Tax Return Problem 9: Partnership Instructions:

Please complete AAA Fast Plumbings 2015 tax return based upon the facts presented below. If required information is missing, use reasonable assumptions to fill in the gaps. Ignore all AMT calculations and AMT related reporting items.

Michael Rodriguez and Devontae Johnson have been life-long friends. Both Michael and Devontae started to work for the same national plumbing repair company immediately after graduating from technical college. After nearly a decade of working for that same company, Michael and Devontae decided to venture out on their own and form their own plumbing company called AAA Fast Plumbing Repair (AAA). They formed AAA as a limited liability company (LLC). Michael and Devontae each own 50% of the company. The company has been successful primarily based upon reputation and the fact that AAA is available 24 hours a day, seven days a week. Although AAA charges a premium for after normal business hour calls, most of its competitors will not perform services past 9 p.m. and, thus, AAA finds itself often as one of the only available choices for middle of the night emergencies.

AAA has several employees and because of implementing technology solutions to aid in its call dispatch program, AAA has been able to expand its service area to now include a three-county area instead of just one.

Information relating to AAA and its owners is as follows:

Name of Company: Address:

Company formed and started: Accounting Method: Tax-year end: Employer Identification Number:

Members Information:

Michael Rodriguez 1515 West Bloomington Street Los Angeles, CA 90001 SSN- 585-31-6060

AAA Fast Plumbing Repair, LLC 1456 East Buena Vista Blvd. Los Angeles, CA 90001 (has not changed since inception) January 1, 2009 Cash December 31 34-1234567

Profit/Loss/Capital membership interest is 50%.

Devontae Johnson 19 East Violet Circle Los Angeles, CA 90001 SSN: 397-29-9239

Profit/Loss/Capital membership interest is 50%.

Other information:

AAA is a domestic limited liability company

Michael and Devontae are not related.

Michael and Devontae are both U.S. citizens.

Both Michael and Devontae are managing members.

AAA has not and did not file a Form 8893 or anything similar to it this year or in the past.

AAA is not a publicly traded partnership.

During the year, no debt was cancelled or forgiven in relation to AAA.

AAA is not required to file a Form 8918.

AAA did not have or control a foreign bank account or have authority over any such financial

account.

AAA was not the grantor of or a transferor to a foreign trust.

AAA has never made a Section 754 election.

AAA has never entered a like-kind exchange or distributed a tenancy-in-common or other

undivided interest in partnership property.

AAA has never been required to file Form 8858.

AAA was required to file Form(s) 1099 related to certain payments it made during the year and

those forms were filed on a timely basis.

AAA was not required to file any Form(s) 5471 during the year.

Michael is the Tax Matters Partner (TMP).

Both Michael and Devontae are active in the business and work full-time for AAA.

The debt owed to First National Bank is a non-recourse obligation and neither Michael nor

Devontae have guaranteed its repayment (see balance sheet below). This debt is not directly tied to any specific asset but is rather a debt secured against all of the assets of the company, with neither Michael nor Devontae personally responsible for its repayment.

During the year, Michael and Devontae each contributed $20,000 to the capital of AAA

AAA does not maintain any inventory. AAA purchases supplies and has a policy of expensing

such purchases as paid for tax and book purposes consistent with existing tax law.

AAA uses MACRS depreciation for both tax and book purposes.

During the year, Michael and Devontae each received a $75,000 distribution from AAA.

During the year, AAA acquired the following assets (all assets were placed in service on the

acquisition dates as indicated below):

o Service vans-new (not Luxury Automobiles) July 1, 2015 $500,000 o Plumbing machinery/equipment-new July 1, 2015 $250,000

AAA did not claim Section 179 expense for any of the current year asset additions but it did claim available bonus depreciation.

Modern Day Clothing, Inc.
Balance Sheet
Assets:				12/31/14	12/31/15
Cash				30,000	45,000
Tax-exempt Securities				100,000	100,000
Building				4,000,000	4,000,000
Less: Acc. Depreciation				(551,282)	(653,842)
Equipment				2,500,000	3,250,000
Less: Acc. Depreciation				(1,481,400)	(2,231,663)
Land				1,000,000	1,000,000
Total Assets:				5,597,318	5,509,495
Liabilities and Capital:
Note Payable-First National Bank				4,267,318	4,046,673
Note Payable-Michael Rodriguez				300,000	300,000
Note Payable-Devontae Johnson				200,000	200,000
Capital Account-MR				415,000	481,411
Capital Account-DJ				415,000	481,411
Total Liabilities and Capital:				5,597,318	5,509,485

Income Statement for the year ending December 31, 2015
Item				Amount
Income:
Service Revenue-Cash				343,565
Service Revenue-Credit Cards				1,922,710
Consulting Revenue-Cash				50,950
Consulting Revenue-Credit Cards				155,005
Interest Income-First National Bank				1,540
Municipal Bond Interest Income				2,500
Total Income:				2,476,270
Expenses:
Employee Salaries				513,735
Guaranteed payment-MR				50,000
Guaranteed payment-DJ				50,000
Repairs and Maintenance-Trucks				113,415
Rent				35,000
Payroll Taxes				41,260
Licensing Fees				1,750
Property Taxes				77,000
Interest Expense				235,000
Depreciation				852,823
Office Supplies				3,240
Employee Training				5,675
Advertising				18,850
Plumbing supplies				15,125
Meals and Entertainment (prior to disallowance)				13,740
Travel				4,210
Gasoline				158,675
Utilities				24,940
Telephone				16,830
Total Expenses:				2,233,448
Net Income:				$242,822