Rhonda has a 30% interest in the capital and profits of the ABC Partnership.In the first year of the partnership, 2019, it earned $150,000.However, the partners agreed that nothing would be distributed until after the end of March
2020, before Rhonda filed her 2019 tax return.The distributions were to be delayed because it was unclear as to whether business conditions would remain good in 2020.Things were going well in 2020 and therefore the partnership distributed $30,000 to Rhonda at the end of March, as a portion of her share of the partnership's 2019 earnings.The partnership's income for 2020 was $60,000.As a result, Rhonda must recognize $30,000 of gross income in 2019 and $18,000 in 2020.

Question

Quizplus · Accepted Answer

Rhonda must recognize her share of the partnership's income in the year it was earned, not when it was distributed. Therefore, she should recognize $45,000 (30% of $150,000) in 2019 and $18,000 (30% of $60,000) in 2020, regardless of when the distributions were made.

Rhonda Has a 30% Interest in the Capital and Profits