Question

Amy 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 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 had personally guaranteed them. Assume that all LLC debt is shared equally between the partners. The following information about AM’s operations for the current year is obtained from the LLC’s records.

Ordinary income                                                                                 $ 900,000

W-2 wages to employees 200,000

Depreciation expenses                                                                        300,000

Interest income 4,000

Short-term capital loss 6,000

Long term capital gain 12,000

Charitable contributions (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. Calculate Amy’s basis in her LLC interest

a. At the beginning of the year (remember to consider whether the debt will be treated as recourse or non-recourse)

b. At the end of the year

6. Assuming the same facts as above, what income, gains, losses and deductions does Amy report on her income tax return? Based on the information provided, what other calculations is she required to make?

Answer 1

Ans: Assuming the same facts as above, what income, gains, losses and deductions does Amy report on her income tax return? Particulars Amount | Share of ordinary income $450,000 Share of net short-term capital gain $3,000 Share of interest income $2,000 Share of charitable contribution deduction | $2,000 Workings (900,000*50%) (12000-6000)*50%) (4000*50% (4000*50%) Based on the information provided, what other calculations is she required to make? • Amy's distributive share of the LLC's ordinary income is subject to self- employment tax • The cash distribution amy received would not be taxable and the decrease in amy 's share of LLC liabilities would not be taxable Amy may be eligible to deduct up to 20% of the ordinary income as qualified b usiness income under &199A, and will make that calculation on her return. This deduction does not require a cash outflow by amy or the LLC, and it does not a ffect her basis or capital account. Her net investment income from the LLC may be subject to the 3.8% net invest ment income tax under &1411.