Problem
Scott and Dave each invested $100,000 cash when they formed the SD Partnership and became equal partners. They agreed that the partnership would pay each partner a 5% guaranteed payment on his $100,000 capital account. Before the two guaranteed payments, current year results were $23,000 of ordinary income and$14,000 of long-term capital gain. What amount and character of income will Scott and Dave report for the current year from their partnership? Based on the analysis in Example C:9-47, do you think this arrangement of guaranteed payments is a good idea?