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Igor Schmitt (876-88-8765), Zoey Taos (764-77-7564), Peter Angelo (548-55-5432) and Rosa Rodriguez (445-44-4321) are equal and active members in STAR Consulting, LLC. STARs business is to consult, create and develop marketing and advertising campaigns for its small business clients. STARs business is located in Las Vegas, Nevada. The majority of its clients are in the gaming and related businesses. STARs federal ID number is 83-1462211. It uses the accrual basis method of accounting for financial statement and tax reporting purposes. STAR is a calendar-year taxpayer. It began business operations on June 30, 2006. Under the Check-the-Box Treasury Regulations STAR files as a partnership for federal income tax purposes. Its current address is 6102 Desert Street, Suite 700, Las Vegas, NV 89001 STAR had a profitable year in 2020 as a result of the significant increase in tourism in Las Vegas. The following is STARs book income statement for 2020:

Revenues Fees and commissions $5,421,000 Taxable interest income from bank deposits 1,200 Tax-exempt interest 2,500 Net gains on sales of stocks 15,800 Total Revenues $5,440,500

Expenses Employee salaries and wages $1,440,000 Advertising and public relations 580,000 Charitable contributions (cash to American Red Cross) 40,000 Depreciation expense 70,000 Guaranteed payment (services), Igor Schmitt, office manager 400,000 Guaranteed payment (services), other members 300,000 Meals - subject to 50% disallowance 120,000 Entertainment 25,000 Travel 320,000 Legal and Professional (including accounting fees) 132,000 Office rents (building) 120,000 Interest expense - line-of-credit for operations 12,000 Insurance premiums (property/casualty) 58,000 Office expense 135,000 Payroll taxes 220,000 Utilities 63,200 Total Expenses $4,035,200 Net income $1,405,300

2. The beginning and ending balance sheets for the 2020 calendar year for STAR are as follows: Beginning / Ending Cash $425,000 $ / ?? Accounts receivables 380,000 / 525,350 Tax-exempt securities 150,000 / 180,000 Marketable securities 432,000 / 580,000 Leasehold improvements, furniture & equipment 840,000 / 990,000 Accumulated depreciation (630,000) / (700,000) Misc. and prepaid expenses 22,000 / 52,000 Total Assets $1,619,000 $ / ?? Accounts payables $433,000 / $449,050 Line-of-credit for operations 250,000 / 180,000 Deferred revenue 256,000 / 322,000 Capital Igor Schmitt 170,000 / ?? Capital Zoey Taos 170,000 / ?? Capital Peter Angelo 170,000 / ?? Capital Rosa Rodriguez 170,000 / ?? Total Liabilities & Capital $1,619,000 $ / ??

Depreciation In prior years, STAR has taken advantage of bonus depreciation and Sec. 179 deductions and fully remodeled the premises and upgraded its leasehold improvements. Thus, all assets placed-in-services prior to January 1, 2020, are fully depreciated for income tax purpose. This year, STAR wrapped up its remodeling with the purchase of $150,000 (placed-in-service on June 1, 2020) of office furniture and equipment. STAR would like to claim either a Sec. 179 deduction or Bonus Depreciation for tax purposes on the additions. There is no depreciation adjustment for alternative minimum tax purposes. STAR uses various methods to compute its book depreciation.

Sales of Stocks and Securities STAR invests much of its excess cash in non-dividend-paying growth stocks and tax-exempt securities. During the year, the LLC sold two securities. On February 20, 2020, STAR purchased 400 shares of Slot- Tech Corporation stock for $120,000. It then sold those shares on December 28, 2020 for $80,300. On March 15, 2014, STAR purchased 1,200 shares of Research, Inc. stock for $110,000. It sold the Research shares for $165,500 on October 22, 2020. These transactions were reported on Forms 1099-B; STARs basis in these shares was reported on the form.

Deferred Revenue Beginning in 2019, STAR expanded its business to offer international consulting services. It offers the Consulting services to international gaming companies. Under the contract terms, STAR receives payment for the services up-front. It then is obligated to provide the services to the contracting client over the period of the contract. STAR entered into the following international service contracts in 2019 and 2020: 1. Customer: Party-The-Galaxy, LLC 2. Contract date: September 1, 2019 3. Contract duration: 36 months 4. Prepaid revenue: $288,000

1. Customer: Brazil Gaming, Inc. 2. Contract date: July 1, 2020 3. Contract duration: 24 months 4. Prepaid revenue: $216,000

For financial statement purposes, STAR recognizes the revenue from these pre-paid service contracts on a monthly basis over the life of the contracts. For tax purposes, STAR elected to follow the one-year deferral treatment in IRC 451(c). See the attached tax return workpaper to assist you in determining the tax implications of the pre-paid service contracts.

Guaranteed Payments and Capital Accounts A guaranteed payment in the amount of $400,000 was paid to Igor Schmitt in exchange for services he provided to STAR. The other three members each received a guaranteed payment of $100,000 also for services provided to STAR. In addition, each member withdrew $18,000 in cash per month as distributions (draws) of operating profits.

Capital accounts are maintained using GAAP.

Sec. 163(j) Interest Expense Limitation and the Qualified Business Income Deduction

STARs gross receipts for the three previous tax years were: 2019: $5,300,000 2018: $5,100,000 2017: $4,800,000

You do not need to input additional information relating to the computation of the 20% Qualified Business Income deduction under Sec. 199A.

4. Line-of-Credit for Operations The line-of-credit for operations was guaranteed by all the members (recourse). All other liabilities were not guaranteed by the members (nonrecourse). The members share equally in all liabilities; the same as their profit, loss and capital interests.

Tax Basis in Partnership Interests and Capital Accounts

You no not need to compute the partners ending tax basis in their partnership interests. However, if you are using the intuit proconnect software, for input purposes each partners beginning tax basis in the partnership is $200,000.

The Partnership capital accounts are maintained on a tax basis. Each partners beginning capital account balance is $170,000.

Miscellaneous All members are material participants in the business activities of STAR. None of the members sold any portion of their interests in STAR in 2020. There were no distributions of noncash property or interest in the LLC. None of the members contributed cash or other property to the LLC during the year. The LLC never has participated in a like-kind exchange. All members are U.S. citizens who are unrelated to one another. The LLC does not own more than 20% (directly or indirectly) of any other entity. STAR had no foreign operations, and no legal interest in any foreign trusts. STAR is not publicly traded. STAR has filed all required Form 1099s for the tax year.

The IRSs business activity and code are Advertising and Related Services, 541800. Igor is the Designated Partner Representative and primary contact. STAR files its tax return in Ogden, Utah, IRS Service Center. Igors home address is 520 W. Moon Glow Street, Henderson, NV 89055. His cell phone contact number is 702-358-2100. His email address is ig@star.com. The home addresses, email addresses, and cell phone numbers for the other members are: Zoey Taos, 123 First Street, Las Vegas, NV. 89002, zt@star.com (702-358-2110) Peter Angelo, 456 Second Street, Las Vegas, NV 89002, pa@star.com (702-358-2120) Rosa Rodriguez, 789 Third Street, Henderson, NV. 89045 rr@star.com (702-358-2130)

Assignment 1. Prepare the following tax return forms, schedules and supporting schedules and attachments where requested, for STAR for the year ended December 31, 2020: a. Book-to-Tax Reconciliation b. Form 1065, pages 1-5. c. Schedule D d. Form 4562 e. Schedule K-1 for Igor Schmitt

Lastly, Do not prepare a Schedule K-1 for the other members. Do not efile the return. Assume the return has already been extended. Form 7004 has been prepared and filed extending the due date. You do not need to prepare it.