PROBLEM 5 PARTNERSHIP (FORM 1065) 1. Ryan Ross (111-11-1112), Oscar Omega (222-22-2222), Clark Carey (333-33-33 and Kim Kardigan (444-44-4444) are equal active members in ROCK the Ages ROCK serves as age The LLC's Federal ID number is 55-5555555. It uses the cash basis and the cale year and began operations on January 1, 2005. Its current address is 6102 Wils Boulevard, Suite 2100, Los Angeles, CA 90036. ROCK was the force behind s music icons as Rhiannon, Burgundy Six, Elena Gomez, Tyler Quick, Queen and Bruno Mercury and has had a very profitable year. The following informa was taken from the LLC's income statement for the current year r prominent musicians in the Los Angeles nt and manager fo $4,800,000 1,600 Fees and commissions Taxable interest income from bank deposits Tax-exempt interest Net gain on stock sales Total revenues 380,000 Advertising and public relations 28,000 1,000,000 800,000 Section 179 expense Employee W-2 wages Guaranteed payment (services), Ryan Ross, office Guaranteed payment (services), othermembers Business meals subject to 50% disallowance Travel Legal and accounting fees Office rentals paid Interest expense on operating line of credit Insurance premiums Office expense Payroll taxes 200,000 132,000 80,000 10,000 52,000 92,000 Total expenses actice Set Assignments-Comprehensive Tax Return Problems During the past couple of years, ROCK has taken advantage of bonus depreciation and S 179 deductions and fully remodeled the premises and upgraded its lease- hold improvements. This year, ROCK wrapped up its remodel with the purchase of $20,000 of office furniture for which it will claim a 179 deduction. (For simplicity, assume that ROCK uses the same cost recovery methods for both tax and financial purposes.) There is no depreciation adjustment for alternative minimum tax pur- poses. While the property is fully depreciated, it is not beyond the end of its depre- ciable life for purposes of the qualified business income deduction ROCK invests much of its excess cash in non-dividend-paying growth stocks and tax-exempt securities. During the year, the LLC sold two securities. On June 15, ROCK purchased 1,000 shares of Tech, Inc. stock for $100,000; it sold those shares on December 15, for $80,000. On March 15 of last year, ROCK purchased 2,000 shares of BioLabs, Inc. stock for $136,000; t sold those shares for $160,000 on December 15 of the current year. These transactions were reported to the IRS on Forms 1099-B; ROCK's basis in these shares was reported Net income per books is $840,000. On January 1, the members' capital accounts equaled $200,000 each. No additional capital contributions were made this year In addition to their guaranteed payments, each member withdrew $250,000 cash during the year. The LLC's balance sheet as of December 31 of this year is as follows 2/2 Beginning Ending Cash Tax-exempt securities Marketable securities Leasehold improvements, furniture, and equipment Accumulated depreciation $444,000 300,000 980,000 960,000 0.000 $1,000,000 $ 200,000 200,000 200,000 200,000 00,000 Total assets Operating line of credit Capital, Ross Capital, Omega Capital, Carey Capital, Kardigan 160,000 7? Total liabilities and capital All debt is shared equally by the members. Each member has personally guaranteed the debt of the LLC. All members are activein LLC operations. The appropriate business code for the entity is 711410. For the Form 1065, page 5, Analysis of Net Income, put all amounts in cell 2bXii). The LLC's Form 1065 was prepared by Ryan Ross and sent to the Ogden, UT IRS Service Center. Prepare a Form 1065, pages 1, 4, and 5, for ROCK the Ages LIC using tax-basis a. information for Schedules L. and M-2. Provide any special information the LLC tion for the 199A calculation. Attach additional statements if needed. Use the b. If you are using tax retum preparation software, prepare Form 4562 and Schedule D. members might need, ncluding net income from self-employment and informa 2018 tax rules discussed in this chapter. If available, use 2018 tax forms. c. Prepare Schedule K-1 for Ryan Ross, 15520 W. Earlson Street, Pacific Palisades, CA 90272. PROBLEM 5 PARTNERSHIP (FORM 1065) 1. Ryan Ross (111-11-1112), Oscar Omega (222-22-2222), Clark Carey (333-33-33 and Kim Kardigan (444-44-4444) are equal active members in ROCK the Ages ROCK serves as age The LLC's Federal ID number is 55-5555555. It uses the cash basis and the cale year and began operations on January 1, 2005. Its current address is 6102 Wils Boulevard, Suite 2100, Los Angeles, CA 90036. ROCK was the force behind s music icons as Rhiannon, Burgundy Six, Elena Gomez, Tyler Quick, Queen and Bruno Mercury and has had a very profitable year. The following informa was taken from the LLC's income statement for the current year r prominent musicians in the Los Angeles nt and manager fo $4,800,000 1,600 Fees and commissions Taxable interest income from bank deposits Tax-exempt interest Net gain on stock sales Total revenues 380,000 Advertising and public relations 28,000 1,000,000 800,000 Section 179 expense Employee W-2 wages Guaranteed payment (services), Ryan Ross, office Guaranteed payment (services), othermembers Business meals subject to 50% disallowance Travel Legal and accounting fees Office rentals paid Interest expense on operating line of credit Insurance premiums Office expense Payroll taxes 200,000 132,000 80,000 10,000 52,000 92,000 Total expenses actice Set Assignments-Comprehensive Tax Return Problems During the past couple of years, ROCK has taken advantage of bonus depreciation and S 179 deductions and fully remodeled the premises and upgraded its lease- hold improvements. This year, ROCK wrapped up its remodel with the purchase of $20,000 of office furniture for which it will claim a 179 deduction. (For simplicity, assume that ROCK uses the same cost recovery methods for both tax and financial purposes.) There is no depreciation adjustment for alternative minimum tax pur- poses. While the property is fully depreciated, it is not beyond the end of its depre- ciable life for purposes of the qualified business income deduction ROCK invests much of its excess cash in non-dividend-paying growth stocks and tax-exempt securities. During the year, the LLC sold two securities. On June 15, ROCK purchased 1,000 shares of Tech, Inc. stock for $100,000; it sold those shares on December 15, for $80,000. On March 15 of last year, ROCK purchased 2,000 shares of BioLabs, Inc. stock for $136,000; t sold those shares for $160,000 on December 15 of the current year. These transactions were reported to the IRS on Forms 1099-B; ROCK's basis in these shares was reported Net income per books is $840,000. On January 1, the members' capital accounts equaled $200,000 each. No additional capital contributions were made this year In addition to their guaranteed payments, each member withdrew $250,000 cash during the year. The LLC's balance sheet as of December 31 of this year is as follows 2/2 Beginning Ending Cash Tax-exempt securities Marketable securities Leasehold improvements, furniture, and equipment Accumulated depreciation $444,000 300,000 980,000 960,000 0.000 $1,000,000 $ 200,000 200,000 200,000 200,000 00,000 Total assets Operating line of credit Capital, Ross Capital, Omega Capital, Carey Capital, Kardigan 160,000 7? Total liabilities and capital All debt is shared equally by the members. Each member has personally guaranteed the debt of the LLC. All members are activein LLC operations. The appropriate business code for the entity is 711410. For the Form 1065, page 5, Analysis of Net Income, put all amounts in cell 2bXii). The LLC's Form 1065 was prepared by Ryan Ross and sent to the Ogden, UT IRS Service Center. Prepare a Form 1065, pages 1, 4, and 5, for ROCK the Ages LIC using tax-basis a. information for Schedules L. and M-2. Provide any special information the LLC tion for the 199A calculation. Attach additional statements if needed. Use the b. If you are using tax retum preparation software, prepare Form 4562 and Schedule D. members might need, ncluding net income from self-employment and informa 2018 tax rules discussed in this chapter. If available, use 2018 tax forms. c. Prepare Schedule K-1 for Ryan Ross, 15520 W. Earlson Street, Pacific Palisades, CA 90272