Peters has a one-third interest in the Spano Partnership. During 2012, Peters received a $16,000 guaranteed payment, which was deductible by the partnership, for services rendered to Spano. Spano reported a 2012 operating loss of $70,000 before the guaranteed payment. What is (are) the net effect(s) of the guaranteed payment?
I. The guaranteed payment decreases Peters’ tax basis in Spano by $16,000.
II. The guaranteed payment increases Peters’ ordinary income by $16,000.