CL LLC is a manufacturing business and reported "adjusted taxable income" in 2022 of $40,000,000 before interest expense, taxes, depreciation, and amortization ("tax EBITDA"), plus $1,500,000 of separately stated investment income. CL incurred interest expense of $1,000,000 in connection with this investment income and $14,000,000 in connection with its trade or business.

a. How much interest expense can CL deduct? $ 12,000,000 What happens to any additional interest expense? The $ 1,000,000 of investment interest expense is stated item on Schedule K.

b. How is the interest expense reported on CL's Schedules K-1? On the Schedules K-1, CL allocates the $ 1,000,000 of investment interest expense as a separately stated deduction. In addition, it reports the $ 2,000,000 of excess business interest as a separately stated item.

c. What action, if any, is needed by the LLC members? In the current year, the LLC members will deduct their distributive shares of the investment interest expense to the extent permitted. In future years, the LLC members can deduct their distributive shares of the business interest carryover against excess taxable income the LLC allocates to the members in those future years.

d. How would your answers to parts (a) through (c) change if CL's adjusted taxable income was $4,000,000 (plus $150,000 of investment income), its average annual gross receipts for all prior tax years was $10,000,000 or less, and the interest expense amounts were $100,000 (investment) and $1,400,000 (business)?

If average annual gross receipts do not exceed $ ????????? for the prior tax year, the business interest expense limitation does not apply, so all business interest expense is currently deductible by the LLC.