On December 31 of last year, Maria gave her daughter, Chelsea, a gift of a 25% interest in a partnership in which capital is a material income-producing factor. For the current calendar year, the partnership's ordinary income was $100,000. Maria and Chelsea were the only partners, and there were no guaranteed payments. Maria's services performed for the partnership were worth $60,000, and Chelsea has never performed any services. What is Maria's distributive share of partnership income for the current year?

Question

Quizplus · Accepted Answer

Because Maria gave Chelsea a 25% interest in the partnership, Maria must have retained a 75% interest. Therefore, Maria's share of the $100,000 ordinary income is $75,000 ($100,000 x 75%). Since Maria's services were worth $60,000, she can deduct that amount as a guaranteed payment, leaving her with a distributive share of income of $15,000 ($75,000 - $60,000). Therefore, the correct answer is (C) $90,000, which is Maria's distributive share of partnership income ($15,000) plus the guaranteed payment for her services ($60,000).

On December 31 of Last Year, Maria Gave Her Daughter