Question

The following occurs to a one-half partner whose basis in the partnership is $40,000. A. Share...

The following occurs to a one-half partner whose basis in the partnership is $40,000.

A. Share of the partnership loss is $20,000.

B. Partnership borrows $40,000.

C. Share of undistributed partnership income $20,000.

D. Partnership distributes his share of the unrealized receivables worth $5000

E. Partnership distributes cash of $70,000.

Discuss the total tax consequences to the partner.

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Answer #1

A. Can be deducted - the tax can be deducted from income for the purpose of tax.

B. Does not impact tax calculation - borrowings of partnership firm do not form part of tax calculation.

C. Taxable - undistributed income is still taxable in the hands of the partner.

D. Included in C - undistributed income received, taxable in the hands of the partner.

E. Taxable - partner will be taxed for the $70,000 received.

Share of Partnership Loss (A) $ -20,000.00
Undistributed Income + Receivables (B) $   25,000.00
Cash (C) $   70,000.00
Taxable Amount B+C-A $   75,000.00
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