Nicholas, a 1/3 partner with a basis in the interest of $80,000 at the beginning of the year, received a guaranteed payment in the current year of $50,000. Partnership income before consideration of the guaranteed payment was $20,000. Nicholas reports a $10,000 ordinary loss from partnership operations, and the $50,000 guaranteed payment as ordinary income.

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Nicholas is considered a partner in the partnership and is therefore subject to the partnership's profits and losses. His basis in the partnership interest is $80,000, which means he has invested $80,000 in the partnership. The partnership's income before the guaranteed payment was $20,000, which means that the total income was divided among the partners. Since Nicholas is a 1/3 partner, his share of the income would be $6,666.67. However, since he received a guaranteed payment of $50,000, his total income from the partnership would be $50,000 + $6,666.67 = $56,666.67.

Since his share of the partnership income was less than the guaranteed payment, he would report a $10,000 ordinary loss from partnership operations, and the $50,000 guaranteed payment as ordinary income on his tax return.

Nicholas, a 1/3 Partner with a Basis in the Interest