Calculate the amount for each item below related to Smith's tax basis in the partnership interest at the end of Year 1 using the information included in the exhibits. Not all entries may be needed for the determination. Indicate decreases in tax basis by using a leading minus (-) sign. For each item, enter the appropriate amount in the associated cell. If the amount is zero or no amount is required, enter a zero (0) or leave the cell blank.
Email
To: Porter Parker
From: Chris Smith
Date: January 7, Year 2
RE: Expense Report
Hey Porter,
A couple of things: first, I wanted to say that I received your email containing the Income and Investment reports. You did an excellent job formatting both of them. I went ahead and verified the figures in the email with my own records and they matched up perfectly.
Secondly, I just finished typing up the Expense Report for Year 1. If you want to delay our meeting until after you have reviewed the expense report, that is fine with me.
Expense Report
Item
Amount
Life insurance premiums paid on lives of partners (partnership is the beneficiary)
$800
Penalties paid for late payment of payroll taxes
$200
Additionally, although it is not an expense per se, I wanted to make note of the guaranteed payment of $10,000 that you will be receiving in the near future.
Please let me know when you would like to schedule that meeting.
Sincerely,
Partnership Agreement:
Partnership Agreement
This Partnership Agreement (the "Agreement") made and entered into today, January 1, Year 1
Between
Chris Smith and
Porter Parker
Formation
1. By this Agreement, the partners listed above enter into a general partnership in accordance with the laws of the United States.
Name
2. The firm name of the Partnership shall be ABC Partnership.
Purpose
3. The purpose of the Partnership will be computer technology, specializing in website design and computer hardware repair.
Term
4. The Partnership is effective January 1, Year 1, and will continue perpetually.
Percentage Share of Interest
5. Chris Smith will have a percentage of partner share in capital, profits, value, and losses of 50%.
6. Porter Parker will have a percentage of partner share in capital, profits, value, and losses of 50%.
X Chris Smith
Date: January 1, Year 1
X Porter Parker
Date: January 1, Ye
Emails:
To: Porter Parker
From: Chris Smith
Date: December 20, Year 1
RE: Contributions/Distributions
Hey Porter,
I’m going through the contributions and distributions records pertaining to the current year and I just wanted to confirm that all of my records match with your records.
On our first day as a partnership, January 1, Year 1, we each contributed $50,000 cash to the partnership. Throughout the year, we made more contributions. I have the receipts right here in front of me saying that we each contributed an additional $15,000 in cash. Is there anything else I forgot?
Thanks,
Chris
Email
To: Chris Smith
From: Porter Parker
Date: December 21, Year 1
RE: Contributions/Distributions
Hey Chris,
I am writing back to confirm the contribution figures. Those are all correct according to my records as well.
I’m not sure if you did not see it, or simply forgot to mention it in your email, but please do not forget that we each received a distribution of $2,000 last week that should be accounted for when considering contributions and distributions.
Sincerely,
Porter
Email
To: Chris Smith
From: Porter Parker
Date: January 6, Year 2
RE: Investment and Income Reports
Hey Chris,
Here are the Investment and Income reports that we discussed earlier this week. They aren’t very long, but do contain some significant information. Once you have reviewed them, please let me know so that we can set up a meeting to discuss them in depth.
Investment Report
Item
Amount
Land purchased for investment
$6,000
Income Report
Item
Amount
Ordinary income from trade or business activities as reported on Schedule K of the partnership return for allocation to the partners
$46,000
Interest income
$1,400
Thank you,
Porter
Item
Amount
1. Smith's beginning tax basis
2. Ordinary income from trade or business activities
3. Interest income
4. Life insurance premiums paid on lives of partners (partnership is beneficiary)
5. Penalties paid for late payment of payroll taxes
6. Guaranteed payment to Parker
7. Additional capital contributions
8. Distributions
9. Purchase of land for investment
10. Smith's tax basis at end of year