This problem is for the 2021 tax year. 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 Taxable interest income from bank deposits Tax-exempt interest Net gain on stock sales Total revenues Expenses Advertising and public relations Charitable contributions $4,800,000 1,600 3,200 4,000 $4,808,800 $380,000 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 Utilities 92,000 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. 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. 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 1099-B; 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 5 704(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 Capital, Ross Capital, Omega Capital, Carey Capital, Kardigan Total liabilities and capital $200,000 $160,000 200,000 ?? 200,000 22 200,000 22 200,000 ?? $1,000,000 The firm's activities do not constitute "qualified production activities" for purposes of the 5 199 deduction. (Note that the 5 179 deduction is a business-related expense.) The LLC'S 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-1 Prepare Schedule K-1 for Ryan Ross, 15520 W. Earlson Street, Pacific Palisades, CA 90272. If required, use the minus sign to indicate a loss. O Final K-1 Schedule K-1 (Form 1065) 2021 Department of the Treasury For calendar year 2021, or tax year Internal Revenue Service beginning /2021 ending Partner's Share of Income, Deductions, Amended K-1 651121 OMB No. 1545-0123 Part III Partner's Share of Current Year Income, Deductions, Credits, and Other Items 1 Ordinary business income 14 Self-employment earnings (loss) A (loss) 244,800 2 Net rental real estate income (loss) 1,044,800 Credits, etc. See separate instructions. Part I Information About the Partnership A Partnership's employer identification number B 55-5555556 Partnership's name, address, city, state, and ZIP code ROCK the Ages LLC 6102 Wilshire Boulevard Suite 2100 Los Angeles, CA 90036 C 3 Other net rental income (loss) 15 Credits 4a Guaranteed payments for services 0 x 800,000 V 4b Guaranteed payments for capital 16 Schedule K-3 is attached if checked C IRS Center where partnership filed return e-file 4c Total guaranteed payments D Check If this is a publicly traded partnership (PTP) 0 X 17 Alternative minimum tax (AMT) Items Part II Information About the Partner 5 Interest income E Partner's SSN or TIN (Do not use TIN of a disregarded entity. See Instructions.) 400 6a Ordinary dividends 111-11-1112 Name, address, city, state, and ZIP code for partner entered in E. 6b Qualified dividends See instructions. 18 Tax-exempt income and nondeductible expenses Ryan Ross 15520 West Earlson Street 6c Dividend equivalents 800 Pacific Palisades, CA 90272 G General partner or LLC member- Limited partner or other LLC manager 7 Royalties member C 25,000 H1 Domestic partner Foreign partner H2 Name If the partner is a disregarded entity (DE), enter the partner's: TIN 11 What type of entity is this partner? Individual 12 If this partner is a retirement plan (IRA/SEP/Keogh/etc.), check here a 3 Partner's share of profit, loss, and capital (see instructions); 9b Collectibles (28%) gain (loss) 8 Net short-term capital gain (loss) -5,000 9a Net long-term capital gain (loss) 19 Distributions A 250,000 6,000 V Beginning Ending 9c Unrecaptured section 1250 20 Other information Profit 25 % 25 % gain A 400 Loss 25 % 25 % 10 Net section 1231 gain (loss) Capital 25 % 25 % N STMT interest a Check if decrease is due to sale or exchange of partnership Partner's share of liabilities: 11 Other Income (loss) 2 STMT Nonrecourse Qualified nonrecourse financing Recourse Beginning Ending 12 Section 179 deduction 21 Foreign taxes paid or 5,000 accrued 50,000 $ 13 Other deductions 7,000 V $ a Check this box if Item K includes liability amounts from lower bier partnerships. Partner's capital account analysis: 22 0 More than one activity for at-risk purposes 23 0 More than one activity for passive activity purposes "See attached statement for additional information. Beginning capital account 200,000 Capital contributed during the year... $ Current year net income (loss) $ 210,000 X Other increase (decrease) (attach M N explanation) See Attached $ 0X Withdrawals and distributions. $ -250,000 Ending capital account. $ 160,000 V Did the partner contribute property with a built-in gain or loss? 0 Yes No If "Yes," attach statement. See instructions. Partner's Share of Net Unrecognized Section 704(c) Gain or (Loss) Beginning Ending. For IRS Use Only BAA For Paperwork Reduction Act Notice, see Instructions for Form 1065. www.irs.gov/Form1065 Schedule K-1 (Form 1065) 2021 Rock the Ages LLC 55-5555556 Schedule K-1 (Form 1065) 2021 Item L Partner's Capital Account Analysis Other Increase (Decrease) Other Increase Tax-Exempt Interest and/or Tax-Exempt Other Income Other Decrease Guaranteed Payments (other than health insurance) Non-Deductible Expenses Supplemental Information Page 2 200,000 X Total 200,000 X Total Net Total Box 20, Code N Business Interest Expense Included as a Deduction on the Following Line(s) Below is deductible business interest expense for inclusion in the separate loss class for computing any basis limitation (defined in section 704(d), Regulation section 1.163()-6(h)). Schedule K-1, line 1 244,800 X