Question

Andrew gives his brother Steve a 20% interest in the AS Partnership, and he retains a 30% interest.  Andrew works

for the partnership but is not paid.  How will this arrangement affect the income from the AS Partnership that Andrew & Steve report?

A. The distributive shares allocated to Andrew and Steve will be combined and then a reasonable salary for Andrew’s personal services will be allocated to him. The remaining portion of the distributive share, will be allocated 30/50ths to Andrew and 20/50ths to Steve.
B. This arrangement affects Andrew’s share of income from AS Partnership since he was not paid for his work at the partnership. Therefore, the income he receives as wages is subtracted from the partnership’s income prior to being distributed to all of the partners.
C. The distributive shares allocated to Andrew and Steve are allocated 30/50ths to Andrew and 20/50ths to Steve. There are no adjustments required for the work Andrew did for the partnership.
D. None of the above.

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