Clark sold securities for a $50,000 short-term capital loss during the current year, but he has no personal capital gains to recognize. The C&L General Partnership, in which Clark has a 50% capita l, profits, and loss interest, reported a $60,000 short-term capital gain this year. In addition, the partnership earned $140,000 of ordinary income. Clark's only partner, Lois, agrees to divide the year's income as follows:

Both partners and the partnership use a calendar year-end, and both partners have a 32% marginal tax rate.

a. Have the partners made a special allocation of income that has substantial economic effect?

b. What amount and character of income must each partner report on his or her tax return?

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Type of Income Total Clark Lois Short-term capital gain Ordinary income $ 60,000 $50,000 50,000 $10,000 90,000 140,000