Peter earns $400,000 of ordinary salary income annually from his primary job and earned a $3,000 net long-term capital gain from selling Gamestop stock this year. His only charitable contribution is $50 that he gave to the Red Cross. He itemizes all of his deductions.

Peter also owns 10% of the Orange Partnership. Peter's K-1 form indicates that his share of the partnership's ordinary income was $50,000, his share of the partnership's charitable contributions was $700, and his share of the partnership's capital losses was $8,000 during 2020. On January 1, 2020, Jonathan had a basis in his partnership interest equal to his inital capital contribution of $500,000. The partnership did not have any other income or deductions. It current assets principally were inventory that had appreciated by $20,000 as of year-end and it had current liabilities of $60,000.

a. By what amount, if any, do the charitable contributions on Peter's Form K-1 reduce Peter's taxable income, compared to what his taxable income otherwise would have been if he had not been a member of this partnership?

b. By what amount, if any, does the capital loss on Peter's Form K-1 reduce his taxable income, compared to what it otherwise would have been if he had not been a member of this partnership?

c. What is Peter's basis in his ownership interest at year-end?

d. Would you answer to (b) above have been different if Orange had been an S Corporation rather than a partnership?

e. Would you answer to (c) above have been different if Orange had been an S Corporation rather than a partnership?

TAX RATES USED THROUGHOUT THE COURSE Ordinary Income Ordinary Loss Carry forward; apply to 80% Carry forward; apply to 80% of future taxable income of future taxable income $3,000 max. net loss; $0 maximum net loss; Capital Gains and Dividends Capitai Losses Carry forward excess indefinitely against future net capital gains Carry back excess 3 years against past net capital gains and carry forward excess 5 years against future net capital gains Note: The above tax rates are rounded for convenience of performing calculations. Actual rates for individuals are: 0 Ordinary Income is taxed at a top federal rate of 37% plus varying state income tax (All taxpayers will be assumed to be in the highest tax bracket.) 0 Capital Gains, if long-term, of a top federal rate of 20% plus net investment income tax of 3.8% plus varying state income tax (The rate applicable to shortterm gains is identical to the rate on ordinary income. All gains will be assumed to be long-term.) o All corporate income is taxed at a top federal rate of 21% plus varying state income tax