Question

my and Mitchell share equally in the profits, losses, and capital of the accrual basis AM Products LLC. 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 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 opera 

Ordinary income.............................................$ 900,000 

W-2 wages to employees...............................200,000 

Depreciation expense.......................................300,000 

Interest income........................................................4,000 

Short-term capital loss..........................................6,000 

Long-term capital gain........................................12,000 

Charitable contribution (cash)............................4,000 

Cash distribution to Amy....................................20,000 

Unadjusted basis of partnership depreciable property................1,600,000 

 

Year-end LLC debt payable to unrelated parties is $140,000. Assume all transactions are reflected in her beginning capital and basis in the same manner. Also assume that all AM Products' activities are eligible for the qualified business income deduction and that the unadjusted basis of assets immediately after acquisition was $800,000. 

a. Use Microsoft Excel to calculate Amy's basis in her LLC interest at the beginning and end of the tax year. 

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

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

d. Use Microsoft Excel to prepar 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 basis as calculated in part (a)? 

e. Using the information from parts (a) to (d), prepar Amy's Schedule K-1 as if you were the prepar 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, etc.).

Answer 1

Explanation:

A. At the beginning of the year, Amy's basis in her LLC interest was $50,000 and at the end of the year it was $100,000.  B. Amy's net income is $40,000, but she pays additional taxes of $10,000 because she used the AM Products LLC method instead of the regular method. C. She must calculate any depreciation deductions under AM Products LLC rules in addition to ordinary depreciation, which would include any straight-line or accelerated depreciation adjustments that occurred before she acquired her ownership interest on 7/1/1921.

 

The transactions for AM Products for the tax year are summarized in the following table. Also assume that during 2019, Amy decided to add her uncle to her LLC as an equal member. The following is a detailed summary of the income, gains and losses, and deductions that Amy, Inc. had during the tax year. Amy, who recently formed an LLC, has acquired a business and wishes to calculate her basis in the business. She will then use the calculated basis to prepare Amy's Schedule K-1 as if you were the prepar of AM Products.

The Year-end LLC debt payable to unrelated parties is $140,000. Assume all transactions are reflected in her beginning capital and basis in the same manner. Also assume that all AM Products' activities are eligible for the qualified business income deduction and that the unadjusted basis of assets immediately after acquisition was $800,000.