A is a retired partner of ABC, a personal service partnership. A has not rendered services to ABC since her retirement.

A is a retired partner of ABC, a personal service partnership. A has not rendered services to ABC since her retirement. Under the provisions of A’s retirement, ABC is obligated to pay A 10% of the partnership’s net income each year. In compliance with this agreement, ABC paid A $25,000 during the current year. The partnership earned ordinary income of $200,000 and capital gains of $50,000 during the current year. How should A treat this $25,000?
As $20,000 ordinary income and $5,000 capital gain
As capital gain
As not taxable
As ordinary income

 

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