Peters has one-third interest in the Spano Partnership. During 2014, Peters received a $16,000 guaranteed payment, which was deductible by the partnership, for services rendered to Spano. Spano reported a 2014 operating loss of $70,000 before the guaranteed payment. What is (are) the net effect(s) of the guaranteed payment?
I. The guaranteed payment decreases Peter's tax basis in Spano by $16,000.
II. The guaranteed payment increases Peter's ordinary income by $16,000
a. I only.
b. II only.
c. Both I and II.
d. Neither I nor II.
Answer: B
CPA Exam
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