Reference no: EM133220792

Instruction:

Question 1. Prepare a 2021 Form 1065 - U.S. Return of Partnership Income - for Snow & Sleet,LLC based on the information provided.

- Prepare Form 1065 (Pages 1 - 5) and all other forms required, including but not limited to Schedule D and Form 4562. All required attachments (other deductions, etc.) and supporting schedules must be included.

All required information must be completed.

- Prepare a Schedule K-1 for both members. All sections of each K-1 must be properly completed.

Question 2. Prepare a spreadsheet showing your calculation of book income (provided in the problem), taxable income, ordinary business income, and separately-stated items.

Question 3. Prepare a detailed calculation of the partners' basis in their interest in Snow & Sleetat the end of the year (12/31/2021). Attach your calculations (one for each partner) to the back of your tax return.

Question 4. This project is due on or before 10:00 p.m. on Friday, September 30, 2022. Two documents must be submitted to the appropriate D2L Dropbox: (1) an excel spreadsheet with your calculation of book income, taxable income, ordinary business income, and separately-stated items (see item 2); and (2) one pdf document consisting of all required forms and schedules. You may not submit multiple copies of individual forms

Information

SamSnow(SSN: 426-87-1346) and StanSleet(SSN: 623-45-1869) formed Snow & Sleet, LLCon July 1, 2021. Snow & Sleetis a Limited Liability Company that made an election to be treated as a partnership for tax purposes. Snow & Sleetwas formed to operate a hardware store in Minneapolis, Minnesota. The store sells hardware and hardware related supplies at retail. The member agreement provides that Sam's share of all items of profit, loss and capital is 60%, and Stan's share of all items of profit, loss and capital is 40%.

Sam contributed land with a fair market value of $240,000 to Snow & Sleetin return for his 60 percent interest. Sampurchased the land for $80,000 on January 1, 2012 and held it as an investment. Snow & Sleetmight eventually build a new store on the land. In the meantime, Snow & Sleetis holding it as an investment. The land is subject to a $60,000 recourse mortgage, which was assumed by Snow & Sleet. Sam personally guaranteed the debt secured by the land contributed to the LLC. Snow & Sleetdid not make a Section 754 election. Stan contributed $120,000 in return for his 40 percent interest in Snow & Sleet.

The partnership began business operations on August 1, 2021.Prior to opening for business on August 1, 2021, the partnership incurred and paid the following expenses: (1) legal fees of $6,000 incident to forming the partnership (e.g., drafting the partnership agreement); and (2) start-up costs (e.g., pre-operating advertising expenses, and costs incurred to train employees before the business began) of $14,000. The entire $20,000of organizational and start-up expenditures were expensed for financial accounting purposes.

Snow & Sleet does business under the name "Snow & SleetHardware."Snow & Sleet's Federal I.D. number is 79-2256867. Snow & Sleetuses the accrual method of accounting and the calendar year for reporting purposes. Snow & Sleet Partnership's current address is 125Cold Avenue, Minneapolis, MN 55401.

Snow & Sleet LLC's 2021book income was $19,400, calculated as follows:

Revenues, Gains & Losses
Sales Revenue	681,800
Interest on Corporate Bond	720
Dividend Income ($2,000 of the dividend income is qualified)	2,400
Interest on State of Minnesota Bonds	900
Gain on Sale of Stock	2,000
	687,820
Expenses
Cost of Goods Sold	$ 396,000
Rent on Building& Equipment (Snow & Sleet leases all equipment used in   the business and thereforeowns no depreciable assets)	50,000
Bad Debt Expense	100
Property and Liability Insurance	4,400
Utilities	7,600
Supplies	5,165
Employee Salaries	70,000
Employee Benefit Plans (see discussion on amount paid to partners)	23,000
Cash Contribution to Red Cross	6,000
Business Meals -  all purchased at restaurants	2,800
Business Entertainment	2,000
Fine Paid to State of Minnesota for Deception Advertising	3,000
Guaranteed Payment (Paid to StanSleet)	50,000
Office Expenses	7,100
Accounting Fees	3,260
Payroll Taxes	5,355
Advertising	4,700
Interest Paid on Mortgage	3,800
Organizational Expenses	6,000
Start-Up Costs	14,000
Repairs	4,140
Total Expenses	668,620
Net Income	19,400

A comparative balance sheet is set forth below. The balance sheet reflects the account balances after Snow & Sleetwas formed but before the initial contributions to the partnership were made.

Snow & Sleet, LLC
Balance Sheet
As of January 1, 2021 (before capital contributions) and December 31, 2021

Assets		January 1, 2021		December 31, 2021
Cash		$0		$50,900
Accounts Receivable			5,000
Allowance for Doubtful Accounts			_(100)	4,900
Inventory				44,600
Investments (including $10,000 of state of Minnesota bonds held at 12/31/2021)				24,000
Land		0		240,000
Total assets		$0		$364,400
Liabilities and Equity		January 1, 2021		December 31, 2021
Accounts payable		0		$5,000
Mortgage on Land		0		60,000
Capital,SamSnow		0		181,640
Capital, StanSleet		0		117,760
Total liabilities and equity		$0		$364,400

As required by generally accepted accounting principles, Snow & Sleetuses the allowance method of accounting for bad debts for financial accounting purposes. Because it was just formed, it had no balance in accounts receivable or allowance for doubtful accounts at the beginning of the year. Based onSnow & Sleet, LLC's year-end accounts receivable, the independent auditors determined that a $100 addition to the bad debt allowance account was necessary. As a result, the year-end balance in the allowance increased to $100.Snow & Sleet did not write-off any specific accounts as uncollectible in 2021.

Snow & Sleet maintains inventory anduses the cost method for valuing inventory. It is not subject to the provisions of §263A and did not change its inventory accounting method during the year. Snow & Sleetpurchased $440,600 of inventory in 2021. The ending balance in inventory is $44,600. Snow & Sleet owed $5,000 on account of inventory purchases as of December 31, 2021.

Snow & Sleetpurchased $24,000 of investments in 2021. These investments consisted of stock costing $14,000 and state of Minnesota bonds costing $10,000.The stock investments resulted in $2,400 of dividend income. Only $2,000 of this dividend income is qualified dividend income.

Included in the $24,000 of stock investments purchased in 2021 were 100 shares of RST Company Stock. This stock was purchased on August 15, 2021 for $2,000 and sold on December 10, 2021 for $4,000. This information (including the cost basis) was reported on Form 1099-B.

Stanoversees the day-to-day operations of the store. The member agreement provides that Stan is entitled to a guaranteed payment of $10,000 per month beginning August 1, 2021.Stan received a total of $50,000 in guaranteed payments in 2021. Stan is designated as the Partnership Representative for 2021. Stan's phone number is 800-111-1111. Sam is not involved in the day-to-day operations of the business and did not receive a guaranteed payment. His only involvement in the business is to meet with Stan twice a year to discuss how the business is doing.

The partnership paid $23,000 for medical insurance coverage for Sam, Stan, and all full-time employees of Snow & Sleet (the $23,000 "employee benefit plan" expense in the income statement). $16,000 of this amount ($8,000 each) was attributable to medical insurance coverage for Sam and Stan.

Sam and Stan each withdrew $10,000 from the partnership on December 15, 2021 to help them with their Christmas shopping.

The mortgage listed on the balance sheet is on the land contributed by Sam (which the partnership assumed). The mortgage is a recourse loan and provides for interest payments only until December 31, 2024, at which time the balance is due in full. To convince the lender to agree to the loan assumption, Sam personally guaranteed the loan secured by the land contributed to Snow & Sleet. In preparing the tax return, Snow & Sleetin required to report partner capital accounts on a tax basis.

None of the partners sold any portion of their interests in the partnership during 2021. The partnership had no foreign operations, no foreign bank accounts, and no interest in any foreign trusts or other partnerships. The partnership is not publicly traded and is not a statutory tax shelter. The partnership is not subject to the consolidated audit procedures and does not have a tax matters partner.

SamSnow lives at 134Bass Lake Road, Minneapolis, MN55401. StanSleetlives at 652Walleye Way, Minneapolis, MN 55401. Stan's phone number is 612-111-1111.