Irvin's Adjusted Basis in the Gamma Partnership Is Zero at the Beginning

question 71

Multiple Choice

Irvin's adjusted basis in the Gamma Partnership is zero at the beginning of the current year. He has a $15,000 suspended loss from the previous year. During the current year, Gamma's operating income is $30,000. Arvin is a 40% partner, and he receives a distribution of $10,000 cash this year. If Arvin materially participates in Gamma's operations, how much of the suspended loss can he deduct?

• A)$-0-
• B)$2,000
• C)$9,000
• D)$10,000
• E)$12,000

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Definitions:

Cash Basis

An accounting method where revenues and expenses are recognized only when cash is received or paid out.

Incurred Expenses

Costs that have been recognized or consumed in the operations of a business, regardless of the payment status.

Net Income

The total profit or loss of a company after deducting all expenses, taxes, and costs from total revenue.

Accounting Period

The span of time at the end of which the financial position of a business is calculated and reported, typically a month, quarter, or year.