16. LO.4, 5, 7 Amy and Mitchell share equally in the profits, losses, and capital of the accrual basis AM Products LLC. The LLC does not need to report financial information to any third parties, so capital accounts are determined using tax rules

(rather than GAAP). Amy is a managing member of the LLC (treated as a general partner) and is a U.S. person.

At the beginning of the current tax year, Amy’s capital account has a balance of

$300,000, and the LLC has debts of $200,000 payable to unrelated parties. All debts are recourse to the LLC, but neither of the LLC members has personally guaranteed them. The following information about AM’s operations for the current year is obtained from the LLC’s records.

Revenues $1,400,000 Other “ordinary and necessary” operating expenses (e.g., utilities, repairs, and rent) 500,000 W–2 wages to employees 200,000 Depreciation expense 300,000 Interest income 4,000 Long-term capital gain 6,000 Charitable contribution (cash) 4,000 Cash distribution to Amy 20,000 Unadjusted basis of partnership property immediately after acquisition 1,600,000 Year-end LLC debt payable to unrelated parties is $140,000. All transactions are reflected in Amy’s beginning capital account and tax basis in the same manner.

All AM Products’ activities are eligible for the qualified business income deduction.

a. Calculate Amy’s tax basis in her LLC interest at the beginning and end of the tax year. Use her capital account as a starting point.

b. What income, gains, losses, and deductions does Amy report on her income tax return?

c. What other calculations is Amy required to make?

d. Prepare Amy’s tax-basis capital account rollforward from the beginning to the end of the tax year. How does her ending capital account differ from her ending tax basis in the LLC interest as calculated in part (a)?

e. Using the information from parts

(a) to (d), prepare Amy’s Schedule K–1 as if you were the preparer of AM Products LLC’s tax return. Provide all information that Amy needs to the extent you can. For Parts I and II (items A to F), omit any missing information (e.g., last names, addresses, EINs).