ACC Tax Form Problem
Partnership (Form 1065) Fall 2014
Rick Smith, Bill Thomas, Diane Asche, and Jill Renteria are equal owners in STAR, LLC a limited liability company engaged in HR consulting. Pertinent information regarding STAR is summarized below.
Social security numbers are as follows; Rick 648-98-4321; Bill 48663-4297; Diane 855-21-1750; and Jill 896-49-2341. Rick is the
Managing Member of the company.
The address of the company is 2835 Bay View Drive, Wilmington, NC
The company was organized and began operations on January 1, 2009.
The business code is 561900.
The federal identification number is 67-1234576
The company uses the cash method of accounting and the calendar year
The company claimed $8,119 depreciation for book purposes, but $12,319
for tax purposes (under a MACRS methodology). Assume none of the
depreciation creates a tax preference or adjustment for AMT
All loan borrowings were used exclusively for acquisition of equipment,
consequently, all interest is considered business interest.
No guaranteed payments were paid to Thomas, Asche, or Renteria, but
each of the four partners withdrew $50,000 as a distribution of operating
profits. There was no distribution of any non-cash property.
The equipment loan is nonrecourse debt to the owners. All initial equity
contributions were paid equally and each individual owns 25% of the
None of the partners sold any portion of their ownership interests during
The company has no available tax credits.
The companys operations are entirely restricted to the local geographic
area in North Carolina. All owners are U.S. citizens. The company had
no foreign operations, no foreign bank accounts, and no interest in any
foreign trusts. The partnership is not publicly traded.
The company is not subject to the consolidated audit procedures. The
company files its return in Cincinnati, OH.
Rick Smith lives at 572 Knowles Ct., Wilmington, NC 26811, Bill
Thomas lives at 942 Richland Dr., Wilmington, NC 26812; Diane Asche
lives at 1342 Coastal Rd., Wilmington, NC 26812; and Jill Renteria lives
at 550 Rocker Ave., Wilmington, NC 26812.
The companys marketable securities represent small investments (<1%)
in a number of publicly traded companies and mutual funds.
The company sold its holdings of XYZ Corporation (carried as Marketable
Securities on the balance sheet) on July 10 for $5,000. The partnership
purchased this investment several years ago for $9,000.
(The proceeds from this sale are listed as a cash receipt below. The
company has no prior-year capital gains or losses.)
The current income statement for the company reflected book net income of $ 203,900
AFTER book depreciation has been taken on the equipment, and the loss on the sale of
XYZ Mutual Fund. The following information was taken from the corporations
financial statements for the current year.
Taxable qualified dividend income
Taxable portfolio interest income
Tax Exempt interest
Proceeds from sale of XYZ Corp. common stock
Guaranteed payment to Rick Smith
Distributions to partners ($50K each)
Administrative employee salaries
Business & Professional Licenses
Cash Contribution to United Way (a 50% org.)
Meals & Entertainment (100%)
Travel (for business)
Office supplies & expense
Accounting (Professional) fees
Taxes (Payroll, State, Local)
Business interest (on equipment loan)
Principal payments on equipment loan
General Liability Insurance Expense
Journal entries have been made to record regular (book) depreciation in the amount of
$8,119. MACRS tax depreciation was not recorded in the book records.
Principal payments against the equipment loan amounted to $15,000 for the year.
The balance sheets (book basis) for the company were as follows for the current year:
Tax-exempt securities (at cost)
Marketable Securities (at cost)
Office furniture & equipment
January 1, 2013
December 31, 2013
Nonrecourse equipment loan
Capital Account – Rick
Capital Account Bill
Capital Account Diane
Capital Account – Jill
Total liabilities and capital
1. Prepare a Form 1065 for the partnership for 2013 including
Form 4562 and Forms K-1 for each partner. (Do NOT prepare a state return). Prepare
supporting schedules as necessary if adequate information is provided. (Hint: If you use
a tax software program, you may override the Form 4562 with asset current and
accumulated depreciation entries).