I agree about easy questions. It just happened to me with this one. I was starring at it for few minutes trying to figure out what's the trick, but there wasn't one
Jeffrey, the sole proprietor of a hardware business, hired Eastwood on January 1, 2011, for an agreed salary and a promise to give him a 25% ownership interest if he were still employed at the end of 3 years, and an additional 25% interest if he continued in the business for a second 3-year period. On January 1, 2014, a partnership was formed, and Eastwood received a 25% interest in the capital and profits of the business. On that date, the net worth of the partnership was $60,000. What is Eastwood’s tax basis of his partnership interest at January 1, 2014, and what amount should be added to his gross income for 2014?
Partnership
Addition to
Interest
Gross Income
A.
$15,000
$15,000
Answer (A) is correct.
When a partnership interest is received in exchange for services performed, income equal to the fair market value of the partnership interest must be recognized by the partner. A partner’s basis in his or her partnership interest received for services rendered is equal to the income recognized. Eastwood must recognize gross income of $15,000 ($60,000 × 25%), which is the value of the partnership interest received for services rendered. Eastwood’s basis in the partnership is $15,000, the amount of income recognized.
B.
$30,000
$15,000
C.
$0
$0
D.
$30,000
$30,000
.
