Ryan Ross (111-22-1112), Oscar Omega (222-34-2222), Clark Carey (333-89-3333), and Kim Kardigan (444-10-4444) 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 55-5555123. It uses the cash basis and the calendar year and began operations on January 1, 2005. The appropriate business code for the entity is 711410. Its current address is 6102 Wilshire Boulevard, Suite 2100, Los Angeles, CA 90036. ROCK was the force behind popular music icons 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 (note this item for Schedule M-1) Net gain on stock sales 4,000 $4,808,800 Total revenues Expenses Advertising and public relations Charitable contributions Section 179 expense office furniture) $ 380,000 28,000 20,000 Employee W-2 wages 1,000,000 800,000 Guaranteed payment services), Ryan Ross, office manager Guaranteed payment services), other members (equally) Business meals subject to 50% disallowance Travel Legal and accounting fees 600,000 (this is the total) 200,000 (note this item for Schedule M-1) 320,000 132,000 Office rentals paid Interest expense on operating line of credit 80,000 10,000 52,000 Insurance premiums Office expense 200,000 Payroll taxes 92,000 Utilities 54.800 Total expenses $3.968,800 Net income S 840,000 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.) 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, for the net gain as shown on the income statement. These transactions were reported to the IRS on Forms 1099-B. Net income per books is $840,000. On January 1, the members' capital accounts equaled $200,000 each. No additional capital contributions were made this year. In addition to their guaranteed payments, each member withdrew $250,000 cash during the year. The LLC's balance sheet as of December 31 of this year is as follows Daginning 1/1/2018 Ending 12/21/2010 Net income per books is $840,000. On January 1, the members' capital accounts equaled $200,000 each. No additional capital contributions were made this year. In addition to their guaranteed payments, each member withdrew $250,000 cash during the year. The LLC's balance sheet as of December 31 of this year is as follows. Beginning (1/1/2018) Ending (12/31/2018) Cash $ 444,000 $ ?? 120,000 120,000 Tax-exempt securities 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 $ 22 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 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 LLC's Form 1065 was prepared by Ryan Ross and sent to the Ogden, UT IRS Service Center Required: a. Prepare a Form 1065, pages 1, 4, and 5 only, for ROCK the Ages LLC using tax-basis information for Schedules L and M-2. Use the 2018 tax rules discussed in this chapter. You do not need to prepare Form 4562 or Schedule D. Again, you will be graded on each line item, not on the final answer. b. Prepare only one Schedule K-1 for Ryan Ross, 15520 W. Earlson Street, Pacific Palisades, CA 90272. Notes/Hints: When preparing page 1 of Form 1065, the payment for the partners' services is deducted on line 10 as a guaranteed payment. This is the only item that will be put on BOTH the front page of the Form 1065 AND on the Schedule K (on line 4). All other items will go EITHER on the front page or on the Schedule K, if there is any special significance to the item. Refer to your book for items that are "separately stated", this means that they will go on the Schedule K and NOT on page 1 of the Form 1065. Use the attached spreadsheet (Case 2 - Other Deductions) to show me the details for line 20 on page 1. Submit with your return. For the Form 1065, page 5, Analysis of Net Income, after calculating line 1 as indicated on the form, the same amount will be put in cell 2(b)(ii). This number should equal line 9 of Schedule M-1. The Schedule K will be the total amount of the items. Schedule K-1 will be only '4 of the same line items on the Schedule K for Ryan's '4 share (except for the guaranteed payment - which is the exact amount he received.) When preparing both the Schedule K and the Schedule K-1, the net earnings from self-employment (line 14a) equals the combination of lines 1 and 4. For the K-1, it is Ryan's 1/4 share of the partnership's ordinary income plus his guaranteed payment for services. You do not need to complete this, but these items would be reported on Form 1065, Schedule K, Line 20c Other Reportable Items: (for the QBI credit) Section 199A Qualified Business Income... ............ $979,200. Section 199A W-2 Wages. Section 199A Unadjusted Basis. 20,000. Gross Receipts for Section 59A(e).......... 4,825,600. 1,000,000 .... Ryan Ross (111-22-1112), Oscar Omega (222-34-2222), Clark Carey (333-89-3333), and Kim Kardigan (444-10-4444) 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 55-5555123. It uses the cash basis and the calendar year and began operations on January 1, 2005. The appropriate business code for the entity is 711410. Its current address is 6102 Wilshire Boulevard, Suite 2100, Los Angeles, CA 90036. ROCK was the force behind popular music icons 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 (note this item for Schedule M-1) Net gain on stock sales 4,000 $4,808,800 Total revenues Expenses Advertising and public relations Charitable contributions Section 179 expense office furniture) $ 380,000 28,000 20,000 Employee W-2 wages 1,000,000 800,000 Guaranteed payment services), Ryan Ross, office manager Guaranteed payment services), other members (equally) Business meals subject to 50% disallowance Travel Legal and accounting fees 600,000 (this is the total) 200,000 (note this item for Schedule M-1) 320,000 132,000 Office rentals paid Interest expense on operating line of credit 80,000 10,000 52,000 Insurance premiums Office expense 200,000 Payroll taxes 92,000 Utilities 54.800 Total expenses $3.968,800 Net income S 840,000 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.) 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, for the net gain as shown on the income statement. These transactions were reported to the IRS on Forms 1099-B. Net income per books is $840,000. On January 1, the members' capital accounts equaled $200,000 each. No additional capital contributions were made this year. In addition to their guaranteed payments, each member withdrew $250,000 cash during the year. The LLC's balance sheet as of December 31 of this year is as follows Daginning 1/1/2018 Ending 12/21/2010 Net income per books is $840,000. On January 1, the members' capital accounts equaled $200,000 each. No additional capital contributions were made this year. In addition to their guaranteed payments, each member withdrew $250,000 cash during the year. The LLC's balance sheet as of December 31 of this year is as follows. Beginning (1/1/2018) Ending (12/31/2018) Cash $ 444,000 $ ?? 120,000 120,000 Tax-exempt securities 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 $ 22 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 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 LLC's Form 1065 was prepared by Ryan Ross and sent to the Ogden, UT IRS Service Center Required: a. Prepare a Form 1065, pages 1, 4, and 5 only, for ROCK the Ages LLC using tax-basis information for Schedules L and M-2. Use the 2018 tax rules discussed in this chapter. You do not need to prepare Form 4562 or Schedule D. Again, you will be graded on each line item, not on the final answer. b. Prepare only one Schedule K-1 for Ryan Ross, 15520 W. Earlson Street, Pacific Palisades, CA 90272. Notes/Hints: When preparing page 1 of Form 1065, the payment for the partners' services is deducted on line 10 as a guaranteed payment. This is the only item that will be put on BOTH the front page of the Form 1065 AND on the Schedule K (on line 4). All other items will go EITHER on the front page or on the Schedule K, if there is any special significance to the item. Refer to your book for items that are "separately stated", this means that they will go on the Schedule K and NOT on page 1 of the Form 1065. Use the attached spreadsheet (Case 2 - Other Deductions) to show me the details for line 20 on page 1. Submit with your return. For the Form 1065, page 5, Analysis of Net Income, after calculating line 1 as indicated on the form, the same amount will be put in cell 2(b)(ii). This number should equal line 9 of Schedule M-1. The Schedule K will be the total amount of the items. Schedule K-1 will be only '4 of the same line items on the Schedule K for Ryan's '4 share (except for the guaranteed payment - which is the exact amount he received.) When preparing both the Schedule K and the Schedule K-1, the net earnings from self-employment (line 14a) equals the combination of lines 1 and 4. For the K-1, it is Ryan's 1/4 share of the partnership's ordinary income plus his guaranteed payment for services. You do not need to complete this, but these items would be reported on Form 1065, Schedule K, Line 20c Other Reportable Items: (for the QBI credit) Section 199A Qualified Business Income... ............ $979,200. Section 199A W-2 Wages. Section 199A Unadjusted Basis. 20,000. Gross Receipts for Section 59A(e).......... 4,825,600. 1,000,000