Amy and Mitchell share equally in the profits, losses, and capital of the accrual basis AM Products LLC. The LLC does not need to report financial information to any third parties, so capital accounts are determined using tax rules (rather than GAAP). Amy is a managing member of the LLC (treated as a general partner) and is a U.S. person. At the beginning of the current tax year, Amy's capital account has a balance of $532,000, and the LLC has debts of $345,800 payable to unrelated parties. The debts are recourse to the LLC, but neither of the LLC members has personally guaranteed them. Assume that all LLC debt is shared equally between the partners. The following information about AM's operations for the current year is obtained from the LLC's records. Operating income* $798,000 W-2 wages 200,000 Depreciation expense 300,000 Interest income 7,980 Long-term capital loss 5,320 Long-term capital gain 15,960 Charitable contribution (cash) 8,030 Cash distribution to Amy 39,900 Unadjusted basis of partnership depreciable property immediately after acquisition 1,600,000 * Operating income equals revenue less operating expenses (other than expenses listed separately above). Year-end LLC debt payable to unrelated parties is $242,060. Assume that all transactions are reflected in Amy's beginning capital and basis in the same manner. Also assume that all AM Products' activities are eligible for the qualified business income deduction. a. Calculate Amy's basis in her LLC interest at the beginning and end of the tax year. Use her capital account as a starting point. LLC interest at the beginning of the year: $ 798,000 x LLC interest at the end of the year: $ 0 X. Feedback Check My Work A partner's basis in the LLC interest is important for determining the treatment of distributions from the LLC to the partner, establishing the deductibility of LLC losses, and calculating gain or loss on the partner's disposition of the LLC interest. After the partner is admitted to the LLC, the partner's basis is adjusted for numerous items. b. What income, gains, losses, and deductions does Amy report on her income tax return? If an amount is zero, enter "O". Ordinary income 200,000 x Net long-term capital gain 0 x Interest income 0 x Charitable contribution deduction 0 x Cash distribution 0 Feedback Check My Work Partially correct C. Based on the information provided, what other calculations is Amy required to make? Amy may be eligible to deduct up to 0 X % of the ordinary income as qualified business income under 199A, and will make that calculation on her return. This deduction does not require a cash outflow by Amy or the LLC, and it does not affect her basis or capital account. As someone treated as a general partner, Amy's distributive share of the LLC's ordinary business income is subject to self-employment tax and possibly the additional Medicare tax. Her net investment income from the LLC may be subject to the additional tax under $ 1411. d. Prepare Amy's tax basis capital account rollforward from the beginning to the end of the tax year. How does her ending capital account differ from her ending tax basis in the LLC interest as calculated in part (a)? Capital account balance, beginning year 0 Ordinary income $ 0 X Interest income 0 X Net long-term capital gain 0 X 0 x 0 x Less: Charitable contribution 0 Cash distribution to Amy 0 X 0 Capital account balance, end of 0 x year Amy's capital account differs from her basis only by the amount of her share of LLC liabilities e. Using the information from parts (a) to (d), prepare Amy's Schedule K-1 as if you were the preparer of AM Products LLC's tax return. Provide all information that Amy needs to the extent you can. Enter all amounts as positive numbers. 651119 Final K-1 Amended K-1 OMB No. 1545-0123 Part III Partner's Share of Current Year Income, Schedule K-1 (Form 1065) 2019 Deductions, Credits, and Other Items 15 Credits Department of the Treasury Internal Revenue Service For calendar year 2019, or tax year 1 Ordinary business income (loss) 0 beginning / / 2019 ending 7 / 2 Net rental real estate income (loss) Partner's Share of Income, Deductions, Credits, etc. See separate instructions. 3 Other net rental income (loss) 16 Foreign transactions Part I Information About the Partnership A Partnership's employer identification number 4a Guaranteed payments for services B Partnership's name, address, city, state, and ZIP code AM Products, LLC 4b Guaranteed payments for capital IRS Center where partnership filed return 4c Total guaranteed payments D Check if this is a publicly traded partnership (PTP) 5 Part II Information About the Partner Interest income 0 E Partner's SSN or TIN (Do not use TIN of a disregarded entity. See inst.) 6a Ordinary dividends 6b Qualified dividends F Name, address, city, state, and ZIP code for partner entered in E. See instructions. Amy 6c Dividend equivalents 17 Alternative minimum tax (AMT) items 7 Royalties G General partner or LLC member- Limited partner or other LLC manager member H1 Domestic partner Foreign partner H2 If the partner is a disregarded entity (DE), enter the partner's: TIN Name 8 Net short-term capital gain (loss) 9a Net long-term capital gain (loss) 0 x 18 Tax-exempt income and nondeductible expenses 11 What type of entity is this partner? Individual 9b Collectibles (28%) gain (loss) A 12 If this partner is a retirement plan (IRA/SEP/Keogh/etc.), check here o 9c Unrecaptured section 1250 C gain Yall J Partner's share of profit, loss, and capital (see instructions): 10 Net section 1231 gain (loss) Beginning Ending 11 Other income (loss) 19 Distributions Profit 0 X % 0 X % A 0 X Loss 0 X % 0 X % Capital 0 X % 0 X % Check if decrease is due to sale or exchange of partnership 12 Section 179 deduction 20 Other information interest D A 0 X 13 Other deductions Z* STMT K Partner's share of liabilities: A 0 QBI 0 X Beginning Ending Nonrecourse $ W-2 wages 0 x $ 0 0 x Qualified nonrecourse financing $ UBIA 0 x Recourse $ Check this box if Item k includes liability amounts from lower tier partnerships. 14 Self-employment earnings (loss) A 0 L Partner's capital account analysis: Beginning capital account ...... $ 0 X Capital contributed during the year. . $ 21 - More than one activity for at-risk purposes* 22 - More than one activity for passive activity purposes* Current year net income (loss)... $ 0 X *See attached statement for additional information. Other increase (decrease) (attach explanation) $ Withdrawals & distributions $ 0 X ) LOG R Ending capital account. $ 0 X M Did the partner contribute property with a built-in gain or loss? Yes No If "Yes," attach statement. See instructions. N Partner's Share of Net Unrecognized Section 704(c) Gain or (Loss) Beginning capital account. Ending $ Amy and Mitchell share equally in the profits, losses, and capital of the accrual basis AM Products LLC. The LLC does not need to report financial information to any third parties, so capital accounts are determined using tax rules (rather than GAAP). Amy is a managing member of the LLC (treated as a general partner) and is a U.S. person. At the beginning of the current tax year, Amy's capital account has a balance of $532,000, and the LLC has debts of $345,800 payable to unrelated parties. The debts are recourse to the LLC, but neither of the LLC members has personally guaranteed them. Assume that all LLC debt is shared equally between the partners. The following information about AM's operations for the current year is obtained from the LLC's records. Operating income* $798,000 W-2 wages 200,000 Depreciation expense 300,000 Interest income 7,980 Long-term capital loss 5,320 Long-term capital gain 15,960 Charitable contribution (cash) 8,030 Cash distribution to Amy 39,900 Unadjusted basis of partnership depreciable property immediately after acquisition 1,600,000 * Operating income equals revenue less operating expenses (other than expenses listed separately above). Year-end LLC debt payable to unrelated parties is $242,060. Assume that all transactions are reflected in Amy's beginning capital and basis in the same manner. Also assume that all AM Products' activities are eligible for the qualified business income deduction. a. Calculate Amy's basis in her LLC interest at the beginning and end of the tax year. Use her capital account as a starting point. LLC interest at the beginning of the year: $ 798,000 x LLC interest at the end of the year: $ 0 X. Feedback Check My Work A partner's basis in the LLC interest is important for determining the treatment of distributions from the LLC to the partner, establishing the deductibility of LLC losses, and calculating gain or loss on the partner's disposition of the LLC interest. After the partner is admitted to the LLC, the partner's basis is adjusted for numerous items. b. What income, gains, losses, and deductions does Amy report on her income tax return? If an amount is zero, enter "O". Ordinary income 200,000 x Net long-term capital gain 0 x Interest income 0 x Charitable contribution deduction 0 x Cash distribution 0 Feedback Check My Work Partially correct C. Based on the information provided, what other calculations is Amy required to make? Amy may be eligible to deduct up to 0 X % of the ordinary income as qualified business income under 199A, and will make that calculation on her return. This deduction does not require a cash outflow by Amy or the LLC, and it does not affect her basis or capital account. As someone treated as a general partner, Amy's distributive share of the LLC's ordinary business income is subject to self-employment tax and possibly the additional Medicare tax. Her net investment income from the LLC may be subject to the additional tax under $ 1411. d. Prepare Amy's tax basis capital account rollforward from the beginning to the end of the tax year. How does her ending capital account differ from her ending tax basis in the LLC interest as calculated in part (a)? Capital account balance, beginning year 0 Ordinary income $ 0 X Interest income 0 X Net long-term capital gain 0 X 0 x 0 x Less: Charitable contribution 0 Cash distribution to Amy 0 X 0 Capital account balance, end of 0 x year Amy's capital account differs from her basis only by the amount of her share of LLC liabilities e. Using the information from parts (a) to (d), prepare Amy's Schedule K-1 as if you were the preparer of AM Products LLC's tax return. Provide all information that Amy needs to the extent you can. Enter all amounts as positive numbers. 651119 Final K-1 Amended K-1 OMB No. 1545-0123 Part III Partner's Share of Current Year Income, Schedule K-1 (Form 1065) 2019 Deductions, Credits, and Other Items 15 Credits Department of the Treasury Internal Revenue Service For calendar year 2019, or tax year 1 Ordinary business income (loss) 0 beginning / / 2019 ending 7 / 2 Net rental real estate income (loss) Partner's Share of Income, Deductions, Credits, etc. See separate instructions. 3 Other net rental income (loss) 16 Foreign transactions Part I Information About the Partnership A Partnership's employer identification number 4a Guaranteed payments for services B Partnership's name, address, city, state, and ZIP code AM Products, LLC 4b Guaranteed payments for capital IRS Center where partnership filed return 4c Total guaranteed payments D Check if this is a publicly traded partnership (PTP) 5 Part II Information About the Partner Interest income 0 E Partner's SSN or TIN (Do not use TIN of a disregarded entity. See inst.) 6a Ordinary dividends 6b Qualified dividends F Name, address, city, state, and ZIP code for partner entered in E. See instructions. Amy 6c Dividend equivalents 17 Alternative minimum tax (AMT) items 7 Royalties G General partner or LLC member- Limited partner or other LLC manager member H1 Domestic partner Foreign partner H2 If the partner is a disregarded entity (DE), enter the partner's: TIN Name 8 Net short-term capital gain (loss) 9a Net long-term capital gain (loss) 0 x 18 Tax-exempt income and nondeductible expenses 11 What type of entity is this partner? Individual 9b Collectibles (28%) gain (loss) A 12 If this partner is a retirement plan (IRA/SEP/Keogh/etc.), check here o 9c Unrecaptured section 1250 C gain Yall J Partner's share of profit, loss, and capital (see instructions): 10 Net section 1231 gain (loss) Beginning Ending 11 Other income (loss) 19 Distributions Profit 0 X % 0 X % A 0 X Loss 0 X % 0 X % Capital 0 X % 0 X % Check if decrease is due to sale or exchange of partnership 12 Section 179 deduction 20 Other information interest D A 0 X 13 Other deductions Z* STMT K Partner's share of liabilities: A 0 QBI 0 X Beginning Ending Nonrecourse $ W-2 wages 0 x $ 0 0 x Qualified nonrecourse financing $ UBIA 0 x Recourse $ Check this box if Item k includes liability amounts from lower tier partnerships. 14 Self-employment earnings (loss) A 0 L Partner's capital account analysis: Beginning capital account ...... $ 0 X Capital contributed during the year. . $ 21 - More than one activity for at-risk purposes* 22 - More than one activity for passive activity purposes* Current year net income (loss)... $ 0 X *See attached statement for additional information. Other increase (decrease) (attach explanation) $ Withdrawals & distributions $ 0 X ) LOG R Ending capital account. $ 0 X M Did the partner contribute property with a built-in gain or loss? Yes No If "Yes," attach statement. See instructions. N Partner's Share of Net Unrecognized Section 704(c) Gain or (Loss) Beginning capital account. Ending $