The attached question was asked once, but not correctly. Check figures are as follows: Book Income = 1,108,800 Taxable Income = 2,629,600 Schedule M-1’s (as follows): Guaranteed Payments = 1,500

The attached question was asked once, but not correctly. Check figures are as follows:

Book Income = 1,108,800

Taxable Income = 2,629,600

Schedule M-1’s (as follows):

Guaranteed Payments = 1,500,000

Meals & Entertainment = 24,000

Tax Exempt Interest = 3,200

Schedule K (as follows)—-you will need to allocate the appropriate % of each of these items to each of the members (partners):

Ordinary Business Income = 1,152,000

Guaranteed Payments = 1,500,000

Interest Income = 1,600

Net Short Term Capital Loss = (12,000)

Net Long Term Capital Gain = 16,000

ATTACHMENT PREVIEW

Download attachment

Ryan Ross (111-11-1111), Oscar Oleander (222-22-2222), Clark Carey (333-33-3333),
and Kim Kardigan (444-44-4444) are equal members in ROCK the ages, LLC. ROCK
serves as agents and managers for prominent musicians in the Los Angeles area. The
LLC’s Federal ID number is 55-5555555. It uses the cash basis and the calendar year and
began operations on January 1, 2000. Its current address is 6102 Wilshire Boulevard,
Suite 2100, Los Angeles, CA 90036. ROCK was the force behind such music icons as
Rhiannon and Ulster and has had a very profitable year. The following information was
taken from the LLC’s income statement for the current year:
Revenues:
Fees and commissions
$4,800,000
Taxable interest income from bank deposits
1,600
Tax-exempt interest
3,200
Gains and losses on stock sales
4,000
Total revenues
$4,808,800
Expenses:
Advertising and public relations
$
420,000
Charitable contributions
8,000
Section 179 expense
20,000
Employee salaries
1,200,000
Guaranteed payment, Ryan Ross, office manager
600,000
Guaranteed payment, other members
900,000
Entertainment, subject to 50% disallowance
48,000
Travel
120,000
Legal and accounting fees
108,000
Office rentals paid
86,000
Interest expense on operating line of credit
6,000
Insurance premiums
16,000
Office expense
60,000
Payroll taxes
96,000
Utilities
12,000
Total expenses
$3,700,000
During the past couple of years, ROCK has taken advantage of bonus
depreciation and section 179 deductions and fully remodeled the premises and upgraded
its leasehold improvements. This year, ROCK wrapped up its remodel with the purchase
of $20,000 of office furniture for which it will claim a section 179 deduction. (For
simplicity, assume that ROCK uses the same cost recovery methods for both tax and
financial purposes.) There is no depreciation adjustment for alternative minimum tax
purposes.
ROCK invests much of its excess cash in non-dividend-paying growth stocks, and
tax-exempt securities. During the year, the LLC sold two securities. On June 15, 2011,
ROCK purchased 1,000 shares of Tech, Inc. stock for $72,000; it sold those shares on
December 15, 2011, for $60,000. On March 15, 2005, ROCK purchased 2,000 shares of

Unlock Solution Unlocking…

BioLabs, Inc. stock for $104,000; it sold those shares for $120,000 on December 15,
2011.
Net income per books is $1,108,800. The firm’s activities do not constitute
“qualified production activities” for purposes of the section 199 deduction. On January 1,
2011, the members’ capital accounts equaled $160,000 each. No additional capital
contributions were made in 2011. In addition to their guaranteed payments, each member
withdrew $240,000 cash during the year. The LLC’s balance sheet as of December 31,
2011, is as follows:
Beginning
Ending
Cash
$
340,000
??
Tax-exempt securities
80,000
80,000
Marketable securities
420,000
600,000
Leasehold improvements, furniture, and equipment
820,000
840,000
Accumulated depreciation
(820,000)
(840,000)
Total assets
$
840,000
??
Operating line of credit
$
200,000
$ 160,000
Capital, Ross
160,000
??
Capital, Oleander
160,000
??
Capital, Carey
160,000
??
Capital, Kardigan
160,000
??
Total liabilities and capital
$
840,000
$
??
Assume that all debt is shared equally by the members. Each member has
personally guaranteed the debt of the LLC.
None of the members, all of whom are U.S. citizens, sold any portion of their
interests in ROCK during the year. All of the entity’s financial operations are
concentrated in California. The LLC had no foreign bank accounts or operations and no
interest in any U.S. or foreign trusts, corporations, or partnerships. The LLC is not
publicly traded and is not a statutory tax shelter. The LLC is not subject to consolidated
audit procedures. Ryan Ross is the tax matters partner.
The business code for “Agents and Managers for Artists, Athletes, Entertainers,
and Other Public Figures” is 711410. ROCK is not a partner in any other partnership. The
LLC’s form 1065 was prepared by Ryan Ross and sent to the Ogden, UT IRS Service
Center. All members are active in LLC operations.
a) Prepare form 1065, Schedule K, and relevant supporting schedules for ROCK the
Ages, LLC, leaving blank any items where insufficient information has been provided. If
you are using tax return preparation software, also prepare Form 4562 and Schedule D.
(Note: You can assume that the answer to each “yes/no” question on Form 1065, page 3 is
“no” unless otherwise discussed above.)
b) Prepare Schedule K-1 for Ryan Ross, 15520 W. Earlson Street, Pacific Palisades, CA
90272

Leave a Comment