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V owns 80% and his friend, W, owns 20% of a partnership. After transferring 30% of...

V owns 80% and his friend, W, owns 20% of a partnership. After transferring 30% of the capital and profits interest to his son, R, V's interest drops down to 50% of the partnership. Partnership profits of $200,000 for the year were allocated as follows: $100,000 to V, $60,000 to R, and $40,000 to W. Two years later, an IRS audit revealed the following: •Only V performs services for the partnership and they were worth $52,000. •Ending capital accounts were $200,000 for V, $40,000 for R, and $60,000 for W. Capital is a material income-producing factor. Which of the following is the maximum increase to V's includible income by the IRS? A. $19,500 B. $26,000 C. $42,000 D. $50,667

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Expert Solution

The correct option is 'B' ($26,000).

Please see the working below:

ekkarill92 answered 1 year ago
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