Igor Schmitt (876-88-8765), Zoey Taos (764-77-7564), Peter Angelo (548-55-5432) and Pippi Rodriguez (445-44-4321) are equal and active members in STAR Advertising, LLC.STAR's business is to create, develop and implement marketing and advertising campaigns for its small business clients. STAR's business is located in Las Vegas, Nevada.The majority of its clients are in the gaming and related businesses.STAR's federal ID number is 987-65-4321.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, NV89001.

STAR had a profitable year in 2019 as a result of the significant increase in tourism in Las Vegas.The following is STAR's book income statement for 2019:

Revenues

Fees and commissions$4,512,000

Taxable interest income from bank deposits1,400

Tax-exempt interest2,200

Net gains on sales of stocks11,300

Total Revenues$4,526,900

Expenses

Employee salaries and wages$1,090,000

Advertising and public relations 425,000

Charitable contributions (cash to United Way)20,000

Depreciation expense165,000

Guaranteed payment (services), Igor Schmitt, office manager600,000

Guaranteed payment (services), other members375,000

Meals - subject to 50% disallowance165,000

Entertainment35,000

Travel320,000

Legal and Professional (including accounting fees)132,000

Office rents (building) 120,000

Interest expense - line-of-credit for operations12,000

Insurance premiums (property/casualty)48,000

Office expense150,000

Payroll taxes92,000

Utilities49,800

Total Expenses$3,798,800

Net income $728,100

The beginning and ending balance sheets for the 2019 calendar year for STAR are as follows:

BeginningBSEnding

Cash $556,000$693100

Accounts receivables350,000+200000 550,000

Tax-exempt securities140,000+20000 160,000

Marketable securities456,000-76000 380,000

Leasehold improvements, furniture

& equipment960,000+80000 1,040,000

Accumulated depreciation(560,000)+165000 (725,000)

Total Assets$1,902,000$2098000

Accounts payables $250,000+18000$268,000

Line-of-credit for operations220,000(40000) 180,000

Deferred revenue372,000+66000 438,000

Capital - Igor Schmitt265,000 (144000) + 182025303025

Capital - Zoey Taos265,000303025

Capital - Peter Angelo265,000 303025

Capital - Pippi Rodriguez265,000 303025

Total Liabilities & Capital$1,902,000 $2098100

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, 2019 are fully depreciated for income tax purpose.This year, STAR wrapped up its remodeling with the purchase of $80,000 (placed-in-service on June 1, 2019) of office furniture and equipment. STAR would like to claim a Sec. 179 deduction 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 Sold 2 Securities:

Bought 2/20/19120000 -> 12/28/19 Sold 80300 = 39700 S/P Cap Loss

Bought 3/18/19110000 -> 9/15/19Sold 161000 = 51000 L/P cap gain

11300 Net L/P cap gain

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, 2019, STAR purchased 400 shares of Slot-Tech Corporation stock for $120,000.It then sold those shares on December 28, 2019 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 $161,000 on September 15, 2019.These transactions were reported on Forms 1099-B;

STAR's basis in these shares was reported on the form. (Sold shares compute gain or loss)

Deferred Revenuep. 4-12

Beginning in 2018, STAR expanded its business to offer international advertising services. It offers the advertising 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 2018 and 2019: (prepaid service income)

1. Customer: Galaxy Exploration, Inc.8/18-12/18201920202021

2. Contract date: August 1, 20186000014400014400084000

3. Contract duration: 36 months

4. Prepaid revenue: $432,000

12000 mo

1. Customer: Smith Gaming, LLC10/18-12/18201920202021

2. Contract date: October 1, 2019

3. Contract duration:24 months--------3000012000090000

4. Prepaid revenue: $240,000

10000 mo

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).

^^ talked in previous chap. Will have book/tax diff.

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 $600,000 was paid to Igor Schmitt in exchange for services he provided to STAR.The other three members each received a guaranteed payment of $125,000 also for services provided to STAR.In addition, each member withdrew $12,000 in cash per month as distributions (draws) of operating profits. 144/4R

Capital accounts are maintained using GAAP.

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

STAR's gross receipts for the three previous tax years were:

2018:$4,600,000

2017:$4,400,000

2016:$4,000,000

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

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.

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.

The IRS's business activity and code are "Advertising and Related Services," 541800. Igor is the Designated Partner Representative.STAR files its tax return in Ogden, Utah, IRS Service Center.Igor's home address is 520 W. Moon Glow Street, Henderson, NV89055.The home addresses for the other members are:

Zoey Taos, 123 First Street, Las Vegas, NV. 89002

Peter Angelo, 456 Second Street, Las Vegas, NV89002

Pippi Rodriguez, 789 Third Street, Henderson, NV. 89045

1.Prepare the following tax return forms, schedules and supporting schedules and attachments where requested, for STAR for the year ended December 31, 2019:

a.Book-to-Tax Reconciliation (Excel worksheet attached)

b.Form 1065, pages 1-5.

c.Schedule D

d.Form 4562

e.Schedule K-1 for Igor Schmitt