The RC investment partnership agreement provides for equal sharing of gains or losses from the sale of securities, ordinary taxable income is to be allocated all to R (whose marginal tax rate is 20%) and tax exempt income is to be allocated 25% to R and 75% to C (whose marginal tax rate is 38%). During the year the partnership no capital gain or losses, $20,000 of taxable income from dividends on stock and $20,000 from tax exempt interest on state bonds.

(A) Determine the consequences for partner R for each of the above income sources.

(B) Determine how your answer in part A would differ, if at all, if the agreement provides 25% of the ordinary taxable income in partner R is to get all of the tax exempt income and 25% addition to equal division of capital gains and losses.