Please identify each of the above transactions as either (i) a transaction affecting the companys ordinary business income (loss), or (ii) a separately stated item. The gain on the sale of the land sold for $112,000 that had a basis of $60,000. The land was a capital asset and it was contributed by Al in an IRC 721 transaction at the beginning of the year when the FMV was $100,000 after Al had held the land as a capital asset for 5 years. The contribution to the United Way is a cash charitable donation to a 501(c)(3) public charity. Once you have categorized each of the transactions above, please use this information to complete pages 1 and 4 to a Form 1065 partnership tax return as well as Schedule K-1 (Part IIJ and III only) for just Al and Bob.

Problem 1. AI, Bob and Cam form an equal partnership as a limited liability company, ABC, LLC, where they are all entitled to one-third of all income and loss from the operations of the business. The business had the following transactions in the first year: Operating Item Separately Stated Item Revenues $1,650,000 Gain on Sale of Land $52,000 Interest Income $8,000 Returns $50,000 Employee Salaries $150,000 Partner Salary (Bob) $100,000 Cost of Goods Sold $800,000 Rent $100,000 MACRS Depreciation $45,000 Section 179 Deduction $60,000 Interest Expense $15,000 Contribution to United Way $5,000 OMB No. 1545-0123 Form 1065 20 U.S. Return of Partnership Income For calendar year 2015, or tax year beginning 2015, ending Information about Form 1065 and its separate instructions is at www.irs.gov/form 1065. Name of partnership Department of the Treasury Internal Revenue Service A Principal business activity 2015 Employer identification number B Principal product or service Number, street, and room or suite no. If a P.O.box, see the instructions. E Date business started Type or Print C Business code number City or town, state or province, country, and ZIP or foreign postal code Total assets (see the instructions) $ G Check applicable boxes: (1) Initial return (2) Final return (3) Name change (4) Address change (5) Amended return (6) Technical termination - also check (1) or (2) H Check accounting method: (1) Cash (2) Accrual (3) Other (specify) 1 Number of Schedules K-1. Attach one for each person who was a partner at any time during the tax year J Check if Schedules C and M-3 are attached Caution. Include only trade or business income and expenses on lines 1a through 22 below. See the instructions for more information. Income 1a Gross receipts or sales. 1a b Returns and allowances 1b C Balance. Subtract line 1b from line 1a. 1c 2 Cost of goods sold (attach Form 1125-A) 2 3 Gross profit. Subtract line 2 from line 1c. 3 4 Ordinary income (loss) from other partnerships, estates, and trusts (attach statement) 4 5 Net farm profit (loss) (attach Schedule F (Form 1040)). 5 6 Net gain (loss) from Form 4797, Part II, line 17 (attach Form 4797) 6 7 Other income (loss) (attach statement) 7 8 Total income (loss). Combine lines 3 through 7 8 9 Salaries and wages (other than to partners) (less employment credits) 9 10 Guaranteed payments to partners 10 11 Repairs and maintenance 11 12 Bad debts 12 13 Rent 13 14 Taxes and licenses 14 15 Interest 15 16a Depreciation (if required, attach Form 4562). 16a b Less depreciation reported on Form 1125-A and elsewhere on return 16b 16c 17 Depletion (Do not deduct oil and gas depletion.) 17 18 Retirement plans, etc. 18 19 Employee benefit programs.. 19 20 Other deductions (attach statement) 20 21 Total deductions. Add the amounts shown in the far right column for lines 9 through 20 21 22 Ordinary business income (loss). Subtract line 21 from line 8 22 Under penalties of perjury, I declare that I have examined this return, including accompanying schedules and statements, and to the best of my knowledge and belief, it is true, correct, and complete. Declaration of preparer (other than general partner or limited liability company member manager) Sign is based on all information of which preparer has any knowledge. May the IRS discuss this retum with the Here preparer shown below (see instructions)? Yes No Signature of general partner or limited liability company member manager Date Print/Type preparer's name Paid Date Preparer's signature PTIN Check Dit self-employed Preparer Firm's name Firm's EIN Use Only Firm's address Phone no. For Paperwork Reduction Act Notice, see separate instructions. Cat. No. 11390Z Form 1065 (2015) Deductions (see the instructions for limitations) Page 4 Total amount 1 2 4 c 4 5 Income (Loss) 7 8 9a Deductions Self- Employ ment 10 11 12 13a 13b 130(2) 13d 14a 14b 14c 15a 15b 15c 15d 15e 15f Form 1065 (2015) Schedule K Partners' Distributive Share Items 1 Ordinary business income (oss) (page 1, line 22) 2 Net rental real estate income (loss) (attach Form 8825) 3a Other gross rental income (loss) 3a b Expenses from other rental activities (attach statement) 3b Other net rental income (loss). Subtract line 3b from line 3a Guaranteed payments 5 Interest income 6 Dividends: a Ordinary dividends b Qualified dividends 6b 7 Royalties 8 Net short-term capital gain (loss) (attach Schedule D (Form 1065)) 9a Net long-term capital gain (loss) (attach Schedule D (Form 1065)) b Collectibles (28%) gain (loss) 9b c Unrecaptured section 1250 gain (attach statement) 9c 10 Net section 1231 gain (loss) (attach Form 4797) 11 Other income (loss) (see instructions) Type 12 Section 179 deduction (attach Form 4562) 13a Contributions b Investment interest expense C Section 59(e) (2) expenditures: (1) Type (2) Amount d Other deductions (see instructions) Type 14a Net earnings (loss) from self-employment b Gross farming or fishing income Gross nonfarm income 15a Low-income housing credit (section 42()(5)) b Low-income housing credit (other) Qualified rehabilitation expenditures (rental real estate) (attach Form 3468, if applicable) d Other rental real estate credits (see instructions) Type Other rental credits (see instructions) f Other credits (see instructions) Type 16a Name of country or U.S. possession b Gross income from all sources Gross income sourced at partner level Foreign gross income sourced at partnership level d Passive category e General category f Other and apportioned at partner level g Interest expense h Other Deductions allocated and apportioned at partnership level to foreign source income Passive category General category k Other Total foreign taxes (check one): Paid Accrued Reduction in taxes available for credit (attach statement) Other foreign tax information (attach statement) 17a Post-1986 depreciation adjustment b Adjusted gain or loss. c Depletion (other than oil and gas) d Oil, gas, and geothermal properties-gross income Oil, gas, and geothermal properties - deductions f Other AMT items (attach statement) 18a Tax-exempt interest income b Other tax-exempt income Nondeductible expenses 19a Distributions of cash and marketable securities b Distributions of other property 20a Investment income. b Investment expenses Other items and amounts (attach statement) Credits e Type 16b 16c 16f Foreign Transactions Deductions allocated and apportion 16h 3 - - 16k 161 16m n e Alternative (AMT) Items Other Information Minimum Tax 17a 17b 17c 17d 17e 17f 18a 18b 18c 19a 19b 20a 20b Form 1065 (2015) Final K-1 Amended K-1 Part III Partner's Share of Current Year Income, Deductions, Credits, and Other Items 1 Ordinary business income (loss) ) 15 Credits Schedule K-1 2015 (Form 1065) Department of the Treasury For calendar year 2015, or tax Internal Revenue Service year beginning 2015 ending 20 Partner's Share of Income, Deductions, Credits, etc. See back of form and separate instructions. Part 1 Information About the Partnership Partnership's employer identification number , 2 Net rental real estate income (loss) 3 Other net rental income (loss) 16 Foreign transactions 4 Guaranteed payments 5 Interest income B Partnership's name, address, city, state, and ZIP code , 6a Ordinary dividends 6b Qualified dividends IRS Center where partnership filed return 7 Royalties D 8 Check if this is a publicly traded partnership (PTP) Net short-term capital gain (loss) 9a Net long-term capital gain (loss) 17 Alternative minimum tax (AMT) items Part II Information About the Partner E Partner's identifying number 9b Collectibles (28%) gain (loss) F Partner's name, address, city, state, and ZIP code 9c Unrecaptured section 1250 gain 10 Net section 1231 gain (loss) ( 18 Tax-exempt income and - nondeductible expenses G 11 Other income (loss) ( General partner or LLC member-manager Limited partner or other LLC member H Domestic partner Foreign partner 11 What type of entity is this partner? If this partner is a retirement plan (IRA/SEP/Keogh/etc.), check here 12 19 Distributions 12 Section 179 deduction J 13 Other deductions Partner's share of profit, loss, and capital (see instructions): Beginning Ending Profit % Loss % % Capital % % 20 Other information % % % 14 Self-employment earnings (loss) Partner's share of liabilities at year end: Nonrecourse $ Qualified nonrecourse financing $ Recourse $ L *See attached statement for additional information. $ $ Partner's capital account analysis: Beginning capital account Capital contributed during the year Current year increase (decrease) Withdrawals & distributions & Ending capital account. $ $ $ For IRS Use Only GAAP 00 Section 704(b) book Tax basis Other (explain) M Did the partner contribute property with a built-in gain or loss? Yes If "Yes," attach statement (see instructions) No Problem 1. AI, Bob and Cam form an equal partnership as a limited liability company, ABC, LLC, where they are all entitled to one-third of all income and loss from the operations of the business. The business had the following transactions in the first year: Operating Item Separately Stated Item Revenues $1,650,000 Gain on Sale of Land $52,000 Interest Income $8,000 Returns $50,000 Employee Salaries $150,000 Partner Salary (Bob) $100,000 Cost of Goods Sold $800,000 Rent $100,000 MACRS Depreciation $45,000 Section 179 Deduction $60,000 Interest Expense $15,000 Contribution to United Way $5,000 OMB No. 1545-0123 Form 1065 20 U.S. Return of Partnership Income For calendar year 2015, or tax year beginning 2015, ending Information about Form 1065 and its separate instructions is at www.irs.gov/form 1065. Name of partnership Department of the Treasury Internal Revenue Service A Principal business activity 2015 Employer identification number B Principal product or service Number, street, and room or suite no. If a P.O.box, see the instructions. E Date business started Type or Print C Business code number City or town, state or province, country, and ZIP or foreign postal code Total assets (see the instructions) $ G Check applicable boxes: (1) Initial return (2) Final return (3) Name change (4) Address change (5) Amended return (6) Technical termination - also check (1) or (2) H Check accounting method: (1) Cash (2) Accrual (3) Other (specify) 1 Number of Schedules K-1. Attach one for each person who was a partner at any time during the tax year J Check if Schedules C and M-3 are attached Caution. Include only trade or business income and expenses on lines 1a through 22 below. See the instructions for more information. Income 1a Gross receipts or sales. 1a b Returns and allowances 1b C Balance. Subtract line 1b from line 1a. 1c 2 Cost of goods sold (attach Form 1125-A) 2 3 Gross profit. Subtract line 2 from line 1c. 3 4 Ordinary income (loss) from other partnerships, estates, and trusts (attach statement) 4 5 Net farm profit (loss) (attach Schedule F (Form 1040)). 5 6 Net gain (loss) from Form 4797, Part II, line 17 (attach Form 4797) 6 7 Other income (loss) (attach statement) 7 8 Total income (loss). Combine lines 3 through 7 8 9 Salaries and wages (other than to partners) (less employment credits) 9 10 Guaranteed payments to partners 10 11 Repairs and maintenance 11 12 Bad debts 12 13 Rent 13 14 Taxes and licenses 14 15 Interest 15 16a Depreciation (if required, attach Form 4562). 16a b Less depreciation reported on Form 1125-A and elsewhere on return 16b 16c 17 Depletion (Do not deduct oil and gas depletion.) 17 18 Retirement plans, etc. 18 19 Employee benefit programs.. 19 20 Other deductions (attach statement) 20 21 Total deductions. Add the amounts shown in the far right column for lines 9 through 20 21 22 Ordinary business income (loss). Subtract line 21 from line 8 22 Under penalties of perjury, I declare that I have examined this return, including accompanying schedules and statements, and to the best of my knowledge and belief, it is true, correct, and complete. Declaration of preparer (other than general partner or limited liability company member manager) Sign is based on all information of which preparer has any knowledge. May the IRS discuss this retum with the Here preparer shown below (see instructions)? Yes No Signature of general partner or limited liability company member manager Date Print/Type preparer's name Paid Date Preparer's signature PTIN Check Dit self-employed Preparer Firm's name Firm's EIN Use Only Firm's address Phone no. For Paperwork Reduction Act Notice, see separate instructions. Cat. No. 11390Z Form 1065 (2015) Deductions (see the instructions for limitations) Page 4 Total amount 1 2 4 c 4 5 Income (Loss) 7 8 9a Deductions Self- Employ ment 10 11 12 13a 13b 130(2) 13d 14a 14b 14c 15a 15b 15c 15d 15e 15f Form 1065 (2015) Schedule K Partners' Distributive Share Items 1 Ordinary business income (oss) (page 1, line 22) 2 Net rental real estate income (loss) (attach Form 8825) 3a Other gross rental income (loss) 3a b Expenses from other rental activities (attach statement) 3b Other net rental income (loss). Subtract line 3b from line 3a Guaranteed payments 5 Interest income 6 Dividends: a Ordinary dividends b Qualified dividends 6b 7 Royalties 8 Net short-term capital gain (loss) (attach Schedule D (Form 1065)) 9a Net long-term capital gain (loss) (attach Schedule D (Form 1065)) b Collectibles (28%) gain (loss) 9b c Unrecaptured section 1250 gain (attach statement) 9c 10 Net section 1231 gain (loss) (attach Form 4797) 11 Other income (loss) (see instructions) Type 12 Section 179 deduction (attach Form 4562) 13a Contributions b Investment interest expense C Section 59(e) (2) expenditures: (1) Type (2) Amount d Other deductions (see instructions) Type 14a Net earnings (loss) from self-employment b Gross farming or fishing income Gross nonfarm income 15a Low-income housing credit (section 42()(5)) b Low-income housing credit (other) Qualified rehabilitation expenditures (rental real estate) (attach Form 3468, if applicable) d Other rental real estate credits (see instructions) Type Other rental credits (see instructions) f Other credits (see instructions) Type 16a Name of country or U.S. possession b Gross income from all sources Gross income sourced at partner level Foreign gross income sourced at partnership level d Passive category e General category f Other and apportioned at partner level g Interest expense h Other Deductions allocated and apportioned at partnership level to foreign source income Passive category General category k Other Total foreign taxes (check one): Paid Accrued Reduction in taxes available for credit (attach statement) Other foreign tax information (attach statement) 17a Post-1986 depreciation adjustment b Adjusted gain or loss. c Depletion (other than oil and gas) d Oil, gas, and geothermal properties-gross income Oil, gas, and geothermal properties - deductions f Other AMT items (attach statement) 18a Tax-exempt interest income b Other tax-exempt income Nondeductible expenses 19a Distributions of cash and marketable securities b Distributions of other property 20a Investment income. b Investment expenses Other items and amounts (attach statement) Credits e Type 16b 16c 16f Foreign Transactions Deductions allocated and apportion 16h 3 - - 16k 161 16m n e Alternative (AMT) Items Other Information Minimum Tax 17a 17b 17c 17d 17e 17f 18a 18b 18c 19a 19b 20a 20b Form 1065 (2015) Final K-1 Amended K-1 Part III Partner's Share of Current Year Income, Deductions, Credits, and Other Items 1 Ordinary business income (loss) ) 15 Credits Schedule K-1 2015 (Form 1065) Department of the Treasury For calendar year 2015, or tax Internal Revenue Service year beginning 2015 ending 20 Partner's Share of Income, Deductions, Credits, etc. See back of form and separate instructions. Part 1 Information About the Partnership Partnership's employer identification number , 2 Net rental real estate income (loss) 3 Other net rental income (loss) 16 Foreign transactions 4 Guaranteed payments 5 Interest income B Partnership's name, address, city, state, and ZIP code , 6a Ordinary dividends 6b Qualified dividends IRS Center where partnership filed return 7 Royalties D 8 Check if this is a publicly traded partnership (PTP) Net short-term capital gain (loss) 9a Net long-term capital gain (loss) 17 Alternative minimum tax (AMT) items Part II Information About the Partner E Partner's identifying number 9b Collectibles (28%) gain (loss) F Partner's name, address, city, state, and ZIP code 9c Unrecaptured section 1250 gain 10 Net section 1231 gain (loss) ( 18 Tax-exempt income and - nondeductible expenses G 11 Other income (loss) ( General partner or LLC member-manager Limited partner or other LLC member H Domestic partner Foreign partner 11 What type of entity is this partner? If this partner is a retirement plan (IRA/SEP/Keogh/etc.), check here 12 19 Distributions 12 Section 179 deduction J 13 Other deductions Partner's share of profit, loss, and capital (see instructions): Beginning Ending Profit % Loss % % Capital % % 20 Other information % % % 14 Self-employment earnings (loss) Partner's share of liabilities at year end: Nonrecourse $ Qualified nonrecourse financing $ Recourse $ L *See attached statement for additional information. $ $ Partner's capital account analysis: Beginning capital account Capital contributed during the year Current year increase (decrease) Withdrawals & distributions & Ending capital account. $ $ $ For IRS Use Only GAAP 00 Section 704(b) book Tax basis Other (explain) M Did the partner contribute property with a built-in gain or loss? Yes If "Yes," attach statement (see instructions) No