Practical Guide to Partnerships and LLCs 2012 Partnership Tax Return Problem II Ann Anderson, XYZ Corporation, Bob Baker, and Don Darcy form the AB Limited Partnership on 11/30/2009. Anns SSN is 456-45-6789, Bobs is 525-98-7654, and Dons is 465-12-3456. XYZ Corporations Employer Identification Number is 85- 9876543. Although not related to each other, all of the individual partners live in an apartment building at 1250 Wacker Dr., Chicago, Ill. 60606, very near the AB headquarters. That is also the home address for the XYZ Corporation. The partnerships primary business is Electric Lighting Equipment Manufacturing. The company is headquartered at 1234 Wacker Dr., Chicago, Ill. 60606. AB Limited Partnerships Employer Identification Number is 85-1234567. The company has elected to use the accrual method of accounting. All partners are domestic partners. In addition, Ann and XYZ Corporation are General Partners and Bob and Don are Limited Partners. Ann actively participated in AB Limited Partnership, but Bob and Don were both passive participants. Selected information from AB Limited Partnerships income statement for the year ending 11/30/2013 is as follows:

Sales $835,000

Sales Returns and Allowances $15,000

Inventory, 11/30/2012 30,000

Purchases during the Fiscal Year 270,000

Inventory, 11/30/2013 50,000

Interest income 8,000

Dividend income from domestic corporations 10,000

Dividend income from foreign corporations 6,000

Gain on sale of equipment 20,000

Depreciation (book - manufacturing) 60,000

Rent expense 24,000

Salaries to non-partners 190,000

Salaries to partners 60,000

Charitable contribution 2,000

Of the $835,000 in sales during the year, $20,000 has not yet been collected. Of the $270,000 in Purchases during the year, $20,000 has not yet been paid. In addition to the above income statement information, AB purchased 10,000 shares of stock from Microsoft Corporation on 10/15/2011 for $24 per share and sold them on 6/30/2013 for $28 per share. The partnership purchased four 1 oz. Double Eagle gold coins for $500 each on 12/15/2010 and sold them for $1000 per oz. on 2/14/2013. The partnership rented out a commercial building located at 2000 Ross Ave., Dallas, TX, 75201 during the fiscal year and collected $200,000 in rents. Expenses (other than depreciation) related to the building for the year were as follows: $10,000 for maintenance, $40,000 for insurance, $35,000 for repairs, $15,000 in taxes, and $10,000 in utilities.

The gain on sale of equipment was from the sale of a computer that had been fully depreciated. It was purchased on 5/31/2006 for $8,000 and was sold for on 6/15/2013 for $20,000. The equipment had no salvage value. The tax depreciation amount for the year was $80,000, not including $10,000 of Section 179 expense that AB chose to take on manufacturing equipment they purchased, and not including $40,000 per year depreciation (tax and book) on the rental real estate (note that according to the Form 4562 instructions a Form 4562 is not required for the rental depreciation). AB uses the cost method for inventory valuation. Of the $190,000 in salaries to non-partners, $70,000 is attributable to Cost of Goods Sold. Assume the remaining $120,000 of salaries also qualify as W-2 wages for purposes of the Qualified Production Activities Deduction. In addition, the partnership computes QPAI and Form W-2 wages at the partnership level, and the Section 179 deduction was related to QPAI. Salaries to partners were distributed as follows: Ann: $40,000, XYZ Corp: $20,000, Bob: $0, Don: $0. Partnership profits and losses are allocated 55% to Ann, 20% to XYZ, 15% to Bob, and 10% to Don.

The balance sheet of the partnership is as follows:

Beginning Ending

Cash $20,000 562,000

Accounts Receivable $20,000 40,000

Inventory 30,000 50,000

Other Investments 242,000 0

Equipment 180,000 272,000

Accumulated depreciation -100,000 -152,000

Rental property 1,400,000 1,400,000

Accumulated depreciation -80,000 -120,000

Total assets 1,712,000 2,052,000

Accounts payable 20,000 40,000

Mortgages 1,000,000 950,000

Capital, Ann 380,600 584,100

Capital, XYZ Corp 138,400 212,400

Capital, Bob 103,800 159,300

Capital, Don 69,200 106,200

Total liabilities and capital 1,712,000 2,052,000

The mortgages are qualified nonrecourse debt, and the accounts payable are recourse. Assume they are allocated to the partners according to their profit and loss sharing ratios. All $100,000 of equipment purchased this year (all of which was related to the manufacturing business) has a 5-year class life. In order to simplify the calculation, only calculate the AMT adjustment (Sch. K, line 17a) on the purchases in the current year

Directions: Fill out a Form 1065 and related Schedules for AB Limited Partnership. In addition, fill out any additional Forms and that may be required to be filed with ABs Form 1065, as well as Schedules K-1 for Ann, XYZ Corporation, Bob, and Don.