This project covers general partnership basis issues including computation of partners' adjusted basis, determination of current-year tax position, preparation of tax forms, and creation of a memo to the partners with an analysis of their current-year tax issues and changes to basis.

In the current year, Mary, Andrew, and Paul formed Venezia General Partnership. Mary contributed $55,000 cash, Andrew contributed $55,000, and Paul contributed land with a cash basis of $70,000 and a fair market value of $180,000. The partnership assumed a $70,000 mortgage on the land; no partner is personally liable for the mortgage. At the end of the current year, Venezia made a $7,000 payment on the mortgage. Mary, Andrew, and Paul will split all profits and losses equally.

Current-year operations had the following results:

• Sales revenue: $260,000
• Cost of goods sold: $205,000
• Operating expenses: $35,000
• Long-term capital gains: $1,200
• Section 1231 Gains: $450
• Charitable contributions: $350
• Municipal bond interest: $150
• Salary paid as a guaranteed payment to Andrew (not included in expense): $1,500

1. Calculate current year ordinary business income by preparing page 1 of Form 1065.