taxable income not required to be stated separately (Sec. 702(a)(8)]. The interest paid to partners is a guaranteed payment which results in an ordinary deduction. Book income may be adjusted to ordinary income by excluding all items of income and adding back all deduction and loss items, which must be separately stated. The partnership's ordinary income is Book income $100,000 Add back: Sec. 1231 loss 3,000 Subtract: Long-term capital gain (7,000) Dividends (200) Partnership ordinary income $ 95.800 Because the partners share profits and losses equally, each partner's share of partnership income is $47,900 ($95,800 x 50%). B. The dividends must be subtracted to arrive at partnership ordinary income. C. The book income must be adjusted to arrive at partnership ordinary income. D. The partnership ordinary income does not equal $100,800. 2019 Part III Partner's Share of Current Year Income, Deductions, Credits, and Other Items 1 Ordinary business income (loss) 15 Credits 2 Net rental real estate income (loss) Schedule K-1 (Form 1065) Department of the Treasury Internal Revenue Service For calendar year 2019, or tax year beginning 2019 ending Partner's Share of Income, Deductions, Credits, etc. See back of form and separate instructions. Part Information About the Partnership A Partnership's employer identification number 3 Other net rental income (oss) 16 Foreign transactions 4a Guaranteed payments for services 4b Guaranteed payments for capital B Partnership's name, address, city, state, and ZIP code 4c Total guaranteed payments 5 Interest income C D 6a Ordinary dividends IRS Center where partnership filed return D Check if this is a publicly traded partnership (PTP) Part II Information About the Partner E Partner's SSN or TIN (Do not use TIN of a disregarded entity. See inst.) 6b Qualified dividends F Name, address, city, state, and ZIP code for partner entered in E. See instructions. 6c Dividend equivalents 17 Alterative minimum tax (AMT) items 7 Royalties 8 Net short-term capital gain (loss) 9a Net long-term capital gain (loss) 18 Tax-exempt income and nondeductible expenses TIN 9b Collectibles (28%) gain (loss) G D General partner or LLC D Limited partner or other LLC member-manager member H1 Domestic partner Foreign partner H2 D If the partner is a disregarded entity (DE), enter the partner's: Name 11 What type of entity is this partner? 12 If this partner is a retirement plan (IRA/SEP/Keogh/etc.), check here Partner's share of profit, loss, and capital (see instructions): Beginning Ending Profit Loss Capital Check if decrease is due to sale or exchange of partnership interest. 9c Unrecaptured section 1250 gain 10 Net section 1231 gain (loss) 19 Distributions 11 Other income (loss) U 20 Other information K Partner's share of liabilities: 12 Section 179 deduction Beginning Ending 13 Other deductions Nonrecourse . $ Qualified nonrecourse financing . . . $ Recourse . . . $ U Check this box if Item K includes liability amounts from lower tier partnerships Partner's Capital Account Analysis 14 Self-employment earnings (loss) Beginning capital account . Capital contributed during the year. . $ Current year net income (loss). S Other increase (decrease) (attach explanation) $ Withdrawals & distributions .. . SC Ending capital account. .. .$_ 21 U More than one activity for at-risk purposes 22 More than one activity for passive activity purposes * See attached statement for additional information. Did the partner contribute property with a built-in gain or loss? Yes No If "Yes," attach statement. See instructions. Partner's Share of Net Unrecognized Section 704(c) Gain or (Loss) Beginning . . . . . . . . $ Use Only For IRS Ending . . For Paperwork Reduction Act Notice, see Instructions for Form 1065. www.irs.gov/Form1065 Cat. No. 11394R Schedule K-1 (Form 1065) 2019