Tara and Robert Formed the TR Partnership Four Years Ago

question 139

Multiple Choice

Tara and Robert formed the TR Partnership four years ago. Because they decided the company needed some expertise in multimedia presentations, they offered Katie a 1/3 interest in partnership capital if she would come to work for the partnership. On July 1 of the current year, the unrestricted partnership interest (fair market value of $25,000) was transferred to Katie. How should Katie treat the receipt of the partnership interest in the current year?

• A) Nontaxable.
• B) Carried interest.
• C) $25,000 ordinary income.
• D) $25,000 long-term capital gain.
• E) $25,000 short-term capital gain.

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Definitions:

Long Run

A period in which all factors of production and costs are variable, allowing full adjustment to any change in market conditions.

Economic Profit

The difference between total revenues earned from production and the total opportunity costs of all inputs used in production.

Long Run

A period of time in economics during which all factors of production and costs are variable, allowing for full industry adjustment to changes in market conditions.

Losses

Losses refer to the amount by which expenses exceed revenues in a particular period, indicating a negative financial performance for a business.