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

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}{|l|r|}\hline \text { Ordinary business income } & \$ 10,000 \\\hline \text { Cash distribution } & \$ 7,000 \\\hline \text { Altred s share of partnership debt } & (\$ 85,000) \\\hline \text { Guaranteed payment } & (\$ 4,500) \\\hline \text { Nondeductible expense } & (\$ 1,000) \\\text { Tax-exempt income } & \$ 1,200 \\\hline\end{array}\end{array}$$\begin{array}{l}\text { Year } 2 \text { : }\\\begin{array}{|l|r|}\hline \text { Ordinary business loss } & (\$ 5,000) \\\hline \text { Cash contribution } & \$ 10,000 \\\hline \text { Altred s share of partnership debt } & \$ 73,000 \\\hline \text { Guaranteed payment } & (\$ 7,500) \\\hline \text { Nondeductible expense } & (\$ 3,000) \\\hline \text { Tax-exempt income } & \$ 1,500 \\\hline\end{array}\end{array}$$\begin{array}{l}\text { Year } 3\\\begin{array}{|l|r|}\hline \text { Ordinary business loss } & (\$ 13,000) \\\hline \text { Altred s share of partnership debt } & \$ 58,000 \\\hline \text { Nondeductible expenses } & (\$ 3,000) \\\hline \text { Guaranteed payment } & (\$ 7,500) \\\hline\end{array}\end{array}$