Monroe,a 1/3 partner with a basis in the interest of $60,000 at the beginning of the year,received a guaranteed payment in the current year of $40,000.Partnership income before consideration of the guaranteed payment was $25,000.Monroe must report a $5,000 ordinary loss from partnership operations,and the $40,000 guaranteed payment as ordinary income.

Question

Quizplus · Accepted Answer

The guaranteed payment is deductible in computing the ordinary income or loss of a partnership. Thus,the partnership ends the year with a $15,000 operating loss [$25,000 (income before deducting guaranteed payment)- $40,000 (guaranteed payment)]. Monroe's 1/3 share of the $15,000 partnership loss is $5,000 and its deductibility is not limited under § 704(d).In addition,Monroe must report the guaranteed payment as ordinary income.

Monroe,a 1/3 Partner with a Basis in the Interest of $60,000