I need tax forms 1125-a, Sch B-1, 4797, 8825, 8149, Sch D, 4562, and Sch K-1 for each partner.

Partnership Tax Return Problem I

Christy Albright and Dan Ralls formed the Charter Company on 11/30/2014, 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. Charter elected to be taxed as a partnership, and the income

statement for the year ending 11/30/2019 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 5/3/2012 and was sold

for $10,000 on 6/9/2019.

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. (Note: according to the Form 4562 instructions, the

depreciation from the rental activity would not need to be disclosed on Form 4562)

All of the $30,000 of guaranteed payments goes to Christy. 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 1/20/2019 for

$25,000 and sold on 4/10/2019 for $45,000.

Practical Guide to Partnerships and LLCs—Instructor's Guide Tax Return Problem

2

©2018 CCH Incorporated. All Rights Reserved.

Christy owns 60% of the partnership, and is an active partner. Christy is the Tax Matters

Partner. Dan owns 40%, but is a passive, limited partner. During the year Christy was

distributed $60,000 and Dan was distributed $40,000. The balance sheet of the

partnership is as follows:

Beginning

Ending

Cash

$10,000

77000

Accounts Receivable

$10,000

20000

Inventory

15,000

10,000

Tax-exempt securities

100,000

100,000

Equipment

90,000

140000

Accumulated depreciation

-50,000

-66000

Real estate

700,000

700000

Accumulated depreciation

-40,000

-60000

Total assets

835,000

921,000

Accounts payable

10,000

20000

Mortgages

500,000

500000

Capital, Christy

195,000

240,600

Capital, Dan

130,000

160,400

Total liabilities and capital

835,000

921,000

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 of 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 of 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

199A qualified business income deduction. All of the depreciable assets are deemed to

be associated with a qualified business under Section 199A, and the salaries to

employees are all W-2 wages under Section 199A.

Fill out a Form 1065 and all other appropriate forms for Charter and the related

Schedules K-1 for Christy and Dan. The necessary addresses and TINs are as follows:

Christy Albright

5050 Winding Way

San Francisco, CA 94123

SS# 056-36-4498

Dan Ralls

Practical Guide to Partnerships and LLCs—Instructor's Guide Tax Return Problem

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©2018 CCH Incorporated. All Rights Reserved.

3656 Pleasant Ridge

Lincoln, NE 68501

SS# 547-86-1154

Charter Company

7848 Pesca Dr.

San Francisco, CA 94123

EIN 85-4409231