Createa worksheet that will allow your submitted assignment to include:

• Book Income
• Itemized Permanent Differences (favorable and unfavorable)
• Itemized Temporary Differences (favorable and unfavorable)
• Taxable Income
• Itemized Separately Stated Items
• Ordinary Income/Loss
• Itemized Rental Activity (if applicable) Practical Guide to Partnerships, LLCs and S Corporations

2023 Partnership Tax Return Problem

Christy Albright and Dan Ralls formed the Charter Company on 11/30/2018 and chose a tax year ending on 11/30. Charter was formed to operate a restaurant (In the Charter Building at 7848 Pesca Dr., San Francisco, CA 94123) and rent out some space in the restaurant building. The Principal Business Activity Code they will use is 722511. Charter elected to be taxed as a partnership, and the income statement for the year ending 11/30/2023 is as follows:

Sales					$400,000
COGS					-150,000
Tax-exempt interest				6,000
Interest income				4,000
Dividend income from domestic corporations	5,000
Nonqualified dividend income from foreign corporations		3,000
Gain on sale of equipment			10,000
Depreciation				-30,000
Repairs and maintenance				-7,000
Rent expense				-12,000
Salaries to nonpartners			-60,000
Salaries to partners				-30,000
Income from real estate rentals			100,000
Expenses from real estate rentals (includes $10,000 of book depreciation)		-80,000
Gain on sale of stock (held < 1 yr.)		20,000
Health Department fines				-2,000
Investment interest expense			-1,000
Subtotal					$176,000

Charter chooses the accrual method of accounting. The equipment sold was an imported oven that had been fully depreciated. It originally cost $4,000 on 5/3/2019 and was sold for $10,000 on 6/9/2023.

The tax depreciation amount for the year was $20,000, not including $14,000 of Section 179 expense that Charter chose to take on some equipment they purchased, and not including the $10,000 per year depreciation of the rental real estate, which is included in the $80,000 of costs above. Assume 1/3 of the building square footage is rented out. (Note:according to the Form 4562 instructions, the depreciation from the rental activity would not need to be disclosed on Form 4562)

All of the $30,000 of guaranteed payments goes to Christy for services she renders to the partnership. Assume that 40% of the investment interest expense is nondeductible because it relates to the tax-exempt interest. The stock sold was 1000 shares of Alter Corporation, purchased on 1/20/2023 for $25,000 and sold on 4/10/2023 for $45,000.

Christy owns 60% of the partnership and is an active partner. Christy is the Partnership Representative. Dan owns 40%, but is a passive, limited partner. At the beginning of the year, Christy's and Dan's tax basis capital account balances are $198,000 and $126,000, respectively. During the year Christy was distributed $60,000 and Dan was distributed $40,000. The book balance sheet of the partnership is as follows:

				Beginning	Ending
Cash				$10,000	77000
Accounts Receivable			$10,000	20000
Inventory				15,000	10,000
Tax-exempt securities			100,000	100,000
Equipment			90,000	140000
Accumulated depreciation		-50,000	-66000
Building			600,000	600000
Accumulated depreciation		-40,000	-60000
Land				100,000	100,000
Total assets			835,000	921,000
Accounts payable			10,000	20000
Mortgages			500,000	500000
Capital, Christy			195,000	240,600
Capital, Dan			130,000	160,400
Total liabilities and capital		835,000	921,000

All of the $54,000 of equipment purchased this year was restaurant equipment and was 7-year property eligible for the Section 179 deduction. Aside from the equipment expensed under Section 179, all the new equipment was depreciated under MACRS. There is no AMT adjustment for depreciation except for the adjustment due to the current year purchases (the net adjustment for prior year purchases was zero). All the mortgage debt is qualified nonrecourse debt, and none of it is payable in the next year. Both the rental and the restaurant are qualified businesses for purposes of the Section 199A qualified business income deduction. All the depreciable assets are deemed to be associated with a qualified business under Section 199A, and the salaries to employees are all W-2 wages under Section 199A.

Fill out a Form 1065 and all other appropriate forms for Charter and the related Schedules K-1 for Christy and Dan. The necessary addresses and TINs are as follows:

Christy Albright

5050 Winding Way

San Francisco, CA 94123

SS# 056-36-4498

Dan Ralls

3656 Pleasant Ridge

Lincoln, NE 68501

SS# 547-86-1154

Charter Company

7848 Pesca Dr.

San Francisco, CA94123

EIN 85-4409231