CL LLC is a manufacturing business and reported $$adjusted taxable income$$ in $2023$ of $$40,000,000$ before interest expense, taxes, depreciation, and amortization $("$tax EBITDA"$),$ plus $$1,500,000$ of separately stated investment income. CL incurred interest expense of $$1,000,000$ in connection with this investment income and $$14,000,000$ in connection with its trade or business.

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a$.$ How much interest expense can CL deduct?

$fill in the blank $0$bff$8$ef$2$bfe$5013\_1$

What happens to any additional interest expense?

The $fill in the blank $0$bff$8$ef$2$bfe$5013\_2$ of investment interest expense

a separately stated item on Schedule K$.$

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If a partnership pays interest expense, it must be allocated among the partnership's various activities, generally based on how and why the underlying debt arose. Special rules apply to business interest expense. For a partnership or an S corporation, in the year the interest expense arises, the entity determines the amount that can be deducted.

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b$.$ How is the interest expense reported on CL$\text{'}$s Schedules K$1?$

On Schedules K$1,$ CL allocates the $fill in the blank $0$c$5$b$83$fce$02$bfe$0\_1$ of investment interest expense as a

stated deduction. In addition, it reports the $fill in the blank $0$c$5$b$83$fce$02$bfe$0\_3$ of excess business interest as a

stated item.

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c$.$ What action, if any, is needed by the LLC members?

In the current year, the LLC members will deduct their distributive shares of the

to the extent permitted. In future years, the LLC members can deduct their distributive shares of the

carryover against excess taxable income the LLC allocates to the members in those future years.

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d$.$ How would your answers to parts $($a$)$ through $($c$)$ change if CL$\text{'}$s adjusted taxable income was $$4,000,000($plus $$150,000$ of investment income$),$ its average annual gross receipts for all prior tax years was $$10,000,000$ or less, and the interest expense amounts were $$100,000($investment$)$ and $$1,400,000($business$)?$

If average annual gross receipts do not exceed $fill in the blank $11$cb$1403$e$07603$f$\_1$ for the prior tax year, the business interest expense limitation

apply, so all business interest expense is currently

by the LLC$.$