What is the amount of guaranteed payments

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Problem - This year, the Tastee Partnership reported income before guaranteed payments of $92,000. Stella owns a 90% profits interest and works 1,600 hours per year in the business. Euclid owns a 10% profits interest (with a basis of $30,000 at the beginning of the tax year) and performs no services for the partnership during the year. For services performed during the year, Stella receives a "salary" of $6,000 per month. Euclid withdrew $10,000 from the partnership during the year as a normal distribution of cash from Tastee (i.e., not for services).

a. What is the amount of guaranteed payments made by the partnership this year?

b. How much is the partnership's ordinary income after any permitted deduction for guaranteed payments?

c. How much income will Stella report?

d. How much income will Euclid report?

Reference no: EM132663184

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