Ryan Wang (111-11-1112), Oscar Shatner (222-22-2223), Clark Schick (333-33-3334), and Kim Howard (444-44-4445) are equal, active, and unrelated members in Wang Engineering LLC (Wang). Wang is an engineering services for clients that help clients with clean energy in the San Diego area. The LLCs Federal ID number is 55-5555556. It uses the cash basis and the calendar year and began operations on January 1, 2007. Its current address is 2501 El Prado, Suite 2100, San Diego, CA 90210. The financial information enclosed from the LLCs income statement for the current year. Recently, Wang has taken advantage of bonus depreciation and 179 deductions and fully remodeled the premises and upgraded its leasehold improvements. This year, Wang wrapped up its remodel with the purchase of $90,000 of office furniture for which it will claim a 168(k) deduction. (For simplicity, assume that the Company uses the same cost recovery methods for both tax and financial purposes.) There is no depreciation adjustment for alternative minimum tax purposes. Wang invests much of its excess cash in dividend-paying stocks and tax-exempt securities. During the year, the LLC several securities transactions. On June 15, purchased 1,000 shares of Fountain, Inc. stock for $100,000; it sold those shares on December 15 for $65,000. On March 15 of last year, Wang purchased 2,000 shares of Shatner Machinery, Inc. stock for $189,000; it sold those shares for $199,500 on December 15 of the current year. These transactions were reported to the IRS on Forms 1099B; Wangs basis in these shares was reported. Each member received an equal guaranteed payment for services rendered. Also, Ryan Wang loaned the partnership $2,000,000 in 2015. It is an interest only note due in 2026. The LLC issued Ryan a 1099 INT for the interest on the loan. Net income per books is $1,441,200. On January 1, the members capital accounts equaled $350,000 each. No additional capital contributions were made this year. In addition to their guaranteed payments, each member withdrew $200,000 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 LLCs balance sheet as of December 31 of this year is also enclosed. The Company paid Ryans health insurance premiums of $25,000 for him and his family. Except for the Ryan Wang loan, all debt is shared equally by the members. Each member has personally guaranteed the line of credit debt of the LLC. All members are active in LLC operations. For our purposes, assume that Wangs operations constitute one active trade or business for purposes of the passive activity and at-risk limitations. (Note that the 179 deduction is a business-related expense.).

The appropriate business code for the entity is 237310. For the Form 1065, page 5, Analysis of Net Income, put all partners allocations in cell 2(b)(ii), per IRS instructions for an LLC. REQUIRED 1) Prepare a federal Form 1065, pages 1, 4, and 5, for Wang Engineering LLC using tax basis information for Schedules L and M2. Use the Intuit Pro connect software provided to you in Canvas to prepare Form 1065 Forms 4562, 8949, and Schedule D and any other forms you think are necessary. DO NOT PREPARE THE STATE TAX RETURNS 2) Prepare Schedule K1 for all LLC members. Use any address for the partners. 3) You need to prepare an explanation write up on how you treated the items is the facts above. The explanation is meant to determine if you understand the 1065 assignment. Please explain how you determined what is taxable, not taxable, deductible, or not deductible. Use the appropriate authorities to document your conclusions. Also, provide detail computations of your book/tax differences and computation of taxable income. Finally, please provide a computation each partners tax basis (assume the beginning capital account is the opening tax basis) and document the tax consequences of all transactions between the members and LLC. If the facts aren't in the case, please make your own assumptions and document them. Prepare this is in a tax memorandum format and it should be single-spaced. 4) Prepare a transmittal letter to Ryan Wang that will be transmitted to the partner with their schedule K-1

Financials

Wang Engineering Financial Statements-Cash Basis 12/31/2021 Consulting Revenues 8,000,000 Interest Income Bank of America 15,000 Interest from City of Newport Beach Bonds 35,000 Net Loss from Sale of Stock (24,500) Ordinary Dividends 75,000 Qualified Dividends 15,000

Total Revenue 8,115,500

Guaranteed Payments 3,000,000 W-2 Wages 1,000,000 Advertising 450,000 Charitable Contributions 86,000 Depreciation 90,000 Repairs and Maintenance 50,000 Premiums for Life Insurance for Partners 75,000 Interest Expense-Line of Credit 50,000 Interest Expense- Loan from Wang** 100,000 Legal and Accounting Fees* 132,000 Meals (non restaurant) 250,000 Health Insurance Premiums Ryan Wang 25,000 Travel 300,000 Entertainment 400,000 Insurance 52,000 Office Rent 175,000 Office Expense 200,000 Payroll Taxes 150,000 Utilities 54,300 Political Contributions 35,000 Total Expenses 6,674,300 Book Income 1,441,200 * Includes $50,000 Legal Fees from a failed acquisition of a new construction company ** 1099 was issued to Mr. Wang

12/31/2020 12/31/2021 Cash 3,900,000 3,791,200 Marketable Securities 500,000 1,250,000 Office Equipmentn. 960,000 1,050,000 Accumulated Depreciation (960,000) (1,050,000) Total Assets. 4,400,000 5,041,200 Line of Credit 1,000,000 1,000,000 Loan from Wang 2,000,000 2,000,000 Capital Account-Wang. 350,000 510,300 Capital Account-Shatner. 350,000 510,300 Capital Account-Schick 350,000 510,300 Capital Account-Howard 350,000 510,300 Total Liabilities and Equity 4,400,000 5,041,200

Please use the provide completed tax return using the information provided