PARTNERSHIP TAX RETURN PROBLEM:

Form 1065 along with necessary schedules are needed to solve this practice scenario for Prima Donna LLC.

Question:

• Complete Prima Donna Partnership Form 1065 and all related schedules. Be sure to attach

  schedules for any line item, which indicates one is required on the 1065. This includes line items that may require you to create a schedule that identifies the various items that are included in a line on the return these usually indicate attach schedule. Other lines will indicate specifically which schedule must be included with the return.

• The returns must be in.pdf format. The student can use either: o Formsschedulesandinstructionsfoundatwww.irs.gov o Tax preparation software may be used to prepare your assignment, but submission must

  still be in .pdf format.

• Include a list of all the judgments, decisions and assumptions that you made in order to complete

  the return. This should be submitted along with your return.

• Assume that the return has been extended and is being filed on October 15th.

• FORM 4562 is not required. (Do not complete Form 4562 [depreciation calculation] since you do

  not have all the information).

The Prima Donna LLC (FEI 92-4765432) was formed on February 23, 2010, as a Limited Liability Company, to custom tailor womens clothing. Prima Donna is located at 123 Flamingo Drive in Haines City, MO 54321.

Mariana Prima manages the business and has a 60% capital and profits interest. Her address is 709 Brumby Way, Haines City, MO 54321 and SS# 231-45-9776.

Donna Hart owns the remaining 40% interest but is not actively involved in the business. Her address is 807 Ninth Avenue Haines City, MO 54321 and SS# 567-54-4221.

The business values its inventory using the cost method and did not change the method used during the current year. The business uses the specific write-off method for the recognition of bad debts. It uses the accrual method of accounting. Because of its simplicity Prima-Donna is not subject to partnership audit procedures. It has no foreign partners, no foreign transactions, no interest in foreign trusts, and no foreign bank accounts. This partnership is neither a tax shelter nor a publicly traded partnership. No changes in ownership of interest occurred during the current year.

The business made cash distributions of $180,000 and $120,000 to Prima and Hart, respectively, on December 30, 2021. It made no other cash or property distributions during the year. Assume that the business does qualify as qualified business income. Assume that the return is not late.

See the financial statements for the period that follow.

Required:

Prepare a 2021 federal partnership return including all required schedules except Form 4562, assume that the return is not late.

Additional Information regarding Income Statement items:

[1] The partnership reports a $8,000 positive AMT adjustment for property placed in service after 1986. They acquired and placed in service $24,000 of rehabilitation expenditures for certified historical property this year. The appropriate MACRS depreciation for this year is $75,200.

[2] All trade or business related [3] Restaurant Meals of $7,000 are included in this expense item. [4] The partnership made all contributions in cash to qualifying charities. [5] The partnership purchased the AB stock as an investment last year on February 1,2019 for $31,000 and sold it on June 14 of the current year. [6] The partnership purchased the CD stock as an investment on February 15 of the current year for $72,000 and sold it on August 1 of the current year. [7] The partnership used unimproved land across the street as a parking lot for the business. The partnership purchased the land four years ago on March 17 for $27,000 and sold it on August of this year. [8] Based on $80,000 face amount

PRIMA DONNA LLC. Income Statement for the 12 months ended December 31, 2021 $1,635,000 -11,000 $1,624.000 $192,000 411,000 387,000 52,000 18,000 $1,060,000 -197,000 863,000 $761,000 Sales Returns and allowances Beginning Inventory (FIFO method) Purchases Labor Supplies Other costs Goods Available for Sale Ending Inventory Gross Profit Salaries for employees Guaranteed payment for Prima Utilities Expense Depreciation (1) Automobile Expense Office Supplies Expense Advertising expense Bad Debt Expense Interest Expense 2] Rent Expense Meals & Entertainment Expense [3] Repairs and Maintenance Accounting and Legal Expense Charitable Contributions (41 Payroll Taxes Other Taxes Total Expense Operating Profits Other Income and losses: Gain (Loss) on sale of AB stock [5] Gain (Loss) on sale of CD stock (6) Sec. 1231 gainfloss) on sale of land [7] Interest on US Treasury bills [8] Dividends from 15% owned domestic corporation Net Income 142,000 75,000 42,000 37.460 9.400 9,700 35,000 48,000 21,000 17.000 7,000 45,600 14,500 22,000 13,200 11,600 550,460 $210,540 5.000 -7,000 53,000 1,800 9,000 61,800 $272,340 PRIMA DONNA LLC Balance Sheet as of December 31, 2021 2020 2021 $147,500 168,000 192,000 95,000 524,000 -316,240 150,000 $960,260 $134,460 171,700 197,000 64,000 561,740 -353,700 123,000 $898,200 Assets: Cash Accounts Receivable Inventories Marketable Securities [1] Building & Equipment Accumulated Depreciation Land Total Assets Liabilities & Equities: Accounts Payable Accrued Salaries Payable Payroll Taxes Payable Sales Tax Payable Current Mortgage and Note Payable Long-term Debt Capital: Prima Hart Total Liabilities and Equities $23,000 14,000 40,000 1,250 42,000 168,000 $26,000 16,000 42,650 1,200 42,000 126,000 403,206 268,804 $960,260 386,610 257,740 $898,200 (1) Short Term Investments include common Stock in AB, CD and EF Corporation