Question

Geraldine, an attorney, rendered legal services in organizing an oil and gas partnership in the current year. Instead of submitting a bill for her services. Geraldine accepted a 10% capital interest in the partnership. Geraldine's normal charge for the services performed would have been $10,000. The fair market value of the 10% interest received by Geraldine was $12,000. How much should Geraldine report on her current year's income tax return

Answer 1

Geraldine

The amount that Geraldine should report on her current year's income tax return as income from the above exchange is:

= $10,000.

Step-by-step explanation:

a) Data and Calculations:

Geraldine's normal charge for the services performed = $10,000

The fair market value of the 10% interest received by Geraldine = $12,000

Geraldine's partnership interest = 10%

This is because $10,000 is also her basis in the partnership interest and not $12,000 the fair market value of the 10% interest.