Question

Mike, Matt, Brooke, and Kellie decide to go into business together. The form a limited partnership where Mike, Matt, and Brooke are the limited partners. They contribute the following amounts:

Mike - 25,000

Matt - 10,000

Brooke - 10,000

Kellie - 5,000

Additionally, the partnership agreement states that all profits are to be distributed equally. Mike will perform services for the company and will be paid $100,000 a year for those services. The company will be able to deduct this amount from net income.

In the first year of operations, the company had the following items of income:

Services - 160,000

Expenses - 24,000

Depreciation - 28,000

Finally, no one withdraw any money from the partnership, except for Matt who withdraws $15,000.

a. What is Brooke's ending basis in the partnership? (i am thinking it stays at 10,000 but i am not sure)

b. What is the maximum Kellie can withdraw without having a gain in excess of basis? (i think the answer is $2000 but i could be wrong)

   c. What is Matt's total taxable amount of income? (i am thinking 2000 but i dont know if matt's withdrawal affects things)

Answer 1

Workings:	Computation of net Income of Limited Liabilty Partnership
		Total Services rendered		1,60,000
	Less	Expenses				24,000
	Less	Depreciation			28,000
	Less	Mike Services expenses		1,00,000
		Net Income Of LLP			8,000
		Share in net Income of:
		Mike				2,000
		Matt				2,000
		Brooke				2,000
		Kellie				2,000
	(Since Agreement says equal distribution of income)
(A)	Brooke Ending basis in partnership
		Capital invested			10,000
	Add	Share in Income			2,000
		Total				12,000
	Hence brooke ending basis are		12,000
(B)	Maximum Kellie can withdraw without having a gain in excess of basis
		Capital Contribution		5,000
	Add	Share in Total Income		2,000
		Total kellie can Withdraw		7,000
(C)	Matt's total taxable amount of income
		Share in LLP			2,000
	Add	Capital Contribution		10,000
		total				12,000
	Matt withdrawl amount is			15,000
	Therefore Matt Taxable Income is		15000-12000	=	3,000