Ryan Ross (111-11-1111), Oscar Oleader (222-22-2222), Clark Carey (333-33-3333), and Kim Kardigan (444-44-4444) are equal members in ROCK of 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, 2001. Its current address is 6102 Wilshire Boulevard, Suite 2100, Los Angeles, CA 90036. ROCK was the force behind such music icons as Rhiannon and Burgundy 5 and has had a very profitable year. The following information was taken from the LLC’s income statement for the current year:
Fees and Commissions $4800000
Taxable interest income from bank deposits $1600
Tax-exempt interest $3200
Net gain on stock sales $4000
Total Revenues $4808800
Advertising and public relations $380,000
Charitable contributions $28000
Section 179 expense $20000
Employee salaries and wages $1000000
Guaranteed payment, Ryan Ross, office manager $800000
Guaranteed payment, other members $600000
Entertainment, subject to 50% disallowance $200000
Legal and Accounting fees $132000
Office Rentals paid $80000
Interest Expense on operating line of credit $10000
Insurance Premium $52000
Office Expense $200000
Payroll taxes $92000
Total expenses $3968800
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 as 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, 2012, ROCK purchased 1000 shares of Tech, Inc. stock for $100,000; it sold those shares on Dec. 15, 2012, for $80,000. On March 15, 2006, ROCK purchased 2000 shares of BioLabs, Inc. stock for $136,000; it sold those shares for $160,000 on Dec. 15, 2012.
Net income per books is $840,000. The firm’s activities do not constitute “qualified production activities” for purposes of the section 199 deduction. On Jan. 1, 2012, the members’ capital accounts equaled $200,000 each. No additional capital contributions were made in 2012. In addition to their guaranteed payments, each member withdrew $250,000 cash during the year. The LLC’s balance sheet as of Dec. 31,2012, is as follows:
Cash: 444,000 ??
Tax exempt securities: 120,000 120,000
Marketable securities: 436,000 300,000
Leasehold improvements: 960,000 980,000
Accumulated Depreciation: (960,000) (980,000)
Total Assets: $1,000,000 ??
Operating line of credit: 200,000 160,000
Capital, Ross: 200,000 ??
Capital, Oleander: 200,000 ??
Capital, Carey: 200,000 ??
Capital, Kardigan: 200,000 ??
Total Liab. and capital: 1,000,000 ??
Assume that all debt is shared equally by the members. Each member has personally guaranteed the debt of the LLC.
The business code for “Agents and Managers for Artists, Athletes, Entertainers, and Other public figures” is 711410. The LLC’s Form 1065 was prepared by Ryan Ross and sent to Ogden, UT IRS Service Center. All members are active in LLC operations.
a. Prepare form 1065 for ROCK of Ages, LLC.
b. Prepare Form 4562 and Schedule D.
c. Prepare Schedule K-1 for Ryan Ross, 15520 W. Earlson Street, Pacific Palisades, CA 90272