(Tax) The Bolos, LLC limited partnership was formed by Zed, its general partner, and a limited partner, Amy. Each contributed an equal amount of cash to start the new enterprise. In addition, Amy loaned the LLC $100,000. She has not been paid back yet. The partnership has an increase in recourse debt of $20,000. Originally, the two business associates decided to have their LLC taxed as a partnership. Since that time, Zed and Amy have decided their business model would work better as an S Corp and would like you to make that change.

Also, Bolos, LLC is a holiday equipment retailer. Their specialties are grave markers, potted flowers, toys, and tequila. Zed has 40% profits and capital interest and the limited partner holds the remaining 60% of the profits and capital interest. Zed is actively involved in managing the business and the limited partner is simply an investor. Zed's basis at the beginning of 2020 was $255,000, while Amy's was $100,000. Bolos, LLC uses the accrual method of accounting and has a calendar year-end.

a. Calculate the two partners' basis in their LLC interests.

b. Suppose that instead of distributing $186,000 prorate, the LLC distributed $100,000 to Amy and $86,000 to Zed. What tax consequences could result from this transaction?

c. As the LLC's CPA, would you have any suggestions for the shareholders for 2019 to reverse any negative consequences from this distribution?