Dad enters a partnership agreement with his two kids to run an ice cream place. Dad works at the store full-time—his two kids are in college. Each son contributed $5,000 and Dad contributed $10,000 (the kids each received a small inheritance from their grandmother). The partnership’s novel garlic pizza ice cream is a big hit and the partnership has $10,000 in profits. The partnership agreement divides profits equally, so $3,333.33 each. Dad’s services were worth $5,000. What are the actual tax consequences to the partners?

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Since the partnership agreement divides profits equally each partner ... View the full answer