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Problem 14-16 (LO. 4, 5, 7) Amy and Mitchell share equally in the profits, losses, and capital of the accrual basis AM Products LLC. The LLC does not need to report financial information to any third parties, so capital accounts are determined using tax rules (rather than GAAP). Amy is a managing member of the LLC (treated as a general partner) and is a U.S. person. At the beginning of the current tax year, Amy's capital account has a balance of $300,000, and the LLC has debts of $200,000 payable to unrelated parties. All debts are recourse to the LLC, but neither of the LLC members has personally guaranteed them. The following information about AM's operations for the current year is obtained from the LLC's records. Revenues $1,400,000 Other "ordinary and necessary" operating expenses (e.g., utilities, repairs, and rent) 500,000 W-2 wages to employees 200,000 Depreciation expense 300,000 Interest income 4,000 Long-term capital gain 6,000 Charitable contribution (cash) 4,000 Cash distribution to Amy 20,000 Unadjusted basis of partnership property immediately after acquisition 1,600,000 Year-end LLC debt payable to unrelated parties is $140,000. Assume that all transactions are reflected in Amy's beginning capital and basis in the same manner. All AM Products' activities are eligible for the qualified business income deduction. a. Calculate Amy's basis in her LLC interest at the beginning and end of the tax year. LLC interest at the beginning of the year: 300,000 X LLC interest at end of the year: $ Feedback Check My Work A partner's basis in the LLC interest is important for determining the treatment of distributions from the LLC to the partner, establishing the deductibility of LLC losses, and calculating gain or loss on the partner's disposition of the LLC interest. After the partner is admitted to the LLC, the partner's basis is adjusted for numerous items. b. What income, gains, losses, and deductions does Amy report on her income tax return? If an amount is zero, enter "O". Ordinary income $ Net long-term capital gain Interest income nell Charitable contribution deduction Cash distribution $ c. Based on the information provided, what other calculations is Amy required to make? Amy may be eligible to deduct up to % of the ordinary income as qualified business income under 199A and will make that calculation on her return. This deduction require a cash outflow by Amy or the LLC, and it affect her basis or capital account. As someone treated as a general partner, Amy's distributive share of the LLC's ordinary business income subject to self-employment tax and possibly the additional Medicare tax. Her from the LLC may be subject to the additional tax under 1411. d. Prepare Amy's tax-basis capital account rollforward from the beginning to the end of the tax year. How does her ending capital account differ from her ending tax basis in the LLC interest as calculated in part (a)? Capital account balance, beginning year Ordinary income Interest income III Net long-term capital gain Less: Charitable contribution Cash distribution to Amy Capital account balance, end of year Amy's capital account differs from her basis only by the amount of her share of LLC Provide all information that Amy needs to the extent you can. Enter all amounts as positive numbers. 651119 Final K-1 Amended K-1 OMB No. 1545-0123 Part III Partner's Share of Current Year Income, Schedule K-1 (Form 1065) 2020 Deductions, Credits, and Other Items 1 15 Credits Department of the Treasury Internal Revenue Service For calendar year 2020, or tax year Ordinary business income (loss) beginning / / 2020 ending / 1 2 Partner's Share of Income, Deductions, Credits, etc. See separate instructions. Net rental real estate income (loss) Part I Information About the Partnership 3 Other net rental income (loss) 16 Foreign transactions A Partnership's employer identification number 4a Guaranteed payments for services B Partnership's name, address, city, state, and ZIP code AM Products, LLC 4b Guaranteed payments for capital IRS Center where partnership filed return 4c D Check if this is a publicly traded partnership (PTP) Total guaranteed payments Part II Information About the Partner 5 Interest income E Partner's SSN or TIN (Do not use TIN of a disregarded entity. See inst.) 6a Ordinary dividends 6b Qualified dividends Name, address, city, state, and ZIP code for partner entered in E. See instructions. Amy 6c Dividend equivalents 17 Alternative minimum tax (AMT) items G General partner or LLC member- Limited partner or other LLC manager member 7 Royalties 8 H1 Domestic partner Foreign partner H2 If the partner is a disregarded entity (DE), enter the partner's: TIN Name Net short-term capital gain (loss) 9a Net long-term capital gain (loss) 18 Tax-exempt income and nondeductible expenses 11 What type of entity is this partner? (IRA/SEP/Keogh/etc.), check 12 If this partner is a retirement here o 9b Collectibles (28%) gain (loss) A J 9c Unrecaptured section 1250 gain Partner's share of profit, loss, and capital (see instructions): Beginning Ending 10 Net section 1231 gain (loss) Profit % % IL Other Income TOSS) 19 DISLIIDULIONIS Loss % % A Capital % % % Check if decrease is due to sale or exchange of partnership interest a 12 Section 179 deduction 20 Other information A K Partner's share of liabilities: : Beginning Ending 13 Other deductions Z* STMT A QBI Nonrecourse $ $ Qualified nonrecourse financing $ $ $ W-2 wages Recourse $ $ UBIA Check this box if Item k includes liability amounts from lower tier partnerships. L Partner's capital account analysis: Beginning capital account ...... $ 14 Self-employment earnings (loss) A Capital contributed during the year. . $ Current year net income (loss)..... $ Other increase (decrease) (attach explanation) $ $ 21 More than one activity for at-risk purposes* 22 - More than one activity for passive activity purposes* Withdrawals & distributions ....... $ ) *See attached statement for additional information. Ending capital account. $ M Did the partner contribute property with a built-in gain or loss? 0 Yes No If "Yes," attach statement. See instructions. DOT R N Partner's Share of Net Unrecognized Section 704(c) Gain or (Loss) Dow OZI Beginning capital account. $ $ Ending For Paperwork Reduction Act Notice, see Instructions for Form 1065. www.irs.gov/Form1065 Cat. No. 11394R Schedule K-1 (Form 1065) 2020 Problem 14-16 (LO. 4, 5, 7) Amy and Mitchell share equally in the profits, losses, and capital of the accrual basis AM Products LLC. The LLC does not need to report financial information to any third parties, so capital accounts are determined using tax rules (rather than GAAP). Amy is a managing member of the LLC (treated as a general partner) and is a U.S. person. At the beginning of the current tax year, Amy's capital account has a balance of $300,000, and the LLC has debts of $200,000 payable to unrelated parties. All debts are recourse to the LLC, but neither of the LLC members has personally guaranteed them. The following information about AM's operations for the current year is obtained from the LLC's records. Revenues $1,400,000 Other "ordinary and necessary" operating expenses (e.g., utilities, repairs, and rent) 500,000 W-2 wages to employees 200,000 Depreciation expense 300,000 Interest income 4,000 Long-term capital gain 6,000 Charitable contribution (cash) 4,000 Cash distribution to Amy 20,000 Unadjusted basis of partnership property immediately after acquisition 1,600,000 Year-end LLC debt payable to unrelated parties is $140,000. Assume that all transactions are reflected in Amy's beginning capital and basis in the same manner. All AM Products' activities are eligible for the qualified business income deduction. a. Calculate Amy's basis in her LLC interest at the beginning and end of the tax year. LLC interest at the beginning of the year: 300,000 X LLC interest at end of the year: $ Feedback Check My Work A partner's basis in the LLC interest is important for determining the treatment of distributions from the LLC to the partner, establishing the deductibility of LLC losses, and calculating gain or loss on the partner's disposition of the LLC interest. After the partner is admitted to the LLC, the partner's basis is adjusted for numerous items. b. What income, gains, losses, and deductions does Amy report on her income tax return? If an amount is zero, enter "O". Ordinary income $ Net long-term capital gain Interest income nell Charitable contribution deduction Cash distribution $ c. Based on the information provided, what other calculations is Amy required to make? Amy may be eligible to deduct up to % of the ordinary income as qualified business income under 199A and will make that calculation on her return. This deduction require a cash outflow by Amy or the LLC, and it affect her basis or capital account. As someone treated as a general partner, Amy's distributive share of the LLC's ordinary business income subject to self-employment tax and possibly the additional Medicare tax. Her from the LLC may be subject to the additional tax under 1411. d. Prepare Amy's tax-basis capital account rollforward from the beginning to the end of the tax year. How does her ending capital account differ from her ending tax basis in the LLC interest as calculated in part (a)? Capital account balance, beginning year Ordinary income Interest income III Net long-term capital gain Less: Charitable contribution Cash distribution to Amy Capital account balance, end of year Amy's capital account differs from her basis only by the amount of her share of LLC Provide all information that Amy needs to the extent you can. Enter all amounts as positive numbers. 651119 Final K-1 Amended K-1 OMB No. 1545-0123 Part III Partner's Share of Current Year Income, Schedule K-1 (Form 1065) 2020 Deductions, Credits, and Other Items 1 15 Credits Department of the Treasury Internal Revenue Service For calendar year 2020, or tax year Ordinary business income (loss) beginning / / 2020 ending / 1 2 Partner's Share of Income, Deductions, Credits, etc. See separate instructions. Net rental real estate income (loss) Part I Information About the Partnership 3 Other net rental income (loss) 16 Foreign transactions A Partnership's employer identification number 4a Guaranteed payments for services B Partnership's name, address, city, state, and ZIP code AM Products, LLC 4b Guaranteed payments for capital IRS Center where partnership filed return 4c D Check if this is a publicly traded partnership (PTP) Total guaranteed payments Part II Information About the Partner 5 Interest income E Partner's SSN or TIN (Do not use TIN of a disregarded entity. See inst.) 6a Ordinary dividends 6b Qualified dividends Name, address, city, state, and ZIP code for partner entered in E. See instructions. Amy 6c Dividend equivalents 17 Alternative minimum tax (AMT) items G General partner or LLC member- Limited partner or other LLC manager member 7 Royalties 8 H1 Domestic partner Foreign partner H2 If the partner is a disregarded entity (DE), enter the partner's: TIN Name Net short-term capital gain (loss) 9a Net long-term capital gain (loss) 18 Tax-exempt income and nondeductible expenses 11 What type of entity is this partner? (IRA/SEP/Keogh/etc.), check 12 If this partner is a retirement here o 9b Collectibles (28%) gain (loss) A J 9c Unrecaptured section 1250 gain Partner's share of profit, loss, and capital (see instructions): Beginning Ending 10 Net section 1231 gain (loss) Profit % % IL Other Income TOSS) 19 DISLIIDULIONIS Loss % % A Capital % % % Check if decrease is due to sale or exchange of partnership interest a 12 Section 179 deduction 20 Other information A K Partner's share of liabilities: : Beginning Ending 13 Other deductions Z* STMT A QBI Nonrecourse $ $ Qualified nonrecourse financing $ $ $ W-2 wages Recourse $ $ UBIA Check this box if Item k includes liability amounts from lower tier partnerships. L Partner's capital account analysis: Beginning capital account ...... $ 14 Self-employment earnings (loss) A Capital contributed during the year. . $ Current year net income (loss)..... $ Other increase (decrease) (attach explanation) $ $ 21 More than one activity for at-risk purposes* 22 - More than one activity for passive activity purposes* Withdrawals & distributions ....... $ ) *See attached statement for additional information. Ending capital account. $ M Did the partner contribute property with a built-in gain or loss? 0 Yes No If "Yes," attach statement. See instructions. DOT R N Partner's Share of Net Unrecognized Section 704(c) Gain or (Loss) Dow OZI Beginning capital account. $ $ Ending For Paperwork Reduction Act Notice, see Instructions for Form 1065. www.irs.gov/Form1065 Cat. No. 11394R Schedule K-1 (Form 1065) 2020