Tax Return Problem $2$: Partnership

Required:

$$ For $2022,$ complete Aspen Ridge limited partnership$$s page $1$ of Form $1065$; complete Schedule K on page $4$ of Form $1065$; complete lines $1$ and $2$ of the Analysis of Net Income $($Loss$)$ at the top of page $5$ of Form $1065$; and complete Schedules M$-1$ and M$-2$ at the bottom of page $5$ of Form $1065($you may skip Schedule L$).$ Finally, complete Mark Sullivan$$s Schedule K$-1.$

$$ Form $4562$ for depreciation and Schedule D for capital gains are not required. Include any tax depreciation or $179$ expense on the appropriate line of page $1$ of Form $1065$ or Schedule K$.$

$$ If any information is missing, use reasonable assumptions to fill in the gaps.

$$ The forms, schedules, and instructions can be found at the IRS website $($www$.$irs.gov$).$ The instructions can be helpful in completing the forms.

Facts:

The Aspen Ridge limited partnership was formed on April $1,2010,$ by Mark Sullivan, its general partner, and two other limited partners when they each contributed an equal amount of cash to start the new enterprise. Aspen Ridge is an outdoor equipment retailer selling camping, fishing, skiing, and other outdoor gear to the general public. Mark has a $33\mathrm{.}33$ percent profits, loss, and capital interest and the limited partners hold the remaining $66\mathrm{.}66$ percent of the profits, loss, and capital interests. Their profits, loss, and capital interests have remained unchanged since the partnership was formed. Mark is actively involved in managing the business while the limited partners are only investors, and Mark receives an annual guaranteed distribution of $$35,000$ for his services managing the business.

$$ Aspen Ridge is located at $1065$ North $365$ South, Ogden, Utah $84401.$

$$ The employer identification number for Aspen Ridge is $85-8976654.$

$$ Aspen Ridge uses the accrual method of accounting and has a calendar year$-$end.

$$ Mark$$s address is $543$ Wander Lane, Holladay, Utah $84503,$ and his Social Security number is $445-27-3584.$ His phone is $801-555-5555.$ Mark is designated as the Partnership Representative in the partnership agreement.

$$

The following is Aspen Ridge$$s $2022$ income statement:

Aspen Ridge Income Statement

For year ending December $31,2022$

Sales $ $965,500$

Sales returns and allowances $(9,700)$

Cost of goods sold $(538,200)$

Gross profit from operations $ $417,600$

Other income:

Interest from money market account $ $3,200$

Gain from sale of photograph $34,000$

Gross income $ $454,800$

Expenses:

Employee wages $ $95,400$

Interest on accounts payable $2,700$

Payroll and property taxes $10,800$

Supplies $4,300$

Rent on retail building $18,500$

Depreciation on furniture and fixtures $4,550$

Advertising $8,300$

Guaranteed payments to Mark Sullivan $35,000$

Utilities $6,400$

Accounting and legal services $4,400$

Travel $2,240$

Cash charitable contribution to the Sierra Club $3,300$

Miscellaneous expenses $5,750$

Total expenses $(201,640)$

Net income for books $ $253,160$

Notes:

$1.$ Aspen Ridge has total assets of $$1,249,700$ and total liabilities of $$447,067$ at the beginning of the year, and total assets of $$1,494,600$ and total liabilities of $$618,867$ at the end of the year.

$2.$ Partnership liabilities consist of accounts payable, and Mark, as general partner, is legally responsible for paying these liabilities if the partnership does not.

$3.$ Two years ago, Aspen Ridge purchased an original Ansel Adams outdoor landscape photograph $($a collectible$)$ with the intent to display it permanently in the retail store. This year, however, the photograph was sold to a local ski lodge where it now hangs on the wall. The $$34,000$ recognized gain from the sale is reflected in the income statement above.

$4.$ For tax purposes, Aspen Ridge has consistently elected out of bonus depreciation and has elected instead under $179$ to expense any furniture or fixtures placed in service every year since it was formed. As a result, it does not have a tax basis in any of its depreciable assets. This year, Aspen Ridge expensed $$17,300$ of signs and display cases for tax purposes.

$5.$ On November $20,$ Aspen Ridge distributed $$180,000($$$60,000$ per partner$)$ to the partners.

$6.$ Miscellaneous expenses reported on the income statement include a $$900$ fine for violating a local signage ordinance.

$7.$ All three partners$$ capital accounts each had a tax$-$basis opening balance of $$279,511.$

$8.$ Assume that Aspen Ridge did not make any payments that would require it to file Form$($s$)1099.$

$9.$ For purposes of the Qualified Business Income Deduction $(199$A$),$ the unadjusted basis of qualified property immediately after acquisition $($UBIA$)$ is $$1,240,800.$