Tax Strategy and Critical Thinking Steve and Renee formed Falcon Entity on December 28 of last year. The entity operates on a calendar tax year. Each individual contributed $800,000 cash in exchange for a 50% ownership interest in the entity (common stock if a corporation; partnership interest if a partnership). In addition, the entity borrowed $400,000 from the bank. The entity operates on a calendar year. On December 28 of last year, the entity used the $2 million cash (contributions and loan) to purchase assets as indicated in the following balance sheet as of December 28 of last year: Cash Inventory Investment in tax-exempt bonds Investment in corporate stock (less than 20% owned) Total $100,000 1,770,000 50,000 80,000 $2,000,000 Liability 400,000 Equity 1,600,000 Total $2,000,000 * if a partnership, each partner's beginning capital account is $800,000. The balance sheet did not change between December 28 of last year and the beginning of the current year. Thus, the above balance sheet also represents the balance sheet at January 1 of the current year. The following data apply to the entity for the current year: The balance sheet did not change between December 28 of last year and the beginning of the current year. Thus, the above balance sheet also represents the balance sheet at January 1 of the current year. The following data apply to the entity for the current year: Sales $3,000,000 Purchase of additional inventory 2,100,000 Ending inventory at December 31 of the current year 1,650,000 Gain on sale of corporate stock on Dec. 31 of the current 20,000 Dividend received on stock prior to its sale 4,000 Tax-exempt interest received 2,200 Operating expenses 500,000 Interest paid on loan (no principal paid)* 30,000 Distribution on Dec. 31 of the current year Steve 60,000 Renee 60,000 * all $30,000 interest expense pertains to business (not investments) b. Next, assume the entity is a partnership. For the current year, determing the following: 1. Partnership ordinary income and each partner's share of partnership ordinary income. 2. Partnership separately stated items and each partner's share of each item. 3. Steve's and Renee's AGI, taxable income, and total tax liability. Assume each partner will incur a $17,660 (rounded) self-employment tax on his or her share of partnership ordinary income, and each partner will claim a qualifeid busienss income (QBI) deduction of $20,724. 4. Each partner's basis in the partnership (outside basis) at the end of the current year. Tax Strategy and Critical Thinking Steve and Renee formed Falcon Entity on December 28 of last year. The entity operates on a calendar tax year. Each individual contributed $800,000 cash in exchange for a 50% ownership interest in the entity (common stock if a corporation; partnership interest if a partnership). In addition, the entity borrowed $400,000 from the bank. The entity operates on a calendar year. On December 28 of last year, the entity used the $2 million cash (contributions and loan) to purchase assets as indicated in the following balance sheet as of December 28 of last year: Cash Inventory Investment in tax-exempt bonds Investment in corporate stock (less than 20% owned) Total $100,000 1,770,000 50,000 80,000 $2,000,000 Liability 400,000 Equity 1,600,000 Total $2,000,000 * if a partnership, each partner's beginning capital account is $800,000. The balance sheet did not change between December 28 of last year and the beginning of the current year. Thus, the above balance sheet also represents the balance sheet at January 1 of the current year. The following data apply to the entity for the current year: The balance sheet did not change between December 28 of last year and the beginning of the current year. Thus, the above balance sheet also represents the balance sheet at January 1 of the current year. The following data apply to the entity for the current year: Sales $3,000,000 Purchase of additional inventory 2,100,000 Ending inventory at December 31 of the current year 1,650,000 Gain on sale of corporate stock on Dec. 31 of the current 20,000 Dividend received on stock prior to its sale 4,000 Tax-exempt interest received 2,200 Operating expenses 500,000 Interest paid on loan (no principal paid)* 30,000 Distribution on Dec. 31 of the current year Steve 60,000 Renee 60,000 * all $30,000 interest expense pertains to business (not investments) b. Next, assume the entity is a partnership. For the current year, determing the following: 1. Partnership ordinary income and each partner's share of partnership ordinary income. 2. Partnership separately stated items and each partner's share of each item. 3. Steve's and Renee's AGI, taxable income, and total tax liability. Assume each partner will incur a $17,660 (rounded) self-employment tax on his or her share of partnership ordinary income, and each partner will claim a qualifeid busienss income (QBI) deduction of $20,724. 4. Each partner's basis in the partnership (outside basis) at the end of the current year