Levi is one of four general partners in HLR Partnership. He receives his Schedule K-1 (Form 1065) from HLR for the current tax year. It shows his share of items as follows: $9,000 in ordinary business income, $400 in charitable contributions, and a $1,600 section 179 expense deduction. It also shows $3,000 in guaranteed payments and a $4,000 cash distribution. He knows his adjusted basis at the beginning of the tax year was $3,500. Assume Levi claims the entire section 179 expense deduction; it is not reduced by any limitations.

This is a three-part question.

Question 1: What is Levi's adjusted basis in HLR for the current tax year? Question 2: What amount of self-employment earnings is reported on Schedule K-1 in Box

14 (Code A)? Question 3: What amount of HLR self-employment earnings does Levi include on Schedule

SE (Form 1040) on his personal tax return?

a) $8,100; $12,000; $12,000

b) $8,100; $ 9,000; $ 9,000

c) $6,500; $12,000; $10,400

d) $6,500; $12,000; $12,000