Ryan Ross (111-11-1112), Oscar Omega (222-22-2222), Clark Carey (333-33-3333), and Kim Kardigan (444-44-4444) are equal active members in ROCK the Ages LLC. ROCK serves as agent and manager for prominent musicians in the Los Angeles area. The LLC's Federal ID number is 55-5555555. It uses the cash basis and a calendar tax year, and it began operations on January 1, 2004. Its current address is 6102 Wilshire Boulevard, Suite 2100, Los Angeles, CA 90036.

ROCK was the force behind such music icons as Rhiannon, Burgundy Six, Elena Gomez, Tyler Quick, the Moonwalkers, and Conjuring Dragons, and it 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

Net gains on stock sales ........................................................ 4,000

Total revenues ...................................................................$4,808,800

Expenses

Advertising and public relations ............................................... $ 380,000

Charitable contributions ......................................................... 28,000

Section 179 expense .............................................................. 20,000

Employee salaries and wages ................................................... 1,000,000

Guaranteed payment (services), Ryan Ross, office manager ............... 800,000

Guaranteed payment (services), other members ............................. 600,000

Entertainment, subject to 50% disallowance .................................. 200,000

Travel ............................................................................... 320,000

Legal and accounting fees ....................................................... 132,000

Office rentals paid ................................................................ 80,000

Interest expense on line of credit for operations .............................. 10,000

Insurance premiums .............................................................. 52,000

Office expense ..................................................................... 200,000

Payroll taxes ......................................................................... 92,000

Utilities ............................................................................. 54,800

Total expenses .....................................................................$3,968,800

During the past few years, ROCK has taken advantage of bonus depreciation and § 179 deductions and fully remodeled the premises and upgraded its leasehold improvements. This year, ROCK wrapped up its remodeling with the purchase of $20,000 of office furniture, for which it will claim a § 179 deduction. 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, 2015, ROCK purchased 1,000 shares of Tech, Inc., stock for $100,000; it sold those shares on December 15, 2015, for $80,000. On March 15, 2014, ROCK purchased 2,000 shares of BioLabs, Inc., stock for $136,000; it sold those shares for $160,000 on December 15, 2015. These transactions were reported to the IRS on Forms 1099-B; ROCK's basis in these shares was reported on the form.

Net income per books for 2015 is $840,000. The firm's activities do not constitute "qualified production activities" for purposes of the § 199 deduction. On January 1, the members' capital accounts equaled $200,000 each. No additional capital contributions were made. In addition to their guaranteed payments, each member withdrew $250,000 cash during the year.

ROCK's book balance sheet as of December 31, 2015, is as follows.

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 the Ogden, UT, IRS Service Center. All of the owners are active in ROCK's operations.
a. Prepare pages 1, 4, and 5 of the Form 1065 for ROCK the Ages LLC. Use tax basis data in completing Schedules L and M-2.
b. If you are using tax return preparation software, prepare Form 4562 and Schedule D.
c. Prepare Schedule K-1 for Ryan Ross, 15520 W. Earlson Street, Pacific Palisades, CA 90272.

Transcribed Image Text:

Cash Tax-exempt securities Marketable securities Leasehold improvements, furniture, and Beginning 444,000 120,000 436,000 Ending $ 77 120,000 300,000 equipment 960,000 980,000 (980,000) Et Total assets $1,000,000 Line of credit for operations Capital, Ross Capital, Omega Capital, Carey Capital, Kardigan 200,000 200,000 200,000 200,000 200,000 $1,000,000 160,000 7? 7? Total liabilities and capital