Sunshine Company is a calendar year accrual-basis taxpayer and is in its first year of operations. Sunshine Company had the following income, expense, and loss items for the current year:
Sales $990,000
Corporate dividend (from 5% owned corporation) 90,000
Municipal bond interest 50,000
Long-term capital gain 6,000
Short-term capital loss (12,000)
Cost of goods sold 400,000
Depreciation 116,000
Nondeductible fines 11,000
Advertising 14,000
Utilities 5,000
Rent 13,000
Furthermore, Sunshine’s liabilities (all recourse) increased from $0 on 1/1 to $600,000 on 12/31 of the
current year.

3) Assume that Sunshine Company is a general partnership. Alvin contributed $72,000 in exchange for a 60% partnership interest when it was formed this year. Ann contributed $48,000 in exchange for a 40% partnership interest at that same time. Neither made any other contribution to the partnership this year. Alvin received a $5,000 per month guaranteed payment ($60,000 in total) while Ann received no guaranteed payment (as specified in the partnership agreement). The company made a $35,000 partial distribution of profits at the end of the year. (11 points)

a) Calculate partnership ordinary income (loss) and separately stated items to be reported on Form 1065.

b) What amounts and types of taxable income or gain, deductible expense or loss must Alvin report on his individual Form 1040 tax return? You may ignore the possibility of a QBI deduction associated with this income when considering Form 1040 items to be included in Alvin’s taxable income calculation.

c) What amount of Alvin’s income will be subject to self-employment tax?

d) What is Alvin’s basis in his Sunshine Company partnership interest at the end of the year?

e) Completely and accurately prepare the following forms and schedules associated with 2020 Form 1065 U.S. Return of Partnership Income for Sunshine Partnership:
i) Page 1of Form 1065
ii) Schedule K (page 4 and top of page 5) of Form 1065
iii) Schedule K-1, Partner's Share of Income, Deductions, Credits, etc. for Alvin
iv) Schedule K-1, Partner's Share of Income, Deductions, Credits, etc. for Ann
v) When completing forms requested above, be sure to complete Item L of the Schedule K-1 using TAX basis. Also, be sure to check this box.
vi) To receive full credit, all required information should be completed, all required boxes should be checked, and any supporting attachments as requested on these forms should be included.
vii) Please note that if this were an actual tax return to be filed, additional forms and schedules would be required. You are asked to prepare only the forms listed above.

Answer rating: 100% (QA)

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