Review the following scenario carefully. Clarence Hayes is a partner in Flower Drums, Ltd., a company that sells specialty planter boxes. He does not materially participate in the partnership and he has no passive income. All of his investment is at risk. His gross income is $150,000. His Schedule K-1 (Form 1065) showed a $6,000 loss in box 1 and a decrease in partnership liabilities of $1,000. He contributed $1,000 in March. He also had $1,100 of tax-exempt income reported