On December 31 of last year,Pat gave his daughter,Joy,a gift of a 50% 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.Pat and Joy were the only partners,and there were no guaranteed payments.Pat's services performed for the partnership were worth $40,000,and Joy has never performed any services.What is Joy's distributive share of partnership income for the current year?

Question

Quizplus · Accepted Answer

When a family member acquires a capital interest by gift in a family partnership in which capital is a material income-producing factor,the donor must be allocated an amount of partnership income that represents reasonable compensation for services performed for the partnership.The remaining partnership income generally is divided among the partners according to their profit- or loss-sharing agreement.However,the donee's portion may not exceed the income allocable to the ownership of the capital interest.Joy's capital interest is 50%.Of the $100,000 of partnership income,$40,000 is allocated to Pat as compensation for services; the remainder is allocated $30,000 to Pat and $30,000 to Joy.

On December 31 of Last Year,Pat Gave His Daughter,Joy,a Gift