On January 2, 2012, Arch and Bean contribute cash equally
to form the JK Partnership. Arch and Bean share profits and
losses in a ratio of 75% to 25%, respectively. For 2012, the partnership’s
ordinary income was $40,000. A distribution of $5,000
was made to Arch during 2012. What amount of ordinary income
should Arch report from the JK Partnership for 2012?

(d) The requirement is to determine Arch’s share of the
JK Partnership’s ordinary income for 2012. A partnership functions
as a pass-through entity and its items of income and deduction
are passed through to partners according to their profit and
loss sharing ratios, which may differ from the ratios used to divide
capital. Here, Arch’s distributive share of the partnership’s ordinary
income is $40,000 × 75% = $30,000. Note that Arch will be
taxed on his $30,000 distributive share of ordinary income even
though only $5,000 was distributed to him.