Problem 10-37 (Algorithmic) (LO. 6, 7, 8, 9, 10, 11)

Amy and Mitchell share equally in the profits, losses, and capital of the accrual basis AM Products LLC. The LLC does not need to report financial information to any third parties, so capital accounts are determined using tax rules (rather than GAAP). Amy is a managing member of the LLC (treated as a general partner) and is a U.S. person.

At the beginning of the current tax year, Amy's capital account has a balance of $868,000, and the LLC has debts of $564,200 payable to unrelated parties. The debts are recourse to the LLC, but neither of the LLC members has personally guaranteed them. Assume that all LLC debt is shared equally between the partners. The following information about AM's operations for the current year is obtained from the LLC's records.

Operating income* $1,302,000 W-2 wages 200,000 Depreciation expense 300,000 Interest income 13,020 Long-term capital loss 8,680 Long-term capital gain 26,040 Charitable contribution (cash) 13,070 Cash distribution to Amy 65,100 Unadjusted basis of partnership depreciable property immediately after acquisition 1,600,000

* Operating income equals revenue less operating expenses (other than expenses listed separately above). Year-end LLC debt payable to unrelated parties is $394,940. Assume that all transactions are reflected in Amy's beginning capital and basis in the same manner. Also assume that all AM Products' activities are eligible for the qualified business income deduction.

a. Calculate Amy's basis in her LLC interest at the beginning and end of the tax year. Use her capital account as a starting point. LLC interest at the beginning of the year: $fill in the blank 88f551f9507efdc_1

LLC interest at the end of the year: $fill in the blank 88f551f9507efdc_2 .

b. What income, gains, losses, and deductions does Amy report on her income tax return?

If an amount is zero, enter "0".

Ordinary income $fill in the blank 013855013063007_1 Net long-term capital gain $fill in the blank 013855013063007_2 Interest income $fill in the blank 013855013063007_3 Charitable contribution deduction $fill in the blank 013855013063007_4 Cash distribution $fill in the blank 013855013063007_5 c. Based on the information provided, what other calculations is Amy required to make?

Amy may be eligible to deduct up to fill in the blank 445bcf00a00d013_1 % of the ordinary income as qualified business income under 199A, and will make that calculation on her return. This deduction require a cash outflow by Amy or the LLC, and it affect her basis or capital account. As someone treated as a general partner, Amy's distributive share of the LLC's ordinary business income subject to self-employment tax and possibly the additional Medicare tax. Her from the LLC may be subject to the additional tax under 1411.

d. Prepare Amy's tax basis capital account rollforward from the beginning to the end of the tax year. How does her ending capital account differ from her ending tax basis in the LLC interest as calculated in part (a)?

Capital account balance, beginning year $fill in the blank 66e180fecf8df94_1 Ordinary income $fill in the blank 66e180fecf8df94_2 Interest income fill in the blank 66e180fecf8df94_3 Net long-term capital gain fill in the blank 66e180fecf8df94_4 fill in the blank 66e180fecf8df94_5 $fill in the blank 66e180fecf8df94_6 Less: Charitable contribution $fill in the blank 66e180fecf8df94_7 Cash distribution to Amy fill in the blank 66e180fecf8df94_8 fill in the blank 66e180fecf8df94_9 Capital account balance, end of year $fill in the blank 66e180fecf8df94_10 Amy's capital account differs from her basis only by the amount of her share of LLC .

e. Using the information from parts (a) to (d), prepare Amy's Schedule K1 as if you were the preparer of AM Products LLC's tax return. Provide all information that Amy needs to the extent you can.

Enter all amounts as positive numbers.

651119

Final K-1 Amended K-1 OMB No. 1545-0123 Schedule K-1 (Form 1065) 2019 Part III Partner's Share of Current Year Income,

Deductions, Credits, and Other Items Department of the Treasury Internal Revenue Service For calendar year 2019, or tax year 1 Ordinary business income (loss) fill in the blank f0a9cffedfbe01e_1 15 Credits 2 Net rental real estate income (loss)

3 Other net rental income (loss)

16 Foreign transactions 4a Guaranteed payments for services

4b Guaranteed payments for capital

4c Total guaranteed payments

5 Interest income fill in the blank f0a9cffedfbe01e_2

6a Ordinary dividends

6b Qualified dividends

6c Dividend equivalents

17 Alternative minimum tax (AMT) items 7 Royalties

8 Net short-term capital gain (loss) 9a Net long-term capital gain (loss) fill in the blank f0a9cffedfbe01e_3 18 Tax-exempt income and nondeductible expenses 9b Collectibles (28%) gain (loss) A 9c Unrecaptured section 1250 gain C 10 Net section 1231 gain (loss)

11 Other income (loss) 19 A Distributions fill in the blank f0a9cffedfbe01e_4

12 Section 179 deduction 20 A Other information fill in the blank f0a9cffedfbe01e_5 13 A Other deductions fill in the blank f0a9cffedfbe01e_6 Z* STMT QBI fill in the blank f0a9cffedfbe01e_7

W-2 wages fill in the blank f0a9cffedfbe01e_8

UBIA fill in the blank f0a9cffedfbe01e_9

14

A Self-employment earnings (loss) fill in the blank f0a9cffedfbe01e_10

21 More than one activity for at-risk purposes* 22 More than one activity for passive activity purposes* *See attached statement for additional information.

beginning / / 2019 ending / /

Partner's Share of Income, Deductions, Credits, etc. See separate instructions. Part I Information About the Partnership A Partnership's employer identification number

B Partnership's name, address, city, state, and ZIP code AM Products, LLC C IRS Center where partnership filed return D Check if this is a publicly traded partnership (PTP) Part II Information About the Partner E Partner's SSN or TIN (Do not use TIN of a disregarded entity. See inst.)

F Name, address, city, state, and ZIP code for partner entered in E. See instructions. Amy

G General partner or LLC member-manager Limited partner or other LLC member H1 Domestic partner Foreign partner H2 If the partner is a disregarded entity (DE), enter the partner's: TIN Name I1 What type of entity is this partner? I2 If this partner is a retirement plan (IRA/SEP/Keogh/etc.), check here J Partner's share of profit, loss, and capital (see instructions): Beginning Ending Profit fill in the blank f0a9cffedfbe01e_12 % fill in the blank f0a9cffedfbe01e_13 % Loss fill in the blank f0a9cffedfbe01e_14 % fill in the blank f0a9cffedfbe01e_15 % Capital fill in the blank f0a9cffedfbe01e_16 % fill in the blank f0a9cffedfbe01e_17 % Check if decrease is due to sale or exchange of partnership interest K Partner's share of liabilities: Beginning Ending Nonrecourse $ fill in the blank f0a9cffedfbe01e_18 $ fill in the blank f0a9cffedfbe01e_19 Qualified nonrecourse financing $ $ Recourse $ $ Check this box if Item K includes liability amounts from lower tier partnerships. L Partner's capital account analysis: Beginning capital account . . . . . . $ fill in the blank f0a9cffedfbe01e_20 Capital contributed during the year. . $ Current year net income (loss) . . . . . $ fill in the blank f0a9cffedfbe01e_21 Other increase (decrease) (attach explanation) $ Withdrawals & distributions . . . . . . . . $ (fill in the blank f0a9cffedfbe01e_22 ) Ending capital account . . . . . . . . $ fill in the blank f0a9cffedfbe01e_23 M Did the partner contribute property with a built-in gain or loss? Yes No If "Yes," attach statement. See instructions. N Partner's Share of Net Unrecognized Section 704(c) Gain or (Loss) Beginning capital account . . . . . . . . . $ Ending . . . . . . . . . . . . . . . . . . . . . . $ For Paperwork Reduction Act Notice, see Instructions for Form 1065. www.irs.gov/Form1065 Cat. No. 11394R Schedule K-1 (Form 1065) 2019 Check My Work3 more Check My Work uses remaining.