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AccountingNerd8
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Posted: 05 Jan 2010 at 13:14 \| IP Logged

Flagg and Miles are each 50% partners in Decor Partnership. Each partner had a $200,000 tax basis in the partnership on January 1, 2008. Decor's 2008 net business income before guarnateed payments was $45,000. During 2008, Decor mad a $7,500 guaranteed payment to Miles for deductible services rendered. What is Miles's tax basis in Decor on December 31, 2008?

The answer is $218,750, which is 50% of the income plus his original basis of $200,000. But what about the guaranteed payment? That doesn't affect the basis?

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cpa0123
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Posted: 05 Jan 2010 at 13:37 \| IP Logged

AccountingNerd8-Guaranteed payments are paid like salaries for services rendered. They are not paid in the capacity of being a partner/owner & are paid irrespective of profits/losses made by the firm. That is why it should not be added to the tax basis. It is treated like an ordinary income & taxed for the partner.
You may also see this thread:
http://www.cpanet.com/cpa_forum/forum_posts.asp?TID=29178&am p;KW=guaranteed+payment
Distributions made to a partner other than guaranteed payments affect basis.

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AccountingNerd8
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Posted: 05 Jan 2010 at 13:48 \| IP Logged

Ok, thanks. That makes sense. Your answer and the discussion on the link really helped me. My problem is that I just like memorizing things, and I don't stop to make sure i really understand what's going on and why.

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cpa0123
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Posted: 05 Jan 2010 at 14:26 \| IP Logged

Keep asking as many questions as possible. This is a great forum with so many to help. Understanding concepts is very important to tackle this beast! :)

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