Julio and Milania are owners of Falcons Corporation, an S corporation. Each owns 50 percent of Falcons Corporation. In year 1, Julio and Milania each received distributions of $15,000 from Falcons Corporation. Falcons Corporation (an S Corporation) Income Statement December 31, Year 1 and Year 2 Sales revenue Cost of goods sold Salary to owners Julio and Milania Employee wages Depreciation expense Section 179 expense Interest income (related to business income) Municipal bond income Government fines Overall net income Distributions Year 1 $ 300,000 Year 2 $ 430,000 (40,000) (60,000) (40,000) (80,000) (25,000) (50,000) (20,000) (40,000) (30,000) (50,000) 12,000 1,500 0 $ 158,500 22,500 4,000 (2,000) $174,500 $ 30,000 $ 50,000 a. What amount of ordinary income and separately stated items are allocated to them for year 1 based on the information above? Assume that Falcons Corporation has $200,000 of qualified property (unadjusted basis). Ordinary Income Section 179 expense Interest income Municipal bond income. Government fines Distributions Amount Allocated to Allocated to Julio Milania $ 175,000 $ 87,500 $ 87,500 30,000 15,000 15,000 12,000 6,000 6,000 1,500 750 750 $ 0 $ 0 $ 0 $ 30,000 $ 15,000 $ 15,000 9 Complete Falcons's Form 1120-S, Schedule K, for year 1. Form 1065 (2021) Schedule K Shareholders' Pro Rata Share Items 1 Ordinary business income (loss) (page 1, line 21) 2 Net rental real estate income (loss) (attach Form 8825) 3a Other gross rental income (loss) b Expenses from other rental activities (attach statement) Other net rental income (loss). Subtract line 3b from line 38 4 Interest income 5 Dividends: a Ordinary dividends Income (Loss) 5 6 Royalties b Qualified dividends 7 Net short-term capital gain (loss) (attach Schedule D (Form 1120-S)) Ba Net long-term capital gain (loss) (attach Schedule D (Form 1120-S)) b Collectibles (28%) gain (loss) Page 3 Total amount 2 3a 36 36 4 5a e Unrecaptured section 1250 gain (attach statement) Bb Be Net section 1231 gain (loss) (attach Form 4797) 10 Other income (loss) (see instructions) Type 10 11 Section 179 deduction (attach Form 4562) 11 12a Charitable contributions 12 Deductions b Investment interest expense 12b e Section 59(e)2) expenditures (1) Type (2) Amount 126(2) d Other deductions (see instructions) Type 12d 13a Low-income housing credit (section 420X(5)) 134 b Low-income housing credit (other) 136 e Qualified rehabilitation expenditures (rental real estate) (attach Form 3468, if applicable) 130 instructions) Credits Other rental credits (see instructions) f Biofuel producer credit (attach Form 6478) d Other rental real estate credits (see Type 13d Type I 13e 13 Time- 7 Required information Credits e Qualified rehabilitation expenditures (rental real estate) (attach Form 3468, if applicable) d Other rental real estate credits (see instructions) 13c Other rental credits (see instructions) f Biofuel producer credit (attach Form 6478) Other credits (see instructions) Type Type 13d 130 13f 13g 156 Post-1986 depreciation adjustment (AMT) Items + International Transactions Alternative Minimum Tax Items Affecting Shareholder Basis b Adjusted gain or loss e Depletion (other than oil and gas) d Oil, gas, and geothermal properties-gross income Ol, gas, and geothermal properties-deductions Other AMT items (attach statement) 16a Tax-exempt interest income b Other tax-exempt income e Nondeductible expenses e Distributions (attach statement if required) (see instructions) Repayment of loans from shareholders Foreign taxes paid or accrued 17a Investment income 14 Attach Schedule K-2 (Form 1120-8), Shareholders' Pro Rata Share Items-International, and check this box to indicate you are reporting items of international tax relevanc 15a 156 15c 15d 150 15 16 16b 16c 16d 160 16 17a b Investment expenses eDividend distributions paid from accumulated eamings and profits Other Information d Other items and amounts (attach statement) 18 Income (loss) reconcilation. Combine the amounts on lines 1 through 10 in the far right column. From the result, subtract 17b 176 Reconciliation the sum of the amounts on lines 11 through 12d and 16 18 THIS FORM IS A SIMULATION OF AN OFFICIAL U.S. TAX FORM. IT IS NOT THE OFFICIAL FORM ITSELF. DO NOT USE THIS FORM FOR TAX FILINGS OR FOR ANY PURPOSE OTHER THAN EDUCATIONAL. 2021 McGraw-Hill Education. Form 1120-5 (2021) c. Complete Julio's 1120-S, Schedule K-1, for year 1. Note: Use 2022 tax rules regardless of year on tax form. Input all values as positive numbers. Falcons Corporation EIN: 58-1111111 Shareholder's identifying number: 111-11-1111 Prepare Form 1120-S. (Form 1120-S) Department of the Treasury For calendar year 2021, or tax year Schedule K1 Complete Julio's 1120-S, Schedule K-1, for year 1. Schedule K-1 2021 Final K-1 Amended K-1 OMB No. 1545-0123 Shareholder's Share of Current Year Income, Deductions, Credits, and Other Items 13 Credits Part III Ordinary business income (loss) Internal Revenue Service beginning 2021 ending 20 2 Net rental real estate income (loss) Shareholder's Share of Income, Deductions, Credits, etc. See back of form and separate instructions. Part I Information About the Corporation A Corporation's employer identification number Schedule K-3 is attached if 3 Other net rental income (loss) 14 checked 4 Interest income Schedule K-1 2021 Part III (Form 1120-S) Final K-1 Amended K-1 OMB No. 1545-0123 Shareholder's Share of Current Year Income, Deductions, Credits, and Other Items Department of the Treasury For calendar year 2021, or tax year Ordinary business income (loss) 13 Credits Internal Revenue Service beginning ending 2021 20 2 Net rental real estate income (loss) Shareholder's Share of Income, Deductions, Credits, etc. See back of form and separate instructions. 3 Other net rental income (loss) 14 Schedule K-3 is attached if checked.... Part Information About the Corporation 4 Interest income A Corporation's employer Identification number Sa Ordinary dividends B Corporation's name, address, city, state, and ZIP code 5b Qualified dividends C IRS Center where corporation flied retur D Corporation's total number of shares 6 Royalties Beginning of tax year 7 Net short-term capital gain (loss) End of tax year E Shareholder's identifying number Part II Information About the Shareholder Ba Net long-term capital gain (loss) Bb Collectibles (28%) gain (loss) 15 Alternative minimum tax (AMT) items Required information F Shareholder's name, address, city, state, and ZIP code G Current year allocation percentage Unrecaptured section 1250 Be gain 9 Net section 1231 gain (loss) 10 Other income (loss) 16 Items affecting shareholder basis H Shareholder's number of shares Beginning of tax year End of tax year 1 Loans from shareholder Beginning of tax year End of tax year 11 Section 179 deduction 12 Other deductions For IRS Use Only 18 17 Other information More than one activity for at-risk purposes STMT Required information 1 Loans from shareholder Beginning of tax year End of tax year For IRS Use Only 12 Other deductions 17 Other information 18 19 More than one activity for at-risk purposes More than one activity for passive activity purposes STMT For Paperwork Reduction Act Notice, see Instructions for Form 1065 *See attached statement for additional information. www.irs.gov/Form1065 Cat. No. 11394R Schedule K-1 (Form 1065) 2021 THIS FORM IS A SIMULATION OF AN OFFICIAL U.S. TAX FORM. IT IS NOT THE OFFICIAL FORM ITSELF. DO NOT USE THIS FORM FOR TAX FILINGS OR FOR ANY PURPOSE OTHER THAN EDUCATIONAL. 2021 McGraw-Hill Education. < Schedule K1 next >