Ryan Ross (111-11-1112), Oscar Omega (222-22-2222), Clark Carey (333-33-3333), and Kim Kardigan (444-44-4444) are equal active members in ROCK the Ages LLC. ROCK serves as agents and managers for prominent musicians in the Los Angeles area. The LLC's Federal ID number is 55-5555555. It uses the cash basis and the calendar year and began operations on January 1, 2005. Its current address is 6102 Wilshire Boulevard, Suite 2100, Los Angeles, CA 90036. ROCK was the force behind such music icons as Rhiannon, Burgundy Six, Elena Gomez, Tyler Quick, the Moonwalkers, and Conjuring Dragons and has had a very profitable year. The following information was taken from the LLC's 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

Net gain on stock sales 4,000

Total revenues $4,808,800

Expenses

Advertising and public relations $380,000

Charitable contributions 28,000

Section 179 expense 20,000

Employee salaries and wages 1,000,000

Guaranteed payment (services), Ryan Ross, office manager 800,000

Guaranteed payment (services), other members 600,000

Entertainment, subject to 50% disallowance 200,000

Travel 320,000

Legal and accounting fees 132,000

Office rentals paid 80,000

Interest expense on operating line of credit 10,000

Insurance premiums 52,000

Office expense 200,000

Payroll taxes 92,000

Utilities 54,800

Total expenses $3,968,800

During the past couple of years, ROCK has taken advantage of bonus depreciation and 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 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, 2016, ROCK purchased 1,000 shares of Tech, Inc., stock for $100,000; it sold those shares on December 15, 2016, for $80,000. On March 15, 2015, ROCK purchased 2,000 shares of BioLabs, Inc., stock for $136,000; it sold those shares for $160,000 on December 15, 2016. These transactions were reported to the IRS on Forms 1099B; ROCK's basis in these shares was reported.

Net income per books is $840,000. The firm's activities do not constitute "qualified production activities" for purposes of the 199 deduction. On January 1, 2016, the members' capital accounts equaled $200,000 each. No additional capital contributions were made in 2016. In addition to their guaranteed payments, each member withdrew $250,000 cash during the year. The LLC's balance sheet as of December 31, 2016, is as follows.

Cash $444,000 $??

Tax-exempt securities 120,000 120,000

Marketable securities 436,000 300,000

Leasehold improvements, furniture, and equipment 960,000 980,000

Accumulated depreciation (960,000) (980,000)

Total assets $1,000,000 $??

Operating line of credit $200,000 $160,000

Capital, Ross 200,000 ??

Capital, Omega 200,000 ??

Capital, Carey 200,000 ??

Capital, Kardigan 200,000 ??

Total liabilities and capital $1,000,000 $??