Ryan Ross (111-11-1111), Oscar Oleander (222-22-2222), Clark Carey (333-33-3333), and Kim Kardigan (444-44-4444) are equal members in ROCK the ages, LLC. ROCK serves as agents and managers for prominent musicians in the Los Angeles area. The LLCs Federal ID number is 55-5555555. It uses the cash basis and the calendar year and began operations on January 1, 2000. Its current address is 6102 Wilshire Boulevard, Suite 2100, Los Angeles, CA 90036. ROCK was the force behind such music icons as Rhiannon and Ulster and has had a very profitable year. The following information was taken from the LLCs income statement for the current year:

Revenues:

Fees and commissions $4,800,000

Taxable interest income from bank deposits 1,600

Tax-exempt interest 3,200

Gains and losses on stock sales 4,000

Total revenues $4,808,800

Expenses:

Advertising and public relations $ 420,000

Charitable contributions 8,000

Section 179 expense 20,000

Employee salaries 1,200,000

Guaranteed payment, Ryan Ross, office manager 600,000

Guaranteed payment, other members 900,000

Entertainment, subject to 50% disallowance 48,000

Travel 120,000

Legal and accounting fees 108,000

Office rentals paid 86,000

Interest expense on operating line of credit 6,000

Insurance premiums 16,000

Office expense 60,000

Payroll taxes 96,000

Utilities 12,000

Total expenses $3,700,000

During the past couple of years, ROCK has taken advantage of bonus depreciation and section 179 deductions and fully remodeled the premises and upgraded its leasehold improvements. This year, ROCK wrapped up its remodel with the purchase of $20,000 of office furniture for which it will claim a section 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 purposes.

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, 2011, ROCK purchased 1,000 shares of Tech, Inc. stock for $72,000; it sold those shares on December 15, 2011, for $60,000. On March 15, 2005, ROCK purchased 2,000 shares of BioLabs, Inc. stock for $104,000; it sold those shares for $120,000 on December 15, 2011.

Net income per books is $1,108,800. The firms activities do not constitute qualified production activities