$**$create a Form $1065$: U$.$S$.$ Return of Partnership Income $2020$ G$**$Overview

You are a senior tax accountant in the firm, Ernest & Rainhouse. Joe, a new junior accountant, has just completed an interview with a new client Harry, who is a general partner of Widget Unlimited. Harry is seeking to have Ernest & Rainhouse prepare Widget Unlimited's Partnership Tax Return. Joe has never prepared a Partnership Tax Return and seeks your help in doing so$.$ Additionally, there are a couple of questions Harry asks that Joe needs your assistance in answering. You are to read the scenario below and then follow the instructions.

Scenario

Henry, Hunter, and Harry formed a partnership $($Widget Unlimited$)$ on January $1,2020.$ Henry and Hunter each contributed $$200,000$ and Harry transferred a building he had purchased two years earlier to the partnership. The building had a tax basis of $$150,000$ and was appraised at $$300,000.$ The building was also encumbered with a $$100,000$ mortgage. The partners plan to use the building to manufacture, distribute, and sell green and purple widgets.

Harry will work full$-$time operating the business for which he will receive guaranteed payments $($not included in expenses$)$ of $$5,000$ per month. Henry and Hunter will devote less than twelve days a year to the business. At the end of $2020,$ Widgets Unlimited had made $$6,000$ in mortgage principal payments. The partnership agreement specifies that Henry, Hunter, and Harry will share in income$/$loss in the ratio of $3$:$3$:$4.$

For the first year of operation, the partnership records disclose the following information:

First$-$year disclosures

$\backslash$table$[[$Sales revenue,$$820,000],[$Cost of goods sold,$$735,000],[$Operating expenses,$$65,000],[$Long$-$term capital gains,$$3,300],[-1231$ gains,$$1,500],[$Charitable contributions,$$700],[$Political campaign donation,$$500],[$Municipal bond interest,$$450]]$

Instructions

Using the information provided, create a Form $1065$: U$.$S$.$ Return of Partnership Income $2020$ G$...................................................$ Widgets Unlimited, preparing a Schedule K for Henry, Hunter, and Harry.

Refer to the completed Form $1065$ schedule of Henry, Hunter, and Harry's adjusted tax basis immediately after partnership formation and at the end of the first year of operation. Explain in what situations Henry, Hunter, and Harry would need to know the tax basis in their partnerships. Explain how often a partner's tax basis in his partnership needs to be adjusted. Justify your answer with relevant tax code citations.

The tax code specifically enumerates several common separately stated items. Explain which items would be separately stated for partners Henry, Hunter, and Harry. Explain why each should be separately stated, citing relevant tax codes for at least three of your identified separately stated items.