Problem 21

Problem 21-35 (LO. 6, 7, 9, 10) 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 year, Amy's capital account has a balance of $300,000, and the LLC has debts of $200,000 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. Revenues $1,400,000 Other operating expenses (e.g., utilities, repairs, rent, etc.) 500,000 W-2 wages to employees 200,000 Depreciation expense 300,000 Interest income 4,000 Long-term capital gain 6,000 Charitable contribution (cash) 4,000 Cash distribution to Amy 20,000 Unadjusted basis of partnership depreciable property 1,600,000 immediately after acquisition Year-end LLC debt payable to unrelated parties is $140,000. Assume that all transactions are reflected in her beginning capital and basis in the same manner. 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. LLC interest at the beginning of the year: $ LLC interest at end of the year: $b. What income, gains, losses, and deductions does Amy report on her income tax return? If an amount is zero, enter "0". Ordinary income Net long-term capital gain Interest income Charitable contribution deduction Cash distributionc. Based on the information provided, what other calculations is Amy required to make? Amy may be eligible to deduct up to % 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 interests as calculated in part (a)? Capital account balance, beginning year Ordinary income Interest income Net long-term capital gain Less: Charitable contribution Cash distribution to Amy Capital account balance, end of year $ Amy's capital account differs from her basis only by the amount of her share of LLCe. Using the information from parts (a) to (d), prepare Amy's Schedule K-1 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 O Final K-1 0 Amended K-1 OMB No. 1545-0123 Schedule K-1 Part III Partner's Share of Current Year Income, 2019 (Form 1065) Deductions, Credits, and Other Items Department of the Treasury 1 Ordinary business income 15 Credits For calendar year 2019, or tax year Internal Revenue Service (loss) beginning / 2019 ending 2 Net rental real estate income Partner's Share of Income, Deductions, (loss) Credits, etc. > See separate instructions. Part I Information About the Partnership 3 Other net rental income (loss) |16 Foreign transactions A Partnership's employer identification number 4a Guaranteed payments for services B Partnership's name, address, city, state, and ZIP code 4b Guaranteed payments for AM Products, LLC capital C IRS Center where partnership filed return 4c D O Check if this is a publicly traded partnership (PTP) Total guaranteed paymentsPart II Information About the Partner 5 Interest income E Partner's SSN or TIN (Do not use TIN of a disregarded entity. See inst.) 6a Ordinary dividends F Name, address, city, state, and ZIP code for partner entered in E. Qualified dividends See instructions. Amy 6c Dividend equivalents 17 Alternative minimum tax (AMT) items G & General partner or LLC member- - Limited partner or other LLC 7 Royalties manager member H1 & Domestic partner Foreign partner Net short-term capital gain H2 0 If the partner is a disregarded entity (DE), enter the partner's: (loss) TIN Name 9a Net long-term capital gain 18 Tax-exempt income and I1 What type of entity is this partner? (loss) nondeductible expenses 12 If this partner is a retirement plan (IRA/SEP/Keogh/etc.), check here o 9b Collectibles (28%) gain (loss) A 9c Unrecaptured section 1250 C J Partner's share of profit, loss, and capital (see instructions): gain Beginning Ending 10 Net section 1231 gain (loss) Profit O/C 11 Other income (loss) 19 Distributions Loss A CapitalCheck if decrease is due to sale or exchange of partnership interest 0 12 Section 179 deduction 20 Other information A K Partner's share of liabilities: Beginning Ending 13 Other deductions Z* STMT A QBI Nonrecourse Qualified nonrecourse $ $ W-2 wages financing Recourse $ $ UBIA O Check this box if Item K includes liability amounts from lower tier partnerships. Partner's capital account analysis: Self-employment earnings Beginning capital account . . . . . . $ (loss) A Capital contributed during the year. . . . $ Current year net income (loss) . . . . . Other increase (decrease) (attach 21 0 More than one activity for at-risk purposes* explanation) 22 0 More than one activity for passive activity purposes* Withdrawals & distributions . . . . . . . *See attached statement for additional information. Ending capital account . . . . . S M Did the partner contribute property with a built-in gain or loss?Did the partner contribute property with a buiit-in gain or loss? a Yes E No If \"Yes,\" attach statement. See instructions. IIO'I'I Partner's Share of Net Unrecognized Section ?D4(c) Gain or (Loss) Beginning capital account ......... $ | R S U S E O N L Y Ending ...................... 5 For Paperwork Reduction Act Notice, on Instructions for Form 1065. WWWJI'SQOVIFOI'H'I 1065 Cat. NO. 11394R Schedule K-1 {Form 1065) 2019