Rhonda Has a 30% Interest in the Capital and Profits

Rhonda has a 30% interest in the capital and profits of the ABC Partnership. In the first year of the partnership, 2017, it earned $150,000. However, the partners agreed that nothing would be distributed until after the end of March 2018, before Rhonda filed her 2017 tax return. The distributions were to be delayed because it was unclear as to whether business conditions would remain good in 2018. Things were going well in 2018 and therefore the partnership distributed $30,000 to Rhonda at the end of March, as a portion of her share of the partnership's 2017 earnings. The partnership's income for 2018 was $60,000. As a result, Rhonda must recognize $30,000 of gross income in 2017 and $18,000 in 2018.