Question

William Nest operated a consulting business as a sole proprietor in 2017, generating fees of $50,000. On January 1, 2018, he decided to set up a consulting partnership with his son Wilhelm. William transferred a used computer with an adjusted basis of $10,200 and a fair market value of $11,000 and other office equipment with an adjusted basis of $12,250 and a fair market value of $14,000. William also felt that he had generated goodwill with a value of $30,000 that was supported by a recent bona fide offer for his consulting business. On January 1, 2018, William gave his son Wilhelm $55,000, which he contributed to the new partnership, Will and Wile, for a one-half interest. The gross earnings of the new partnership for 2018 totalled $75,000—$50,000 from William’s contacts and $25,000 from Wilhelm’s contacts. The net income was $60,000. In anticipation of Wilhelm’s growing contribution to future earnings, the agreement provides for equal division of profit. What is Wilhelm’s basis for his interest immediately after his cash contribution to the partnership? How will the IRS probably require that the partnership earnings be divided?

Answer 1

Both William and Wilhelm entered into patnership ratio of 1:1, property with Wilhelm is $55000 (Computer $11000+ Office equipment $15000 + goodwill $30000) and the William contribution is $55000 for the consulting partership, both entered with same ratio of invesments.

Gross profile of the year 2018 is $75000 and net profilt is $60000, that need to be shared in 1:1 ratio even thought profilts earned with William is $50000 and Wilhelm $25000.

Profit share ratio is 1:1 that is $30000 each (as in the agreement provides for equal division of profit) & even the investment they bring into business of are equal ratio.