Ed's Adjusted Basis in His Partnership Interest at the Beginning

question 91

Multiple Choice

Ed's adjusted basis in his partnership interest at the beginning of the tax year is $35,000. The partnership has operating income of $20,000 for the current year. Ed is a 50% partner, and he receives a current distribution of $40,000 cash this year. What is (are) the tax effect of these events?
I.Ed recognizes $10,000 of ordinary income from the partnership for the year.
II.Ed recognizes $40,000 of ordinary income due to the distribution.
III.Ed's adjusted basis in his partnership interest at the close of the tax year is zero.
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• A)Statements II and III are correct.
• B)Only statement I is correct.
• C)Statements I, II, and III are correct.
• D)Only statement III is correct.
• E)Statements I and III are correct.

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Definitions:

Subjective Estimates

Personal evaluations or assessments based on individual experience, perception, or opinion, rather than objective data.

Situation Factors

External circumstances or conditions that can influence an individual's behavior or outcomes in a given context.

Field Theory

A psychological theory proposing that one's behavior is a function of an individual’s field of social influences.

Person-Object

Not a widely established term within psychological or educational literature, possibly referring to the interaction or relationship between a person and an object.