Reference no: EM132933

Question :

On January 1, 20X1, Clark and Lois each contributed $110,500 to form the Kal-El general partnership, and the partnership borrowed $45,000 from Metropolis Bank. Their partnership agreement shows that they will each get a 50% gain and loss interest. The partnership agreement also gives that Clark will receive an annual $52,000 guaranteed payment.

Kal-El began business on January 1, 20X1. For its first taxable year, its accounting records contained the subsequent information.

Gross receipts from sales             $278,000

Cost of sales                                      (222,000)

Gross profit                                        56,000

Guaranteed payments to Clark     (52,000)

Bad debt expense allowed for tax purposes        (3,500)

Tax exempt interest                          1,550

Operating expenses                          (108,000)

Depreciation expense                      (9,500)

Long-term capital gains                     800

Section 1231 losses                             (12,600)

Kal-El repaid $7,000 of the loan on December 15, 20X1. Each of the partners also expected cash distributions of $5,000 from Kal-El in 20X1.

Required:

Evaluate Clark's tax basis in his Kal-El interest on December 31, 20X1?