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Problem 14-16 (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. The debts are recourse to the LLC, but neither of the LLC members has personally guaranteed them. Assume that all LLC debt is shared equally between the partners. The following information about AM's operations for the current year is obtained from the LLC's records.

Revenues $1,400,000 Other operating expenses (e.g., utilities, repairs, rent, etc.) 500,000 W2 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 depreciable property immediately after acquisition 1,600,000

Year-end LLC debt payable to unrelated parties is $140,000.

Assume that all transactions are reflected in Amy's beginning capital and basis in the same manner. All AM Products activities are eligible for the qualified business income deduction.

a. Calculate Amy's basis in her LLC interest at the beginning and end of the tax year.

LLC interest at the beginning of the year:

LLC interest at the beginning of the year:

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

If an amount is zero, enter "0".

Ordinary income $fill in the blank ee317407e034f9b_1 Net long-term capital gain $fill in the blank ee317407e034f9b_2 Interest income $fill in the blank ee317407e034f9b_3 Charitable contribution deduction $fill in the blank ee317407e034f9b_4 Cash distribution $fill in the blank ee317407e034f9b_5

. Based on the information provided, what other calculations is Amy required to make?

Amy may be eligible to deduct up to fill in the blank c5674c013fc9fb3_1% of the ordinary income as qualified business income under 199A, and will make that calculation on her return. This deduction does not require a cash outflow by Amy or the LLC, and it does not affect her basis or capital account. As someone treated as a general partner, Amy's distributive share of the LLC's ordinary business income is subject to self-employment tax and possibly the additional Medicare tax. Her net investment income from the LLC may be subject to the additional tax under 1411.

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)?

Capital account balance, beginning year $fill in the blank 33854af9c058006_1 Ordinary income $fill in the blank 33854af9c058006_2 Interest income fill in the blank 33854af9c058006_3 Net long-term capital gain fill in the blank 33854af9c058006_4 fill in the blank 33854af9c058006_5 $fill in the blank 33854af9c058006_6 Less: Charitable contribution $fill in the blank 33854af9c058006_7 Cash distribution to Amy fill in the blank 33854af9c058006_8 fill in the blank 33854af9c058006_9 Capital account balance, end of year $fill in the blank 33854af9c058006_10

Amy's capital account differs from her basis only by the amount of her share of LLC

e. Using the information from parts (a) to (d), prepare Amy's Schedule K1 as if you were the preparer of AM Products LLC's tax return. Provide all information that Amy needs to the extent you can.

Enter all amounts as positive numbers.

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