Reference no: EM131795996

Assignment: Comprehensive Tax Return

PARTNERSHIP (FORM 1065)

Ryan Ross (111-11-1112), Oscar Omega (222-22-2222), Clark Carey (333-33-3333), and Kim Kardigan (444-44-4444) are equal active members in ROCK the Ages LLC. ROCK serves as agents and managers for prominent musicians in the Los Angeles area. The LLC's Federal ID number is 55-5555555. It uses the cash basis and the calendar year and began operations on January 1, 2004. Its current address is 6102 Wilshire Boulevard, Suite 2100, Los Angeles, CA 90036. ROCK was the force behind such music icons as Rhiannon, Burgundy Six, Elena Gomez, Tyler Quick, the Moonwalkers, and Conjuring Dragons 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 $4,800,000
Taxable interest income from bank deposits 1,600
Tax-exempt interest 3,200
Net gain on stock sales 4,000
Total revenues $4,808,800
Expenses:
Advertising and public relations $ 380,000
Charitable contributions 28,000
Section 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
Entertainment, subject to 50% disallowance 200,000

Travel $ 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 92,000
Utilities 54,800
Total expenses $3,968,800

During the past couple of years, 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, 2015, ROCK purchased 1,000 shares of Tech, Inc., stock for $100,000; it sold those shares on December 15, 2015, for $80,000. On March 15, 2014, ROCK purchased 2,000 shares of BioLabs, Inc., stock for $136,000; it sold those shares for $160,000 on December 15, 2015. 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. The firm's activities do not constitute "qualified pro-duction activities" for purposes of the § 199 deduction. On January 1, 2015, the members' capital accounts equaled $200,000 each. No additional capital contributions were made in 2015. In addition to their guaranteed payments, each member withdrew $250,000 cash during the year. The LLC's balance sheet as of December 31, 2015, is as follows:

Assume that all debt is shared equally by the members. Each member has personally guaranteed the debt of the LLC.

The business code for "Agents and Managers for Artists, Athletes, Entertainers, and Other Public Figures" is 711410. The LLC's Form 1065 was prepared by Ryan Ross and sent to the Ogden, UT IRS Service Center. All members are active in LLC operations.

a. Prepare Form 1065, pages 1, 4, and 5, for ROCK the Ages LLC using tax basis information for Schedules L and M-2.

b. If you are using tax return preparation software, prepare Form 4562 and Schedule D.

c. Prepare Schedule K-1 for Ryan Ross, 15520 W. Earlson Street, Pacific Palisades, CA 90272.