DIP LLC reports ordinary income (before guaranteed payments) of $120,000, rent expense of $40,000, and interest income of $4,000 for the year. In addition, DIP paid guaranteed payments of $20,000 to partner Percy. If Percy owns a 40% capital and profits interest, how much income will he report for the year and what is its character?

Question

Quizplus · Accepted Answer

Percy will report $24,000 as his share of the ordinary income (40% of $60,000, which is the ordinary income of $120,000 minus rent expense of $40,000, not including guaranteed payments), $1,600 as his share of the interest income (40% of $4,000), and $20,000 as guaranteed payments. Guaranteed payments are reported separately from the distributive share of partnership income.

DIP LLC Reports Ordinary Income (Before Guaranteed Payments) of $120,000