Posted: December 19th, 2016
exchange for services he has rendered and will render to the dairy-farming business of the partnership.
N will forfeit his interest if he quits his job at any time during the next three years. N reports no income
in the year of receipt and files no section 83(b) election. The partnership claims no deduction. Over
the next three years, the partnership allocates profits to N in the aggregate amount of $70,000 and
distributes $40,000 to him in cash. On the date of vesting, the value of N’s interest could reasonably
be estimated to be $180,000, including his $30,000 capital account on that date. Under current law
(i.e., without taking into account the effect of any proposed regulations), how much compensation
income is N required to report as a result of the vesting of his profits interests? Show the journal entry
that will be made on the books of Cow for tax purposes.
A – 0
B – $30,000
C – $150,000
D – $180,000
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