Monroe, a 1/3 partner with a basis in the interest of $60,000 at the beginning of the year, received a guaranteed payment in the current year of $40,000. Partnership income before consideration of the guaranteed payment was $25,000. Monroe must report a $5,000 ordinary loss from partnership operations, and the $40,000 guaranteed payment as ordinary income.
IRC 705(a) states that "The adjusted basis of a partner's interest in a partnership shall ... [be]... increased by the sum of his distributive share for the taxable year and prior taxable years of ... taxable income of the partnership as determined under section 703 (a), ... income of the partnership exempt from tax under this title, and ... the excess of the deductions for depletion over the basis of the property subject to depletion;[and] ... decreased (but not below zero) by distributions by the partnership as provided in section 733 and by the sum of his distributive share for the taxable year and prior taxable years of ... losses of the partnership, ...
This solution cites references for and illustrates the reporting by a partner of his share of the partnership's operating income and a guaranteed payment.