Exercise $12-27($LO$.5)$

Henry is a $50\%$ partner in HJ Partnership. This year, the tax form he receives from HJ $($Schedule K$-1$ of Form $1065)$ shows business income of $$40,000.$ During the year, Henry received a $$10,000$ distribution from HJ$.$ Assume Henry's basis in the partnership is $$20,000.$

a$.$ How much must Henry report on his Form $1040$ from HJ for the tax year?

b$.$ Assume HJ is an S corporation. How much must Henry report on his Form $1040$ from HJ for the tax year?

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Under the conduit concept, the entity is viewed as merely an extension of the owners. The partnership, the LLC$,$ and the S corporation use the conduit concept in reporting the results of operations.