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Alfred, a One-Third Profits and Capital Partner in Pizzeria Partnership

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Essay

Alfred, a one-third profits and capital partner in Pizzeria Partnership needs help in adjusting his tax basis to reflect the information contained in his most recent Schedule K-1 from the partnership. Unfortunately, the Schedule K-1 he recently received was for year 3 of the partnership, but Alfred only knows that his tax basis at the beginning of year 2 of the partnership was $23,000. Thankfully, Alfred still has his Schedule K-1 from the partnership for years 1 and 2.
Using the following information from Alfred's year 1, year 2, and year 3 Schedule K-1, calculate his tax basis the end of year 2 and year 3.
 Year 1:  Ordinary business income $10,000 Cash distribution $7,000 Altred s share of partnership debt ($85,000) Guaranteed payment ($4,500) Nondeductible expense ($1,000) Tax-exempt income $1,200\begin{array}{l}\text { Year 1: }\\\begin{array}{|l|r|}\hline \text { Ordinary business income } & \$ 10,000 \\\hline \text { Cash distribution } & \$ 7,000 \\\hline \text { Altred s share of partnership debt } & (\$ 85,000) \\\hline \text { Guaranteed payment } & (\$ 4,500) \\\hline \text { Nondeductible expense } & (\$ 1,000) \\\text { Tax-exempt income } & \$ 1,200 \\\hline\end{array}\end{array} Year 2 :  Ordinary business loss ($5,000) Cash contribution $10,000 Altred s share of partnership debt $73,000 Guaranteed payment ($7,500) Nondeductible expense ($3,000) Tax-exempt income $1,500\begin{array}{l}\text { Year } 2 \text { : }\\\begin{array}{|l|r|}\hline \text { Ordinary business loss } & (\$ 5,000) \\\hline \text { Cash contribution } & \$ 10,000 \\\hline \text { Altred s share of partnership debt } & \$ 73,000 \\\hline \text { Guaranteed payment } & (\$ 7,500) \\\hline \text { Nondeductible expense } & (\$ 3,000) \\\hline \text { Tax-exempt income } & \$ 1,500 \\\hline\end{array}\end{array} Year 3 Ordinary business loss ($13,000) Altred s share of partnership debt $58,000 Nondeductible expenses ($3,000) Guaranteed payment ($7,500)\begin{array}{l}\text { Year } 3\\\begin{array}{|l|r|}\hline \text { Ordinary business loss } & (\$ 13,000) \\\hline \text { Altred s share of partnership debt } & \$ 58,000 \\\hline \text { Nondeductible expenses } & (\$ 3,000) \\\hline \text { Guaranteed payment } & (\$ 7,500) \\\hline\end{array}\end{array}

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Definitions:

Greatest Common Monomial Factor

The greatest common monomial factor between two or more monomials is the highest monomial that divides each of the monomials without a remainder.

Polynomial

A polynomial is a mathematical expression involving a sum of powers in one or more variables multiplied by coefficients.

Greatest Common Monomial Factor

The largest monomial that divides each term of a given polynomial without a remainder.

Polynomial

An expression made up of variables and constants, combined with addition, subtraction, and multiplication, and featuring whole number exponents.

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