Al, Simon, Randall, and Jen are equal partners in Four Seasons Partnership. Jen contributes legal services valued at $24,000. Details of each partner’s tax basis prior to Jen’s service contribution is below.

	Al	Simon	Randall	Jen
Cash	40,000	40,000	40,000	40,000
Nonrecourse bank debt	20,000	20,000	20,000	20,000
Tax basis	$60,000	$60,000	$60,000	$60,000

A: Assume Jen receives only an increase in profits interest from 25% to 30% in exchange for her contribution of services. Which of the following will result from Jen’s contribution?

		a. Jen will recognize $24,000 of ordinary income.
		b. Simon will deduct $8,000 from ordinary income.
		c. Jen will increase her debt allocation by $4,000.
		d. Both a & b.
		e. All of the above.

B: Assume Jen receives only a capital interest in exchange for her contribution of services. Which of the following will result from Jen’s contribution?

		a. Jen will recognize $24,000 of ordinary income.
		b. Simon will deduct $8,000 from ordinary income.
		c. Jen will increase her debt allocation by $4,000.
		d. Both a & b.
		e. All of the above.

Answer rating: 100% (QA)

A d Both a b Jen will recognize 24000 of ordinary income ... View the full answer