A is corrent. The requirement is to determine the amount of income that Jane should report as a result of her 25% partnership interest. A partnership is a pass-through entity and its items of income and deduction pass through to be reported on partners’ returns even though not distributed. The amount to be reported by Jane consists of her guaranteed payment, plus her 25% share of the partnership’s business income and capital gains. Since Jane’s $30,000 guaranteed payment and the $50,000 of guaranteed payments to other partners are for deductible services rendered to the partnership, they must be subtracted from the partnership’s net business income before guaranteed payments of $160,000 to determine the amount of net business income to be allocated among partners. Jane’s reportable income from the partnership includes
B is incorrect. Jane also must include her distributive share of partnership income.
C is incorrect. Jane also must include her guaranteed payment in income.
D is incorrect. The guaranteed payments to partners must be subtracted in determining partnership ordinary income.
