Was watching the football game using my iphone so probably not as clear as I should have been.
This is a somewhat confusing topic, but I promise you will understand it as it's not that bad. Your last sentence about you feel the partner should reduce basis for his gtd pmt and then split income is common; however it is incorrect.
first important thing to note is gtd payments do NOT DIRECTLY reduce basis, BUT they do impact it indirectly.
The way i always thought of it is when a partner takes a distribution it reduces basis, so the “gtd payment” classification was the counter to that, meaning no reduction in basis
Gtd Payments are like a salary, think of it as another salary business expense. So before you get to bottom line pship income, you have to deduct gtd payments. So they factor into what your partnership income actually is. So, generally speaking, if you are told partnership income is 100,000, if there were any gtd payments they would have already been included (as an expense which is a deduction) to get to partnership income.
So, if I told you partnehsip income was 100,000 and gtd payments were 20,000, absent an insturction that gtd payments have not been deducted, you should assume that the gtd payments have been deducted such that your partnership income was 100,000 (this is what will go on the schedule k). This can be a nice confusing trick because you may be inclined to think that income should be 100-20, but that is not the case.
If it says gtd payments have NOT been deducted, then you need to deduct them in order to get to actual partnership income (so in this case, pship income would be 80,000 [100-20]. This is an important distinction because on your k1, you are going to get your share of partnership income. Again, partnership income is shown as one number (with gtd payments already being deducted. ie like any other business expense).
So when you get your share of pship income, the gtd payment has already been factored into it as a deduction. So if it states that pship income was 100k and gtd paymetns are 20k, it should be assumed that your pship is 100k (not 80k), because pship income is calculated after deducting gtd payments. In essence if there were no gtd payments, your income would've been 120k, but there was so your income is 100k. You can see right there that your basis is indirectly affected by the gtd pmt because your income number changes based on if there's a gtd payment which then affects your basis increase from your share of income.
If the problem states gtd payments have not been deducted, then you must know that you have to deduct the gtd payment from the pship income stated in the problem so that you arrive at what actual pship income is, and this is what should be reported on your k1.
So continuing with my example, if pship income is 100k and gtd payment is 20k (and the problem says nothing more), you take 50% of 100k, your basis will increase 50k. If you then made a deduction to basis for the gtd payment, you will be double deducting the gtd payment because it theoretically already has reduced basis because your income wouldve been 120 if there were no gtd payments but there were so your income is reduced to 100 because of the gtd payment. So basis was indirectly affected by the gtd payment.
In summation, we know that we get our share of pship income as an increase to basis. Gtd payments do NOT decrease basis directly. However, gtd payments do reduce pship income bc its like salary expense. So, generally, when your given pship income, it is already assumed that gtd payments have been deducted to arrive at pship income. But in typical cpa exam fashion, they play semantics games or mislabel things. They will tell you pship income is x and gtd payments are y, and gtd payments have not been subtracted from pship income. It's nice they tell you this, but then its incorrect to state that pship income is x because pship income is calcualted after deducting gtd payments. It's akin to telling you net income is x, and later telling you income tax expense has not been deducted, well then net income is not x because net income is calculated after deducting income tax expense.
So just know the rule that pship income already has deducted gtd pmts, and if they tell you gtd payments haven't been deducted, you need to deduct them to arrive at pship income which will be reported on your k1. the other rule is gtd payments do not directly affect basis, but do so indirectly via arriving at pship income.
lastly, since i mentioned k1, note that obviously your percentage of pship income is shown on your k1 and your gtd payment is a separately stated item on your k1.
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