Partner J, a Cash Basis Taxpayer, Is a 75% Partner

question 55

Multiple Choice

Partner J, a cash basis taxpayer, is a 75% partner in the cash basis J&D Partnership.During the current year, J lends the partnership $50,000, receiving a properly executed note from the partnership bearing the market rate of interest.J&D used the loan proceeds as working capital.Which of the following is accurate?

• A)Because J owns more than a 50% interest in J&D, the interest payment will be treated as a guaranteed payment made by J&D to J
• B)Because J owns more than a 50% interest in J&D, the interest payment will be treated as a distributive share of partnership taxable income to J.
• C)The interest paid on the note will be ordinary interest income to J and a current interest deduction to J&D in the year paid.
• D)Because J owns more than a 50% interest in J&D, the interest payment will be treated as a guaranteed payment made by J&D to J.
• E)Because J owns more than a 50% interest in J&D, the interest payment will be a nondeductible expense to J&D.

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Definitions:

Nonlinear Optimization Model

This is a mathematical model involving an optimization problem where the objective function or any of the constraints are nonlinear.

Integer

A whole number that can be positive, negative, or zero, not including fractions or decimals.

Nonlinear Optimization Model

A mathematical problem solving framework designed to optimize a nonlinear objective function subject to nonlinear constraints.

Mixed Integer Linear Optimization Model

An optimization model that seeks the best solution from a set of linear equations and inequalities, where some of the decision variables are constrained to be integer values.