Question

Lisa and Page are equal partners in the Law Lady Partnership, and they are calendar year taxpayers. The partnership incurred the following items during the year:

Sales	$600,000
Cost of Goods Sold	$190,000
Dividends on Corporate Investments	$19,000
Tax-Exempt Interest Income	$5,000
Section 1245 Gain (Recapture) on Equipment Sale	$36,000
Section 1231 Gain on Equipment Sale	$32,000
Long-Term Capital Gain on Stock Sale	$13,000
Long-term Capital Loss on Stock Sale	$6,000
Short-Term Capital Loss on Stock Sale	$14,000
Depreciation (No Section 179 or Bonus Depreciation Components)	$23,000
Guaranteed Payment to Lisa	$32,000
Expense for Business Meals	$3,600
Interest Expense on Loan Allocable to:
Business Debt	$45,000
Stock Investments	$8,400
Tax-Exempt Bonds	$1,200
Principal Payment on Business Loan	$17,000
Charitable Contributions	$4,000
Distributions to Partners ($35,000 Each)	$70,000

a) Compute the partnership’s ordinary income and separately stated items. Show Lisa and Page’s share of each of the items.

b) What are the partner’s ending bases in their partnership interests? Assume beginning balances are $130,000 each.

Answer 1

Calculation of ordinary income:

Particulars	Amount
Sales	600,000
Less: COGS	(190,000)
Add: Sec 1245 Gain	36,000
Less: Depreciation	(23,000)
Less: Guaranteed payment to Lisa	(32,000)
Less: Meals	(1,800)
Less: Business debt	(45,000)
Total ordinary income	344,200

Share of each partner:

Particular	Amount	Lisa	Page
Dividends on Corporate Investments	19,000	9,500	9,500
Tax-Exempt Interest Income	5,000	2,500	2,500
Sec 1231 gain	32,000	16,000	16,000
LTCG	7,000	3,500	3,500
Less: ST capital loss	14,000	7,000	7,000
Less: Stock inv	8,400	4,200	4,200
Less: Tax exempt bonds	1,200	600	600
Less: Charitable Contributions	4,000	2,000	2,000
Less: Non deductible expenses (Meals)	1,800	900	900
Add: Guaranteed payment	32,000	32,000	-
Total	65,600	48,800	16,800

Calculation of ending basis:

Particlulars	Lisa	Page
Partnership ordinary income	172,100	172,100
Total share of partners (excluding guarantee)	16,800	16,800
Less: Business loan payment	8,500	8,500
Total share of items	180,400	180,400
Beginning balance	130,000	130,000
Total share	180,400	180,400
Ending basis	310,400	310,400