Assume individual taxpayer A owns 60% of an undocumented General Partnership E and individual B owns 40% during all of 2020. A spent 50% of her time working at E's business, while B was absent all year. E generated $100,000 of net profit for 2017. A pointed out that a reasonable salary for her would be $20,000 per year, and so they should split the remaining $80,000, but B replied that since there was no partnership agreement, her claim for a salary wasn't valid. What is the federal taxable income of A and B arising from E in 2020 and why?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Assume individual taxpayer A owns 60% of an undocumented General Partnership E
and individual B owns 40% during all of 2020. A spent 50% of her time working at E's
business, while B was absent all year. E generated $100,000 of net profit for 2017. A
pointed out that a reasonable salary for her would be $20,000 per year, and so they
should split the remaining $80,000, but B replied that since there was no partnership
agreement, her claim for a salary wasn't valid. What is the federal taxable income of A
and B arising from E in 2020 and why?
Transcribed Image Text:Assume individual taxpayer A owns 60% of an undocumented General Partnership E and individual B owns 40% during all of 2020. A spent 50% of her time working at E's business, while B was absent all year. E generated $100,000 of net profit for 2017. A pointed out that a reasonable salary for her would be $20,000 per year, and so they should split the remaining $80,000, but B replied that since there was no partnership agreement, her claim for a salary wasn't valid. What is the federal taxable income of A and B arising from E in 2020 and why?
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