Alfred,a One-Third Profits and Capital Partner in Pizzeria Partnership Needs

Essay

Alfred,a one-third profits and capital partner in Pizzeria Partnership needs help in adjusting his tax basis to reflect the information contained in his most recent Schedule K-1 from the partnership.Unfortunately,the Schedule K-1 he recently received was for year 3 of the partnership,but Alfred only knows that his tax basis at the beginning of year 2 of the partnership was $23,000.Thankfully,Alfred still has his Schedule K-1 from the partnership for years 1 and 2.
Using the following information from Alfred's year 1,year 2,and year 3 Schedule K-1,calculate his tax basis the end of year 2 and year 3.
$\begin{array}{l}\text { Year 1: }\\\begin{array}{lcc}\text { Ordinary business income } & \$ 10,000\\\text { Cash distribution } & \$ 7,000 \\\text { Alfred's share of partnership debt } & \$ 85,000 \\\text { Guaranteed payment } & \$ (4,500) \\\text { Nondeductible expense } & \$ (1,000) \\\text { Tax-exempt income } & \$ 1,200 \\\text { Year 2: } & & \\\text { Ordinary business loss } & \$ (5,000) \\\text { Cash contribution } & \$ 10,000 \\\text { Alfred's share of partnership debt } & \$ 73,000 \\\text { Guaranteed payment } & \$(7,500) \\\text { Nondeductible expense } & \$(3,000) \\\text { Tax-exempt income } & \$ 1,500) \\\text { Year 3: } & \\\text { Ordinary business loss } & \$(13,000)\\\text { Alfred's share of partnership debt } &\$ 58,000 \\\text { Nondeductible expenses } &\$(3,000) \\\text { Guaranteed payment } & \$(7,500) \end{array}\end{array}$