Gross receipts from inventory sales. Cost of goods sold Salaries paid to nonpartners. PROBLEM A and B, both calendar year noncorporate taxpayers, are equal partners in the AB Partnership, which had the following income and expenses during its (business purpose) taxable year that ended on July 31 of the current year: $100,000 $ 30,000 10,000 $ 12,000 Depreciation............ $ Advertising expenses. 8,000 Interest expense paid on investment margin account maintained by AB (see 163(d))... Gain from the sale of machine held for two years: 1245 gain 1231 gain. Dividends. Charitable contributions.. Tax-exempt interest. STCG on a sale of stock... .$ 6,000 LTCG on a sale of stock held for two years 4,000 LTCL on a sale of stock held for two years. $ 2,000 1231 gain on casualty to machine held for two years .....$ 1,000 8,000 $ 2,000 $ 7,000 800 500 6,000 (a) How and when will AB, A and B report the income and who will be liable for the taxes? (b) Assume this is the first year of partnership operations, A's basis in his partnership interest is $70,000 and B's basis in her partnership interest is $40,000. What will be the tax consequences of AB's first year of operations to A and B? (c) What would be the result in (b), above, if the partnership distributed $20,000 in cash to each partner at the end of the year? (d) Would it matter if the 1231 gain on the sale of the machine would have been ordinary income if A had sold it individually?