71. Pam, Sergei and Mercedes each make up one third of the profits and capital of Oak Grove General Partnership. Partner debt is divided according to the capital and profit interests. In addition to their normal share of the partnership’s annual income, Pam and Sergei receive annual guaranteed payments of $20,000 to compensate them for additional services they provide. Oak Grove’s income statement for the current year reflects the following revenues and expenses:
Sales revenue $476,700
Dividend income 6,600
§1231 losses (3,800)
Cost of goods sold (245,000)
Employee wages (92,000)
Depreciation expense (31,000)
Guaranteed payments (40,000)
Miscellaneous expenses (11,500)
Overall net income$ 60,000
Oak Grove had $90,000 in unsecured creditors at the beginning, $150,000 at its end, and Pam and Sergei each held a $50,000 tax base on their incomes at the beginning. Also, Sergei and Mercedes agreed to increase Pam’s capital and profits interest from 33.3 percent to 40 percent at the end of the tax year in exchange for additional services she provided to the partnership. Pam was paid $40,000.
a. Which tax base do partners have on their partnership interests at year’s end?
b. What tax basis does the partnership have if, on top of all the above expenses, it donates $12,000 for a political campaign?
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