Question #15. Rick and Jessica, both individuals, form an LLC, which is treated as a partnership for federal income tax purposes. The LLC is a consulting business. Rick transferred $5,000 in cash and Jessica transferred $20,000 in cash to fund the LLC. Rick has a 20% ownership interest in the LLC and Jessica has an 80% ownership interest in the LLC. In Year 1, the LLC had only the following activity:

Consulting revenue $18,000

Rent expense $ 6,000

Advertising expense $ 2,000

Transportation expense $ 1,000

Wages expense $ 4,000

Charitable contribution $ 500

The LLC also distributed $1,000 to Rick and $4,000 to Jessica on December 31 of Year 1. (Since there ownership percentage is 80/20, remember to split ordinary business income and separately stated items 80/20; remember also that a charitable contribution reduces a partners outside basis.)

a. What is Ricks outside basis at the end of Year 1?

b. What is Jessicas outside basis at the end of Year 1?

Show your calculation