Nicholas, a 40% partner in Nedeau Partnership, gives one-half of his interest to his sister, Michelle. During the current year, Nicholas performs services for the partnership for which reasonable compensation is $80,000, but for which he accepts no pay. Nicholas and Michelle are each credited with a $100,000 distributive share, all of which is ordinary income. What are Nicholas' and Michelle's distributive share?

Question

Quizplus · Accepted Answer

Nicholas is a 40% partner, but he gives half of his interest to Michelle, so he now holds a 20% partnership interest.

Nicholas provides services to the partnership for which he is credited with $80,000 in reasonable compensation. Since he accepted no pay, this $80,000 is included in the partnership's income and allocated to the partners based on their profit-sharing percentages.

The remaining $20,000 ($100,000 - $80,000) is split equally between Nicholas and Michelle, each receiving $10,000.

Therefore, Nicholas' distributive share is $80,000 + $10,000 = $90,000, and Michelle's distributive share is $10,000.

The only answer choice that reflects this is choice D.

Nicholas, a 40% Partner in Nedeau Partnership, Gives One-Half of His