XZ Partnership Has Two Equal Partners

question 435

Essay

XZ Partnership has two equal partners. Assume no taxpayer qualifies for the small business exception. XY earns
$16 million of non- interest ordinary income and incurs $6 million of interest expense.
a. How much interest expense can the partnership deduct in determining the partnership's ordinary income?
b. What is each partner's share of the partnership's ordinary income?
c. If the interest expense is not fully deducted this year, how is the excess treated?

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Definitions:

Target-Return Pricing

A pricing method whereby the price is based on the amount of investment you have put into your business.

Profit Margin

A financial metric used to assess a firm's financial health by revealing the percentage of money earned as profit.

Premium Price

Pricing goods or services higher than the market average to reflect their perceived extra value or quality.

Revenue Driver

Key factors or activities that significantly influence or contribute to the generation of income for a business.