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Presentation/PPT
27/08/2022
Partnership Tax Return Problem I
Christy Albright and Dan Ralls formed the Charter Company on 11/30/2010, and chose a
tax year ending on 11/30. Charter was formed to operate a restaurant (at 7848 Pesca Dr.,
San Francisco, CA 94123) and rent out some space in the restaurant building. Charter
elected to be taxed as a partnership, and the income statement for the year ending
11/30/2015 is as follows:
Sales
COGS
Tax-exempt interest
Interest income
Dividend income from domestic corporations
Nonqualified dividend income from foreign
corporations
Gain on sale of equipment
Depreciation
Repairs and
maintenance
Rent expense
Salaries to nonpartners
Salaries to partners
Income from real estate rentals
Expenses from real estate rentals (includes
$10,000 of book depreciation)
Gain on sale of stock (held < 1 yr.)
Health Department fines
Investment interest expense
$400,000
-150,000
6,000
4,000
5,000
Subtotal
$176,000
3,000
10,000
-30,000
-7,000
-12,000
-60,000
-30,000
100,000
-80,000
20,000
-2,000
-1,000
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 5/3/2008 and was sold
for $10,000 on 6/9/2015.
The tax depreciation amount for the year was $40,000, not including $5,000 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. (Note: according to the Form 4562 instructions, the
depreciation from the rental activity would not need to be disclosed on Form 4562)
Of the $30,000 of guaranteed payments, $20,000 goes to Christy and $10,000 is paid to
Dan. 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 1/20/2015 for $25,000 and sold on 4/10/2015 for $45,000.
Christy owns 60% of the partnership, and is an active partner. Dan owns 40%, but is a
passive, limited partner. During the year Christy was distributed $60,000 and Dan was
distributed $40,000. The balance sheet of the partnership is as follows:
©2015 CCH Incorporated. All Rights Reserved.
Beginning
Ending
Cash
Accounts Receivable
Inventory
Tax-exempt securities
Equipment
Accumulated depreciation
$10,000$10,00015,000100,00090,000-50,000700,000-40,000770002000010,000100,000140000-66000700000-60000Total assets835,000921,00010,00020000MortgagesCapital, ChristyCapital, Dan500,000195,000130,000500000240,600160,400Total liabilities and capital835,000921,000Accounts payableAll of the $54,000 of equipment purchased this year was restaurant equipment, and was5-year property eligible for the Section 179 deduction. Aside from the equipmentexpensed under Section 179, all of the new equipment was depreciated under MACRS.All of the mortgage debt is qualified nonrecourse debt, and none of it is payable in thenext year.Fill out a Form 1065 and all other appropriate forms for Charter and the relatedSchedules K-1 for Christy and Dan. The necessary addresses and TINs are as follows:Christy Albright5050 Winding WaySan Francisco, CA 94123SS# 056-36-4498Dan Ralls3656 Pleasant RidgeLincoln, NE 68501SS# 547-86-1154Charter Company7848 Pesca Dr.San Francisco, CA 94123EIN 85-4409231©2015 CCH Incorporated. All Rights Reserved.
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