Question 3

The CD equal partnership is in a highly speculative business in which profits fluctuate widely. For the current year the partnership has profits of $80,000 of which $48,000 is ordinary income and $32,000 is long term capital gain. C and D share profits and losses equally unless otherwise provided. C renders services to the partnership which are continuous, related to the function of the partnership and not in the nature of a capital expenditure.

(a)What result to C, D, and CD, if C worked for the partnership and was required to be paid $60,000 per year for her services regardless of the income of the partnership?

(b)What result (a) above if C's services relate to improvements on land owned by the partnership?