For 2015, complete Abbey Road limited partnerships tax return. On Form 1065, you only need to prepare page 1, page 4 (Schedule K), the top of page 5 (Analysis of Net Income (Loss)), and the bottom of page 5 (Schedules M-1 & M-2). Also complete Schedule K-1 for Mark Traine. All needed forms/schedules are available on www.irs.gov. Form 4562 (Depreciation) is not required. Include any tax depreciation or Section 179 expense on the appropriate line on page 1 of Form 1065 or Schedule K. If any information is missing, use reasonable assumptions to fill in the gaps.

Facts

Abbey Road, LP was formed on April 1, 2010 by Mark Traine, the general partner, and two limited partners. None of the partners are related parties. Each partner contributed an equal amount of cash to start the new business. Abbey Road, LP is an outdoor equipment retailer which sells camping, fishing, skiing, and other outdoor equipment to the public. Mark has a 33.33% profits, loss, and capital interest, and the two limited partners hold the remaining 66.67% of the profits, loss, and capital interests. Their profits, loss, and capital interest have remained unchanged since the partnership was formed. Mark is actively involved in managing the business while the limited partners are only investors.

Abbey Road, LP is located at 777 W. Harrisburg Pike, Middletown, PA 17057. The employer identification number is 12-3456789. Abbey Road uses the accrual method of accounting and a calendar year-end. Marks home address is 123 Wander Lane, Lowtown, PA 17058 and his social security number is 555-55-5555.

Abbey Road has total assets of $1,725,800 and total liabilities of $540,300 at the beginning of the year and total assets of $2,065,300 and total liabilities of $806,640 at the end of the year.

Partnership liabilities consist of accounts payable and Mark, as general partner, is legally responsible for paying these liabilities if the partnership does not.

Two years ago, Abbey Road purchased an original Ansel Adams outdoor landscape photograph with the intent to display it permanently in the retail store. During this year, however, the photograph was sold to a local ski lodge where it hangs on the wall. The $34,000 recognized gain from the sale is reflected in the LPs income statement.

For tax purposes, Abbey Road has consistently elected to use Section 179 to expense any furniture or fixtures purchased every year since it was formed. The result is a lack of tax basis in any of its depreciable assets. This year, Abbey Road expensed $17,300 of signs and display cases for tax purposes.

On November 20, Abbey Road distributed $180,000 ($60,000 per partner) to the partners.

Miscellaneous expenses include a $900 fine for violating a local signage ordinance.

Abbey Road maintains its books using generally accepted accounting principles (GAAP).

Abbey Road, LP

Income Statement

For the year ending December 31, 2015

Sales $965,500

Sales Returns and Allowances 9,700

Cost of Goods Sold 538,200

Gross Profit from Operations $417,600

Other income:

Interest from money market account $ 3,200

Gain from sale of photograph 34,000

Gross Income $454,800

Expenses:

Employee wages $95,400

Interest on accounts payable 3,700

Payroll and property taxes 10,800

Supplies 4,300

Rent on retail building 18,500

Depreciation on furniture and fixtures 4,550

Advertising 8,300

Guaranteed payments to Mark Traine 35,000

Utilities 6,400

Accounting and legal services 4,400

Meals and entertainment 2,240

Charitable contribution to the Sierra Club 3,300

Miscellaneous expenses 5,750

Total expenses $202,640

Net income per books $253,160

Follow up question: What changes would be made to the tax return if the LP had instead been organized as an S Corporation?