Ki, a single taxpayer, is a full-time employee at Midwest University. Ki also does editorial work for a publisher as an independent contractor. She does not deduct any expenses related to her editorial work. Ki is also a 20% owner in EE LLC, in which she materially participates and receives a guaranteed payment each year. Ki is also a 10% limited partner in CC LP. Ki does not participate in CC business activities. Ki has sufficient tax basis and at-risk basis to flow through any losses from her LLC and partnership interests, and does not take any distributions.

Ki has provided documentation for her 2002 gross income in the exhibits above. In the table below, calculate the amount of Ki's 2002 taxable gross income. In column B, select from the option list provided whether the income (loss) item is ordinary, passive, or portfolio for purposes of calculating any passive activity loss (PAL) limitation. In column C, select from the option list provided whether the income (loss) item is business or nonbusiness for purposes of calculating any excess business loss deduction limitation. In column D, enter the appropriate amount for each income (loss) item for calculating Ki's 2002 taxable gross income, taking into account the effect, if any, of other items of income and expense included in this problem. Enter income and gains as positive whole numbers and losses as negative whole numbers. If a value is zero, enter a zero (0).

1099 MISC: Box 7 Nonemployee compensation is $30,000

2002 Sources of Income Ordinary Passive, or Business orTaxable Gross (Loss) Salary Interest Income Independent contractor income CC LP net rental real estate income (loss) EE LLC net rental real estate income (loss) EE LLC guaranteed payment EE LLC ordinary business income (loss) 2002 Taxable gross income Portfolio Nonbusiness Income (Loss) CORRECTED (if checke 1 Rents OMB No. 1545-0115 PAYERS name, street address, city or town, state or province, country, ZIP or foreign postal code, and telephone no. 20xx Miscellaneous 2 Royalties Income Educational Publishers Inc. 101 State Street Form 1099-MISC For Recipient 3 Other income 4 Federal income tax withheld hicago, IL 60606 PAYER'S TIN RECIPIENT'S TIN 5 Fishing boat proceeds 6 Medical and health care payments 5 xxx-xx-XxxX RECIPIENTS name Ki Street address (including apt, no.) 1234 Candv St This is important tax information and is being furnished to the IRS. If you are required to file a return, a negligence penalty or other sanction may be imposed on you if this income is taxable and the IRS determines that it has not been dividends or interest 9 Payer made direct salesof10 Crop insurance proceeds $5,000 or more of consumer to a buyer for resale City or town, state or province, country, and ZIP or foreign postal code 12 Account number (see instructions) FATCA filing 13 Excess golden pachute 14 Gross proceeds paid to an attorney 15a Section 409A deferrals 15b Section 409A income 16 State tax withheld 17 State/Payer's state no. 18 State income Form 1099-MIS (keep for your records) www.irs.gov/Form 1099MISC Department of the Treasury-Intenal Revenue Service 651117 OMB No. 1545-0120 Schedule K-1 20XX Part III (Form 1065) Department of the Treapury Internal Revenue Service Deductions, Credits, and Other Items 1 Ordinary business income 00 15 Credits For ealendar year 20x er tax year beginning Net rental real estate income 00 Partner's Share of Income, Deductions, Credits, etc. 3 Other net rental income (oss) See back of form and separate instructions. Information About the Pa S Interest income B Partnership's name, address, oity, state, and ZIP code a Ondinary dvidends 345 Main St. C R Center whern partnership fled return 7 Royaies Check id this is a publicly traded partnership (PTP) 8 Net short-term capital gain (oss) Part II 9a Net long-term capital gan 00 17 Alenatvenninn tax mn E Partner's identitying number 9b Collectibles(28%) gain(oss) F Partner's name, address, city, state, and ZIP code 1250 gain Ki 10 Net section 1231 gain (oss) 8 Tax-exempt income and General partner or LLC Limited partner or other LLC 1 Other inoome foss H Domestic partner Foreign partner I1 What type of entity is this partnen? Individual i2 his parter is a retirement plan "RASEPKeogvetoJ, check here Partner's share of profa, loss, and capital (see instructions 12 Section 1 10% 10 13 Other deductions 10 K Partner's share of liabilities at year encd 20,000 Qualiied nonrecourse inancing L Partner's capital account analysis 250,000See attached statement for additional Beginning capital account ap cbued during the year Current year increase decrease s Ending capital account Tax basis GAAPSection 704) book Other (explan M Did the partner contribute property with a buit-in gain or loss? Yes H"Yes, atlach statement (see instructions For Paperwork Reduction Act Notice, see Instructions for Form 106 www.irsgowForm1065 Cat, No, 11394A Schedule K-1 (Form 1065 20 Schedule K-1 20XX (Form 1065) Department of the Treasury Internal Revenue Service For calendar year 20xX,or tax year ending Partner's Share of Income, Deductions, Credits, etc. See back of form and separate instructions. PartI In formation About the B Partnership's name, address, city, state, and ZIP code 345 Main St. C IRS Center where partnership fled return Check if this is a publicly traded partnership PTP ormation artner E Patners identitying number F Partner's name, address, city, state, and Z1P code Ki General partner or LLC Limited partner or other LLC Domestic partner Foneign partner 11 What type of entity is this partner? Individual 12 thispartner is a retirement plan GRNSEP/Keoghletc.J, check here Partners share of profit, loss, and capital (see instructions Beginning 10 10% Prost 10% K Partner's share of babilities at year end. 20,000 100 Qualised nonrecourse financing L Partner's capital account analysis Beginning capital account Capital contribuned during the year Current year increase (decrease)$ 250,000 Ending capital account Tax basis GAAP Section 704b) book Other (explai M Did the partner oontribute property with a buit-in gain or loss? "Yes," attach statement (see instructions Part III artner's Share of Current Year Income Deductions, Credits, and Other Items 1 Ordinary business income 0oss) 2 Net rental real estate income (loss) 3 Other net rental income (loss) 115 16 Foreign transactions 5 Interest income 15 6a Ordinary dividends b Qualified dividends 7 Royalties 8 Net short-term capital gain(loss) 9a Net long-term capital gain (loss)17 Alternative minimum tax (AMT) Collectibles (28%) gain (oss) Unrecaptured section 1250 gain 10 Net section 1231 gain (loss) 18 Tax-exempt income and 1 Other income (loss) 12 Section 179 deduction 13 Other deductions 20 Other information 14 Self-employment earnings (oss) 2002 Sources of Income Ordinary Passive, or Business orTaxable Gross (Loss) Salary Interest Income Independent contractor income CC LP net rental real estate income (loss) EE LLC net rental real estate income (loss) EE LLC guaranteed payment EE LLC ordinary business income (loss) 2002 Taxable gross income Portfolio Nonbusiness Income (Loss) CORRECTED (if checke 1 Rents OMB No. 1545-0115 PAYERS name, street address, city or town, state or province, country, ZIP or foreign postal code, and telephone no. 20xx Miscellaneous 2 Royalties Income Educational Publishers Inc. 101 State Street Form 1099-MISC For Recipient 3 Other income 4 Federal income tax withheld hicago, IL 60606 PAYER'S TIN RECIPIENT'S TIN 5 Fishing boat proceeds 6 Medical and health care payments 5 xxx-xx-XxxX RECIPIENTS name Ki Street address (including apt, no.) 1234 Candv St This is important tax information and is being furnished to the IRS. If you are required to file a return, a negligence penalty or other sanction may be imposed on you if this income is taxable and the IRS determines that it has not been dividends or interest 9 Payer made direct salesof10 Crop insurance proceeds $5,000 or more of consumer to a buyer for resale City or town, state or province, country, and ZIP or foreign postal code 12 Account number (see instructions) FATCA filing 13 Excess golden pachute 14 Gross proceeds paid to an attorney 15a Section 409A deferrals 15b Section 409A income 16 State tax withheld 17 State/Payer's state no. 18 State income Form 1099-MIS (keep for your records) www.irs.gov/Form 1099MISC Department of the Treasury-Intenal Revenue Service 651117 OMB No. 1545-0120 Schedule K-1 20XX Part III (Form 1065) Department of the Treapury Internal Revenue Service Deductions, Credits, and Other Items 1 Ordinary business income 00 15 Credits For ealendar year 20x er tax year beginning Net rental real estate income 00 Partner's Share of Income, Deductions, Credits, etc. 3 Other net rental income (oss) See back of form and separate instructions. Information About the Pa S Interest income B Partnership's name, address, oity, state, and ZIP code a Ondinary dvidends 345 Main St. C R Center whern partnership fled return 7 Royaies Check id this is a publicly traded partnership (PTP) 8 Net short-term capital gain (oss) Part II 9a Net long-term capital gan 00 17 Alenatvenninn tax mn E Partner's identitying number 9b Collectibles(28%) gain(oss) F Partner's name, address, city, state, and ZIP code 1250 gain Ki 10 Net section 1231 gain (oss) 8 Tax-exempt income and General partner or LLC Limited partner or other LLC 1 Other inoome foss H Domestic partner Foreign partner I1 What type of entity is this partnen? Individual i2 his parter is a retirement plan "RASEPKeogvetoJ, check here Partner's share of profa, loss, and capital (see instructions 12 Section 1 10% 10 13 Other deductions 10 K Partner's share of liabilities at year encd 20,000 Qualiied nonrecourse inancing L Partner's capital account analysis 250,000See attached statement for additional Beginning capital account ap cbued during the year Current year increase decrease s Ending capital account Tax basis GAAPSection 704) book Other (explan M Did the partner contribute property with a buit-in gain or loss? Yes H"Yes, atlach statement (see instructions For Paperwork Reduction Act Notice, see Instructions for Form 106 www.irsgowForm1065 Cat, No, 11394A Schedule K-1 (Form 1065 20 Schedule K-1 20XX (Form 1065) Department of the Treasury Internal Revenue Service For calendar year 20xX,or tax year ending Partner's Share of Income, Deductions, Credits, etc. See back of form and separate instructions. PartI In formation About the B Partnership's name, address, city, state, and ZIP code 345 Main St. C IRS Center where partnership fled return Check if this is a publicly traded partnership PTP ormation artner E Patners identitying number F Partner's name, address, city, state, and Z1P code Ki General partner or LLC Limited partner or other LLC Domestic partner Foneign partner 11 What type of entity is this partner? Individual 12 thispartner is a retirement plan GRNSEP/Keoghletc.J, check here Partners share of profit, loss, and capital (see instructions Beginning 10 10% Prost 10% K Partner's share of babilities at year end. 20,000 100 Qualised nonrecourse financing L Partner's capital account analysis Beginning capital account Capital contribuned during the year Current year increase (decrease)$ 250,000 Ending capital account Tax basis GAAP Section 704b) book Other (explai M Did the partner oontribute property with a buit-in gain or loss? "Yes," attach statement (see instructions Part III artner's Share of Current Year Income Deductions, Credits, and Other Items 1 Ordinary business income 0oss) 2 Net rental real estate income (loss) 3 Other net rental income (loss) 115 16 Foreign transactions 5 Interest income 15 6a Ordinary dividends b Qualified dividends 7 Royalties 8 Net short-term capital gain(loss) 9a Net long-term capital gain (loss)17 Alternative minimum tax (AMT) Collectibles (28%) gain (oss) Unrecaptured section 1250 gain 10 Net section 1231 gain (loss) 18 Tax-exempt income and 1 Other income (loss) 12 Section 179 deduction 13 Other deductions 20 Other information 14 Self-employment earnings (oss)