Lucy, is a retired nurse. She owns three businesses: 

1) Medical consulting 

2) a bakery, and 

3) a catering company 

The bakery is the sole supplier of baked goods to the catering company, although both businesses deal with outside customers as well. Information about the companies for this year are as follows (BOY = beginning of year, EOY = end of year):

	Medical Consulting	Bakery	Catering
Beginning basis (includes BOY debt)	$200,000	$10,000	$18,000
Recourse debt BOY	0	8,000	2,000
Recourse debt EOY	0	10,000	0
Nonrecourse debt BOY	0	50,000	10,000
Nonrecourse debt EOY	0	52,000	7,000
Income (Loss)	$42,000	($20,000)	$4,000
# hours Lucy spent	600	50	300
Other employees	3	1	0
Avg. # hour spent by each employee	800	200	N/A

Required: Determine the tax consequences of Lucy’s business activities. Cite relevant authorities as you raise them. Please show how calculated.

Answer rating: 100% (QA)

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