Alfred, a 33% Profits and Capital Partner in Pizzeria Partnership

Essay

Alfred, a 33% 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. $\begin{array}{c}\begin{array}{lll}\text{Year 1:}\\\text{Ordinary business income}\\\text{Cash distribution}\\\text{Alfred's share of partnership debt}\\\text{Guaranteed payment}\\\text{Nondeductible expense}\\\text{Tax-exempt income}\\\\\text{Year 2:}\\\text{Ordinary business loss}\\\text{Cash contribution}\\\text{Alfred's share of partnership debt}\\\text{Guaranteed payment}\\\text{Nondeductible expense}\\\text{Tax-exempt income}\\\\\text{Year 3:}\\\text{Ordinary business loss}\\\text{Alfred's share of partnership debt}\\\text{Nondeductible expenses}\\\text{Guaranteed payment}\\\end{array}\begin{array}{lll}&&\end{array}\begin{array}{lll}\\\$ 10,000 \\\$ 7,000 \\\mathbf{\$ 8 5 , 0 0 0} \\(\$ 4,500) \\(\$ 1,000) \\\$ 1,200 \\\\\\(\$ 5,000) \\\$ \mathbf{1 0 , 0 0 0} \\\mathbf{\$ 7 3 , 0 0 0} \\(\mathbf{\$ 7 , 5 0 0}) \\(\$ 3,000) \\\$ 1,500 \\\\\\(\$ \mathbf{1 3}, \mathbf{0 0 0})\\\mathbf{\$ 5 8 , 0 0 0} \\ (\$ 3,000) \\(\$ 7,500) \\\end{array}\end{array}$