Ryan Ross, Oscar Oleander, Clark Carey, and Kim Kardigan complete solutions correct answers key

Ryan Ross, Oscar Oleander, Clark Carey, and Kim Kardigan complete solutions correct answers key

Ryan Ross (111-11-1111), Oscar Oleander (222-22-2222), Clark Carey (333-33-3333), and Kim Kardigan (444-44-4444) are equal 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, 2000. Its current address is 6102 Wilshire Boulevard, Suite 2100, Los Angeles, CA 90036. ROCK was the force behind such music icons as Rhiannon and Ulster 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

      Gains and losses on stock sales                                         4,000

             Total revenues                                                      $4,808,800

Expenses:

      Advertising and public relations                                     $  420,000

      Charitable contributions                                                             8,000

      Section 179 expense                                                                  20,000

      Employee salaries                                                                 1,200,000

      Guaranteed payment, Ryan Ross, office manager          600,000

      Guaranteed payment, other members                               900,000

      Entertainment, subject to 50% disallowance                    48,000

      Travel                                                                                           120,000

      Legal and accounting fees                                                      108,000

      Office rentals paid                                                                       86,000

      Interest expense on operating line of credit                         6,000

      Insurance premiums                                                                  16,000

      Office expense                                                                              60,000

      Payroll taxes                                                                                 96,000

      Utilities                                                                                           12,000

             Total expenses                                                              $3,700,000

             During the past couple of years, ROCK has taken advantage of bonus depreciation and section 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 section 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, 2011, ROCK purchased 1,000 shares of Tech, Inc. stock for $72,000; it sold those shares on December 15, 2011, for $60,000. On March 15, 2005, ROCK purchased 2,000 shares of BioLabs, Inc. stock for $104,000; it sold those shares for $120,000 on December 15, 2011.

             Net income per books is $1,108,800. The firm’s activities do not constitute “qualified production activities” for purposes of the section 199 deduction. On January 1, 2011, the members’ capital accounts equaled $160,000 each. No additional capital contributions were made in 2011. In addition to their guaranteed payments, each member withdrew $240,000 cash during the year. The LLC’s balance sheet as of December 31, 2011, is as follows:

                                                                                                        Beginning         Ending

Cash                                                                                               $  340,000                  ??

Tax-exempt securities                                                                    80,000         80,000

Marketable securities                                                                  420,000       600,000

Leasehold improvements, furniture, and equipment        820,000       840,000

Accumulated depreciation                                                       (820,000)    (840,000)

      Total assets                                                                           $  840,000                   ??

Operating line of credit                                                           $  200,000    $ 160,000

Capital, Ross                                                                                   160,000                    ??

Capital, Oleander                                                                          160,000                    ??

Capital, Carey                                                                                 160,000                    ??

Capital, Kardigan                                                                          160,000                    ??

       Total liabilities and capital                                             $  840,000     $            ??

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

             None of the members, all of whom are U.S. citizens, sold any portion of their interests in ROCK during the year. All of the entity’s financial operations are concentrated in California. The LLC had no foreign bank accounts or operations and no interest in any U.S. or foreign trusts, corporations, or partnerships. The LLC is not publicly traded and is not a statutory tax shelter. The LLC is not subject to consolidated audit procedures. Ryan Ross is the tax matters partner.

             The business code for “Agents and Managers for Artists, Athletes, Entertainers, and Other Public Figures” is 711410. ROCK is not a partner in any other partnership. 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, Schedule K, and relevant supporting schedules for ROCK the Ages, LLC, leaving blank any items where insufficient information has been provided. If you are using tax return preparation software, also prepare Form 4562 and Schedule D. (Note: You can assume that the answer to each “yes/no” question on Form 1065, page 3 is “no” unless otherwise discussed above.)

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