create a Book Income to Taxable Income and Ordinary Income Reconciliation using the info below and format above Practical Guide to Partnerships, LLCs and S Corporations$$Instructor$$s Guide Tax

Return Problem $1$

$2023$ CCH Incorporated and its affiliates. All rights reserved.

Practical Guide to Partnerships, LLCs and S Corporations

$2023$ Partnership Tax Return Problem

Christy Albright and Dan Ralls formed the Charter Company on $11/30/2018$ and chose a

tax year ending on $11/30.$ Charter was formed to operate a restaurant $($In the Charter

Building at $7848$ Pesca Dr$.,$ San Francisco, CA $94123)$ and rent out some space in the

restaurant building. The Principal Business Activity Code they will use is $722511.$

Charter elected to be taxed as a partnership, and the income statement for the year ending

$11/30/2023$ is as follows:

Sales $$400,000$

COGS $-150,000$

Tax$-$exempt interest $6,000$

Interest income $4,000$

Dividend income from domestic corporations $5,000$

Nonqualified dividend income from foreign

corporations $3,000$

Gain on sale of equipment $10,000$

Depreciation $-30,000$

Repairs and

maintenance $-7,000$

Rent expense $-12,000$

Salaries to nonpartners $-60,000$

Salaries to partners $-30,000$

Income from real estate rentals $100,000$

Expenses from real estate rentals $($includes

$$10,000$ of book depreciation$)-80,000$

Gain on sale of stock $($held $<1$ yr$.)20,000$

Health Department fines $-2,000$

Investment interest expense $-1,000$

Subtotal $$176,000$

Charter chooses the accrual method of accounting. The equipment sold was an imported

oven that had been fully depreciated. It originally cost $$4,000$ on $5/3/2019$ and was sold

for $$10,000$ on $6/9/2023.$

The tax depreciation amount for the year was $$20,000,$ not including $$14,000$ of Section

$179$ expense that Charter chose to take on some equipment they purchased, and not

including the $$10,000$ per year depreciation of the rental real estate, which is included in

the $$80,000$ of costs above. Assume $1/3$ of the building square footage is rented out.

$($Note: according to the Form $4562$ instructions, the depreciation from the rental activity

would not need to be disclosed on Form $4562)$

Practical Guide to Partnerships, LLCs and S Corporations$$Instructor$$s Guide Tax

Return Problem $2$

$2023$ CCH Incorporated and its affiliates. All rights reserved.

All of the $$30,000$ of guaranteed payments goes to Christy for services she renders to the

partnership. Assume that $40\%$ of the investment interest expense is nondeductible

because it relates to the tax$-$exempt interest. The stock sold was $1000$ shares of Alter

Corporation, purchased on $1/20/2023$ for $$25,000$ and sold on $4/10/2023$ for $$45,000.$

Christy owns $60\%$ of the partnership and is an active partner. Christy is the Partnership

Representative. Dan owns $40\%,$ but is a passive, limited partner. At the beginning of the

year, Christy$$s and Dan$$s tax basis capital account balances are $$198,000$ and $$126,000,$

respectively. During the year Christy was distributed $$60,000$ and Dan was distributed

$$40,000.$ The book balance sheet of the partnership is as follows:

Beginning Ending

Cash $$10,00077000$

Accounts Receivable $$10,00020000$

Inventory $15,00010,000$

Tax$-$exempt securities $100,000100,000$

Equipment $90,000140000$

Accumulated depreciation $-50,000-66000$

Building $600,000600000$

Accumulated depreciation $-40,000-60000$

Land $100,000100,000$

Total assets $835,000921,000$

Accounts payable $10,00020000$

Mortgages $500,000500000$

Capital, Christy $195,000240,600$

Capital, Dan $130,000160,400$

Total liabilities and capital $835,000921,000$

All of the $$54,000$ of equipment purchased this year was restaurant equipment and was $7-$

year property eligible for the Section $179$ deduction. Aside from the equipment expensed

under Section $179,$ all the new equipment was depreciated under MACRS. There is no

AMT adjustment for depreciation except for the adjustment due to the current year

purchases $($the net adjustment for prior year purchases was zero$).$ All the mortgage debt is

qualified nonrecourse debt, and none of it is payable in the next year. Both the rental and

the restaurant are qualified businesses for purposes of the Section $199$A qualified

business income deduction. All the depreciable assets are deemed to be associated with a

qualified business under Section $199$A$,$ and the salaries to employees are all W$-2$ wages. Create a book income to taxable income and ordinary income reconciliation using the format below.