Partnership Tax Return Project

This course provides you the opportunity to prepare two business tax returns. In this unit, you will prepare the second, a return for a partnership using Form 1065 and associated forms and schedules. The return will require you to utilize the information you learned in Chapter 20 (Forming and Operating Partnerships). However, you may find it helpful to reference Chapter 9 (Business Income, Deductions, and Accounting Methods) and Chapter 10 (Property Acquisition and Cost Recovery) of the textbook as well.

Resources:

PARTNERSHIP TAX RETURN PROJECT CASE INFORMATION AC312

General Information

August Easter and Grace Jackson own Notorious B.B.Q. (NB), a limited partnership. NB sells a variety of rubs, sauces, and accessories for grilling and smoking meat. NB was formed on August 18, 2019 and operates out of Kansas City, Missouri. August is a general partner, manages the operations of the business, and holds 60% profits, loss, and capital interests. Grace is a limited partner, is as an investor only, and holds the remaining 40% profits, loss, and capital interests.

Following is additional information related to NB:

Office Location: 543 BBQ Lane, Kansas City, MO 64119

Employer Identification Number: 99-8888777

Business activity code: 445290

Augusts address and social security number: 123 Ribs Lane, Kansas City, MO 64158, and his social security number is 123-12-1234.

Graces address is 789 Brisket Ave., Kansas City, MO 64114, and her social security number is 987-98-9876.

August is the partnership representative, and his phone number is (816) 100-1000.

Financial Information

Following is pertinent information related to NBs financial activities in 2021:

NB uses the accrual method of accounting and has a calendar year-end.

NB owns 5,000 shares of BBQ Holdings, Inc. (BBQ) stock, which represents less than 1% ownership. BBQ is a US (domestic) corporation. BBQ distributed a $2,600 qualified dividend to NB on August 1.

Of the $1,800 in interest income, $300 was from a Kansas City bond and $1,500 was from a bank account.

All guaranteed payments were made to August for services provided to the partnership.

On December 15, 2021, NB distributed $15,000 to August and $10,000 to Grace.

The charitable contribution made during the year was paid in cash.

The $5,000 interest expense was related to the notes payable. The note payable is a business loan and is nonrecourse debt. (Note: The debt is NOT qualified nonrecourse financing.)

Included in the other expenses amount was a property tax penalty in the amount of $540 that was assessed when NB failed to pay its property tax on time.

The partnership uses the FIFO inventory method and values its inventory at lower of cost or market. In addition, UNICAP rules of 263A do not apply and there was no change in determining quantities, cost, or valuations between opening and closing inventory.

August, as general partner, is legally responsible for paying NBs accounts payable if the partnership fails to do so.

NB did not have any current year fixed asset purchases. In 2019 and 2020, all fixed assets purchased were fully depreciated using bonus depreciation.

For the purposes of the Qualified Business Income Deduction, the unadjusted basis of qualified property immediately after acquisition is $54,000.

Assume that NB did not make any payments that would require it to file Form(s) 1099.

Financial Statements

Directions

General Directions

Before starting the project, please note the following:

Complete only the requested forms/schedules: Form 1065; Download Form 1065;Form 1125-A; Download Form 1125-A;Schedule B-1, Form 1065 Download Schedule B-1, Form 1065; Schedule K-1, Form 1065 (two required; one for each partner) Download Schedule K-1, Form 1065 (two required; one for each partner); Form 1065 Supporting Statement; Download Form 1065 Supporting Statement;and Form 1065, Schedule K-1, Line 20 Supporting Statement (two required; one for each partner) Download Form 1065, Schedule K-1, Line 20 Supporting Statement (two required; one for each partner). If a line of a form or schedule requests a different form/schedule that is not explicitly required as stated, you do NOT need to complete it.

Certain lines will not need to be populated on the forms/schedules if the taxpayer did not have any activity related to the line.

You are highly encouraged to reference the instructions for the forms. The instructions can be found at the IRS website (irs.govLinks to an external site.).

If any information is missing, use reasonable assumptions to fill in the gaps.

Preparation Directions

Download Partnership Tax Return Project Case Information, Unit 5, AC312 Download Partnership Tax Return Project Case Information, Unit 5, AC312and review the taxpayer information carefully.

Before you start completing any forms, it may be helpful to prepare a book income to taxable income reconciliation and identify each book-tax difference and separately stated item. Although you do not need to turn in a reconciliation for credit, you will find it very helpful in completing the tax return. (Note that the financial statements are in an embedded Excel table, so you can double click on the tables and copy the information into another Excel file to create the reconciliation.)

Download the following tax forms:

Form 1065; Download Form 1065;Form 1125-A; Download Form 1125-A;Schedule B-1, Form 1065 Download Schedule B-1, Form 1065; Schedule K-1, Form 1065 (two required; one for each partner) Download Schedule K-1, Form 1065 (two required; one for each partner); Form 1065 Supporting Statement; Download Form 1065 Supporting Statement;and Form 1065, Schedule K-1, Line 20 Supporting Statement (two required; one for each partner) Download Form 1065, Schedule K-1, Line 20 Supporting Statement (two required; one for each partner).

Using the taxpayer information provided, complete Notorious B.B.Q.s 2021 Form 1065 with all applicable supporting forms/schedules. You should prepare the forms/schedules in this order: (1) Form 1125-A, (2) Form 1065 and Form 1065 Supporting Statement, (3) Schedule B-1, and (4) the two Schedule K-1s and Schedule K-1, Line 20 Supporting Statements.

Following is some additional guidance that should be reviewed before and during the preparation of the forms/schedules:

On Form 1065, page 1, disregard lines 23 30.

On Form 1065, pages 2 3, the answers to lines 5 29 are all No or Zero (0).

On Schedule K, Form 1065, line 14b, the gross nonfarm income amount is the book gross profit amount.

The only statements that you need to attach are the ones you were given, Form 1065 Supporting Statement and Schedule, K-1, Line 20 Supporting Statement (2 copies 1 for each partner). If the forms/schedules state attach statement for other lines/information, you do not need to do so (i.e. disregard the request).

Save your completed tax forms and schedules, and then submit them on Canvas.

Optional: If you would like to submit additional documentation showing work you did related to a calculation you did outside of the return, you may do so. Providing support for your work is helpful to your instructor in awarding partial credit.

I need the tax forms filled out.

Notorious B.B.Q. Income Statement For year ending December 31, 2021 \begin{tabular}{|l|r|} \hline Sales revenue & $490,000 \\ \hline Sales returns an allowances & (1,400) \\ \hline Cost of goods sold & (230,000) \\ \hline Gross profit & $258,600 \\ \hline Other income: & \\ \hline Dividend income & 2,600 \\ \hline Interest income & 1,800 \\ \hline Grossincome & 263,000 \\ Expenses: & (82,000) \\ \hline Employee wages & (40,000) \\ \hline Guaranteed payments & (60,000) \\ \hline Rent expense & (4,000) \\ \hline Charitable contributions & (6,300) \\ \hline Payroll taxes & (5,400) \\ \hline Property taxes & (10,500) \\ \hline Depreciation & (2,300) \\ \hline Advertising expense & (7,200) \\ \hline Insurance expense & (5,000) \\ \hline Interest expense & (4,000) \\ \hline Other expenses & (226,700) \\ \hline Total expenses & (36,300 \\ \hline \end{tabular} Notorious B.B.Q. Balance Sheet As of January 1, 2021 and December 31, 2021 Notorious B.B.Q. Income Statement For year ending December 31, 2021 \begin{tabular}{|l|r|} \hline Sales revenue & $490,000 \\ \hline Sales returns an allowances & (1,400) \\ \hline Cost of goods sold & (230,000) \\ \hline Gross profit & $258,600 \\ \hline Other income: & \\ \hline Dividend income & 2,600 \\ \hline Interest income & 1,800 \\ \hline Grossincome & 263,000 \\ Expenses: & (82,000) \\ \hline Employee wages & (40,000) \\ \hline Guaranteed payments & (60,000) \\ \hline Rent expense & (4,000) \\ \hline Charitable contributions & (6,300) \\ \hline Payroll taxes & (5,400) \\ \hline Property taxes & (10,500) \\ \hline Depreciation & (2,300) \\ \hline Advertising expense & (7,200) \\ \hline Insurance expense & (5,000) \\ \hline Interest expense & (4,000) \\ \hline Other expenses & (226,700) \\ \hline Total expenses & (36,300 \\ \hline \end{tabular} Notorious B.B.Q. Balance Sheet As of January 1, 2021 and December 31, 2021