Partnership Tax Return Problem$--$AAA Fast Plumbing

Required:

Please complete AAA Fast Plumbing$$s $2022$ tax return based upon the facts presented below. If required information is missing, use reasonable assumptions to fill in the gaps. Ignore all AMT calculations and AMT related reporting items.

Facts:

Michael Rodriguez and Devontae Johnson have been life$-$long friends. Both Michael and Devontae started to work for the same national plumbing repair company immediately after graduating from technical college. After nearly a decade of working for that same company, Michael and Devontae decided to venture out on their own and form their own plumbing company called AAA Fast Plumbing Repair $($AAA$).$ They formed AAA as a limited liability company $($LLC$).$ Michael and Devontae each own $50\%$ of the company. The company has been successful primarily based upon reputation and the fact that AAA is available $24$ hours a day, seven days a week. Although AAA charges a premium for after normal business hour calls, most of its competitors will not perform services past $9$ p$.$m$.$ and, thus, AAA finds itself often as one of the only available choices for middle of the night emergencies.

AAA has several employees and because of implementing technology solutions to aid in its call dispatch program, AAA has been able to expand its service area to now include a three$-$county area instead of just one.

Information relating to AAA and its owners is as follows:

Name of Company: AAA Fast Plumbing Repair, LLC

Address: $1456$ East Buena Vista Blvd$.$

Los Angeles, CA $90001($has not changed since inception$)$

Company formed and started: January $1,2013$

Accounting Method: Cash

Tax$-$year end: December $31$

Employer Identification Number: $34-7652143$

$$

Members$$ Information:

Michael Rodriguez

$1515$ West Bloomington Street

Los Angeles, CA $90001$

SSN$-585-31-4060$

Phone: $555-234-8745$

Profit$/$Loss$/$Capital membership interest is $50\%.$

Devontae Johnson

$19$ East Violet Circle

Los Angeles, CA $90001$

SSN: $585-31-6060$

Phone: $555-213-0989$

Profit$/$Loss$/$Capital membership interest is $50\%.$

$$

Other information:

For any $$yes$$ or $$no$$ questions on Schedule B$,$ assume the answer is $$no$$ unless explicitly stated in the facts below.

$$ AAA is a domestic limited liability company.

$$ Michael and Devontae are U$.$S$.$ citizens and are not related, each owning $50\%$ of the LLC$.$

$$ Both Michael and Devontae are managing members.

$$ All of AAA$$s activities constitute a qualified trade or business, and the salaries and wages expense from the income statement is the same as W$-2$ wages paid by AAA in $2022.$

$$ The total unadjusted basis for all assets placed in service for the prior $10$ years matches the book value of all assets reported on the balance sheet.

$$ Michael is the Partnership Representative and AAA is not electing out of the centralized partnership audit regime.

$$ Both Michael and Devontae are active in the business and work full$-$time for AAA.

$$ The debt owed to First National Bank is a non$-$recourse obligation and neither Michael nor Devontae have guaranteed its repayment $($see balance sheet below$).$ This debt is not directly tied to any specific asset but is rather a debt secured against all of the assets of the company.

$$ During the year, Michael and Devontae each contributed $$20,000$ to the capital of AAA.

$$ AAA makes the de minimis safe harbor election under the Tangible Property Regs

$$ AAA does not maintain any inventory. AAA purchases supplies and has a policy of expensing such purchases as paid for tax and book purposes consistent with existing tax law.

$$ AAA uses MACRS depreciation for both tax and book purposes.

$$ During the year, Michael and Devontae each received a $$75,000$ distribution from AAA.

$$ During the year, AAA acquired the following assets $($all assets were placed in service on the acquisition dates as indicated below$)$:

o Service vans$-$new $($not Luxury Automobiles$)$ July $1,2022$ $$500,000$

o Plumbing machinery$/$equipment$-$new July $1,2022$ $$250,000$

$$ AAA will not claim Section $179$ expense for any of the current year asset additions but otherwise wishes to maximize its $2022$ depreciation deduction for the newly acquired assets.

$$ AAA$$s tax depreciation on assets acquired in tax years prior to $2022$ is $$102,813.$

$$

AAA Plumbing, LLC

Balance Sheet$-$GAAP Basis

December $31,2022$

$12/31/202112/31/2022$

Assets:

Cash $ $30,000$ $ $45,000$

Tax$-$exempt Securities $100,000100,000$

Building $4,000,0004,000,000$

Less: Acc. Depreciation $(551,282)(653,842)$

Equipment $2,500,0003,250,000$

Less: Acc. Depreciation $(1,481,400)(2,231,653)$

Land $1,000,0001,000,000$

Total Assets: $$5,597,318$ $$5,509,505$

Liabilities and Capital:

Note Payable$-$First National Bank $$4,267,318$ $$4,046,673$

Note Payable$-$Michael Rodriguez $300,000300,000$

Note Payable$-$Devontae Johnson $200,000200,000$

Capital Accou