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Assume that a taxpayer has $50,000 at risk in an activity at the beginning of...

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Accounting

Assume that a taxpayer has $50,000 at risk in an activity at the beginning of year one, and during the year has losses from the at-risk activity of $30,000. In year two the taxpayer receives a $25,000 distribution from the activity which has no other activity during year two. How should the distribution be treated for tax purposes in year two?
a) The distribution has no effect for tax purposes since there was no activity during year two.
b) Reduce the taxpayers at-risk amount by $25,000.
c) Reduce the taxpayers at-risk amount by $20,000 and include $5,000 in the taxpayers gross income.
d) Include the entire distribution of $25,000 in the taxpayers gross income.
e) Both b. and d.

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