problem # 6

E-14 Appendix E Comprnive Tax Return Problems The partners share equally in al LLC liabilities, bcus liniial contributions and all ongoing allocations and distributions are pro rata The LLC's activities are eligible for the domestic prodaction acivities deduction (DPAD). For simplicity, assume ha he LLC's qualified producones income (QPAI) is $9.5 million. The LLC's production-related W-2 wages are $10 million. No guaranteed payments were paid to either of the LLC members. Instead, the em- bers each withdrew $3.4 million of cash during the year. The LLC has never made a disri bution to the partners of noncash property. The LL.C has not made a 754 election and had no transactions during the current year that would warant such an electio. None of the members sold any portion of their interests in the LLC during the year Both LIC nenbers are U.S. Subchapter C corporations, The LLCsoperations are entirely restricted to the United States, and all sales were to U.S. businesses. The LLC had no foreign operations, no foreign bank accounts, and no interes in any foreig trusts or other LLC. None of the members contributed cash or odher property to the LLC during the year. Both members are classified us "corporations" and "LLC riember managers" on Sched- ule K-1. The capital account analysis on Schedule K-l is prepared on a tax basis. On the Analysis of Income (Loss), the IRSs instructions indicate that the amounts for any LLC members should be reported on the lie forlimited partners. The IRS's business code for "Other specialty trade contractors is 238900. The LLC files its tax return in Ogden, Utah. Branson Company is located at 3750 Airport Boulevard, Seat- tle, WA 98124 (the same as the LLC's address). Porto Engincering. Inc, is located at 42100 Highway 980 West, Tacoma, WA 98401. The LLC member corporations are each owned by several unrelated individual taxpayers. Branson Company is the tax matters partner The capital account reconciliation on the partners Schedules K-1 is prepared on a GAAP basis, as is the ILCs Schedle . The LI.C is required to file Schedule M-3, Form 8916-A (Supplemental Atachment to Scheduie M-3). and Schedule G with its Form 1065 a. Prepare pages 1-5 of Form 1065 for Branto, LLC. Do not prepare Form 4562Leave any items blank where insufficicnt information has been provided. Prepare supporting sched- ules as necessary if adequate information is provided. You may assume that the answer to each "yeso" question on page 3 is "no" unless discussed above b. Prepare Schedule M-3and Form 8916-A (page 1). Do not prepare Schedule C. Hit: You will find four book-tax differences (two temporary differences and uwo pennanent differences) c. Prepare Schedule K-1 for 50% LLC member Branson Company PROBLEM 6 S CORPORATION (FORM 1 120S John Parsons (123456781) and George Smith (123456782) are 70% and 30% owners. respectively, of Premiu, Inc. (-111111). a candy company located at 1005 16th Street, Cut and Shoot, TX 77303. The company's S corporation election was made on January 15. 2007. The following information was taken from the income statesment for 2012. H&R BLOCK $ 100,000 2,410,000 Interest income Gross sales receipts Beginning inventory Direct labor Direct materials purchased Direct other costs Ending inventory Salaries and wages Officers' salaries Repairs Depreciation expense Interest expense Rent expense (operating) Taxes Charitable contributions (cash) Advertising expenses Payroll penalties Other deductions Book income 9,607 (203,102) (278,143) (249,356) 3,467 (442,103) (150,000) (206,106) (15,254) 35,222) 40,000) (20,000) (20,000) (15,000) (59,899) 704,574 E-14 Appendix E Comprnive Tax Return Problems The partners share equally in al LLC liabilities, bcus liniial contributions and all ongoing allocations and distributions are pro rata The LLC's activities are eligible for the domestic prodaction acivities deduction (DPAD). For simplicity, assume ha he LLC's qualified producones income (QPAI) is $9.5 million. The LLC's production-related W-2 wages are $10 million. No guaranteed payments were paid to either of the LLC members. Instead, the em- bers each withdrew $3.4 million of cash during the year. The LLC has never made a disri bution to the partners of noncash property. The LL.C has not made a 754 election and had no transactions during the current year that would warant such an electio. None of the members sold any portion of their interests in the LLC during the year Both LIC nenbers are U.S. Subchapter C corporations, The LLCsoperations are entirely restricted to the United States, and all sales were to U.S. businesses. The LLC had no foreign operations, no foreign bank accounts, and no interes in any foreig trusts or other LLC. None of the members contributed cash or odher property to the LLC during the year. Both members are classified us "corporations" and "LLC riember managers" on Sched- ule K-1. The capital account analysis on Schedule K-l is prepared on a tax basis. On the Analysis of Income (Loss), the IRSs instructions indicate that the amounts for any LLC members should be reported on the lie forlimited partners. The IRS's business code for "Other specialty trade contractors is 238900. The LLC files its tax return in Ogden, Utah. Branson Company is located at 3750 Airport Boulevard, Seat- tle, WA 98124 (the same as the LLC's address). Porto Engincering. Inc, is located at 42100 Highway 980 West, Tacoma, WA 98401. The LLC member corporations are each owned by several unrelated individual taxpayers. Branson Company is the tax matters partner The capital account reconciliation on the partners Schedules K-1 is prepared on a GAAP basis, as is the ILCs Schedle . The LI.C is required to file Schedule M-3, Form 8916-A (Supplemental Atachment to Scheduie M-3). and Schedule G with its Form 1065 a. Prepare pages 1-5 of Form 1065 for Branto, LLC. Do not prepare Form 4562Leave any items blank where insufficicnt information has been provided. Prepare supporting sched- ules as necessary if adequate information is provided. You may assume that the answer to each "yeso" question on page 3 is "no" unless discussed above b. Prepare Schedule M-3and Form 8916-A (page 1). Do not prepare Schedule C. Hit: You will find four book-tax differences (two temporary differences and uwo pennanent differences) c. Prepare Schedule K-1 for 50% LLC member Branson Company PROBLEM 6 S CORPORATION (FORM 1 120S John Parsons (123456781) and George Smith (123456782) are 70% and 30% owners. respectively, of Premiu, Inc. (-111111). a candy company located at 1005 16th Street, Cut and Shoot, TX 77303. The company's S corporation election was made on January 15. 2007. The following information was taken from the income statesment for 2012. H&R BLOCK $ 100,000 2,410,000 Interest income Gross sales receipts Beginning inventory Direct labor Direct materials purchased Direct other costs Ending inventory Salaries and wages Officers' salaries Repairs Depreciation expense Interest expense Rent expense (operating) Taxes Charitable contributions (cash) Advertising expenses Payroll penalties Other deductions Book income 9,607 (203,102) (278,143) (249,356) 3,467 (442,103) (150,000) (206,106) (15,254) 35,222) 40,000) (20,000) (20,000) (15,000) (59,899) 704,574