Question
Ryan Ross (111-11-1112), Oscar Omega (222-22-2223), Clark Carey (333-33-3334), and Kim Kardigan (444-44-4445) are equal active members in ROCK the Ages LLC. ROCK serves as
Ryan Ross (111-11-1112), Oscar Omega (222-22-2223), Clark Carey (333-33-3334), and Kim Kardigan (444-44-4445) are equal active members in ROCK the Ages LLC. ROCK serves as agent and manager for prominent musicians in the Los Angeles area. The LLC's Federal ID number is 55-5555556. It uses the cash basis and the calendar year and began operations on January 1, 2009. Its current address is 6102 Wilshire Boulevard, Suite 2100, Los Angeles, CA 90036. ROCK was the force behind such music icons as Adrianna Venti, Drake Malone, Elena Gomez, Tyler Quick, Queen Bey, and Bruno Mercury 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 |
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 |
Business meals, subject to 50% disallowance | 200,000 |
Business restaurant meals and travel (100% deductible) | 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 |
Recently, 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.OCK 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, 2021, ROCK purchased 1,000 shares of Tech, Inc., stock for $100,000; it sold those shares on December 15, 2021, for $80,000. On March 15, 2020, ROCK purchased 2,000 shares of BioLabs, Inc., stock for $136,000; it sold those shares for $160,000 on December 15, 2021. 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. On January 1, 2021, the members' tax basis capital accounts equaled $200,000 each. No additional capital contributions were made in 2021. In addition to their guaranteed payments, each member withdrew $250,000 cash during the year. All contributions and distributions have been in cash, so the LLC has no net unrecognized 704(c) gain or loss. The LLC's balance sheet as of December 31, 2021, is as follows.
Beginning | Ending | ||
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 | $?? | |
The firm's activities do not constitute "qualified production activities" for purposes of the 199 deduction. (Note that the 179 deduction is a business-related expense.) The LLCs UBIA (unadjusted basis immediately after acquisition) equals the total original cost of all leasehold improvements, or $980,000.All debt is shared equally by the members. Each member has personally guaranteed the debt of the LLC. All members are active in LLC operations. The business code for the entity is 711410. Schedule K
Income (Loss) | 1 | Ordinary business income (loss) (page 1, line 22) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 1 | in the blank | |||||
2 | Net rental real estate income (loss) (attach Form 8825) . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 2 | |||||||
3a | Other gross rental income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . | 3a | |||||||
b | Expenses from other rental activities (attach stmt) . . . . . . . . . . . . . . | 3b | |||||||
c | Other net rental income (loss). Subtract line 3b from line 3a . . . . . . . . . . . . . . . . . . . . . . . . . | 3c | |||||||
4 | Guaranteed payments: | ||||||||
a Services | 4a | in the blank | b Capital | 4b | |||||
c | Total. Add lines 4a and 4b . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 4c | in the blank | ||||||
5 | Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 5 | in the blank | ||||||
6 | Dividends and dividend equivalents: a Ordinary dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . | 6a | |||||||
b Qualified dividends | 6b | c Dividend equivalents | 6c | ||||||
7 | Royalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 7 | |||||||
8 | Net short-term capital gain (loss) (attach Schedule D (Form 1065)) . . . . . . . . . . . . . . . . . . . . | 8 | in the blank | ||||||
9a | Net long-term capital gain (loss) (attach Schedule D (Form 1065)) . . . . . . . . . . . . . . . . . . . . . | 9a | in the blank | ||||||
b | Collectibles (28%) gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 9b | |||||||
c | Unrecaptured section 1250 gain (attach statement) . . . . . . . . . . . . . | 9c | |||||||
10 | Net section 1231 gain (loss) (attach Form 4797) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 10 | |||||||
11 | Other income (loss) (see instructions) Type | 11 | |||||||
Deduc- tions | 12 | Section 179 deduction (attach Form 4562) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 12 | in the blank | |||||
13a | Contributions See Statement 2 | 13a | in the blank | ||||||
b | Investment interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 13b | |||||||
c | Section 59(e)(2) expenditures: (1) Type _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ (2) Amount | 13c(2) | |||||||
d | Other deductions (see instructions) Type | 13d | |||||||
Self- Employ- ment | 14a | Net earnings (loss) from self-employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 14a | in the blank | |||||
b | Gross farming or fishing income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 14b | |||||||
c | Gross nonfarm income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 14c | |||||||
Credits | 15a | Low-income housing credit (section 42(j)(5)) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 15a | ||||||
b | Low-income housing credit (other) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 15b | |||||||
c | Qualified rehabilitation expenditures (rental real estate) (attach Form 3468, if applicable) | 15c | |||||||
d | Other rental real estate credits (see instructions) Type _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ | 15d | |||||||
e | Other rental credits (see instructions) . . . . . . . . Type _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ | 15e | |||||||
f | Other credits (see instructions) . . . . . . . . . . . . . Type | 15f | |||||||
Inter- national Trans- actions | 16 | Attach Schedule K-2 (Form 1065), Partners' Distributive Share Items-International, and check this box to indicate that you are reporting items of international tax relevance . . . . . . . . . . . . | |||||||
Alter- native Minimum Tax (AMT) Items | 17a | Post-1986 depreciation adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 17a | ||||||
b | Adjusted gain or loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 17b | |||||||
c | Depletion (other than oil and gas) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 17c | |||||||
d | Oil, gas, and geothermal properties gross income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 17d | |||||||
e | Oil, gas, and geothermal properties deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 17e | |||||||
f | Other AMT items (attach stmt) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 17f | |||||||
Other Infor- mation | 18a | Tax-exempt interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 18a | in the blank | |||||
b | Other tax-exempt income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 18b | |||||||
c | Nondeductible expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 18c | in the blank | ||||||
19a | Distributions of cash and marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 19a | in the blank | ||||||
b | Distributions of other property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 19b | |||||||
20a | Investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 20a | in the blank | ||||||
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started