Week 8 Assignment Creating a Partnership Tax Return
Overview
You are a senior tax accountant in the firm, Ernest & Rainhouse. Joe, a new junior accountant, has just completed an interview with a new client Harry, who is a general partner of Widget Unlimited. Harry is seeking to have Ernest & Rainhouse prepare Widget Unlimiteds Partnership Tax Return. Joe has never prepared a Partnership Tax Return and seeks your help in doing so. Additionally, there are a couple of questions Harry asks that Joe needs your assistance in answering. You are to read the scenario below and then follow the instructions.
Scenario
Henry, Hunter, and Harry formed a partnership (Widget Unlimited) on January 1, 2020. Henry and Hunter each contributed $200,000 and Harry transferred a building he had purchased two years earlier to the partnership. The building had a tax basis of $150,000 and was appraised at $300,000. The building was also encumbered with a $100,000 mortgage. The partners plan to use the building to manufacture, distribute, and sell green and purple widgets.
Harry will work full time operating the business for which he will receive guaranteed payments (not included in expenses) of $5,000 per month. Henry and Hunter will devote less than twelve days a year to the business. At the end of 2020, Widgets Unlimited had made $6,000 in mortgage principal payments. The partnership agreement specifies that Henry, Hunter, and Harry will share in income/loss in the ratio of 3:3:4.
For the first year of operation, the partnership records disclose the following information:
Sales revenue $820,000
Cost of goods sold $735,000
Operating expenses $65,000
Long-term capital gains $3,300
~1231 gains $1,500
Charitable contributions $700
Political campaign donation $500
Municipal bond interest $450
Instructions
Write a 3-5 page paper in which you do the following:
Using the information provided, create a http://www.irs.gov/pub/irs-pdf/f1065.pdf
for Widgets Unlimited, preparing a Schedule K for Henry, Hunter, and Harry.
Refer to the completed Form 1065 schedule of Henry, Hunter, and Harrys adjusted tax basis immediately after partnership formation and at the end of the first year of operation. Explain in what situations Henry, Hunter, and Harry would need to know the tax basis in their partnerships. Explain how often a partners tax basis in his partnership needs to be adjusted. Justify your answer with relevant tax code citation.
The tax code specifically enumerates several common separately stated items. Explain which items would be separately stated for partners Henry, Hunter, and Harry. Explain why each should be separately stated, citing relevant tax code for at least three of your identified separately stated items.
Assume Widgets Unlimited initial year of operation resulted in a loss. Explain in what order are the loss limitation rules applied to limit partners losses from partnerships.
Explain how Henry, Hunter, and Harry would determine whether they are passive participants in Widgets Unlimited when applying the passive activity loss limitation rules.
Use at least two quality sources to support your writing. Choose sources that are credible, relevant, and appropriate. Cite each source listed on your source page at least one time within your assignment. For help with research, writing, and citation, access the library or review library guides.
Produce writing that is clear and well organized and applies appropriate SWS style. Writing contains accurate grammar, mechanics, and spelling.
This course requires the use of Strayer Writing Standards. For assistance and information, please refer to the Strayer Writing Standards link in the left-hand menu of your course. Check with your professor for any additional instructions.
The specific course learning outcomes associated with this assignment:
Create a partnership tax return informed by applicable tax rules and treatments for a specific client.
Name: w08a1
Description: Creating a Partnership Tax Return
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Unacceptable( Below60%) Needs Improvement(60-69%) Satisfactory(70-79%) Competent(80-89%) Exemplary(90-100%)
Create a Form 1065 for Widgets Unlimited, preparing a Schedule K for Henry, Hunter, and Harry. Points:
0 (0.00%)
Did not create a Form 1065 or incompletely created one with missing schedules or inadequacies resulting in a totally inadequate tax result. Points:
32.5 (13.00%)
Created a Form 1065 with missing schedules or insufficient preparation significantly altering the tax result. Points:
37.5 (15.00%)
Created a Form 1065 with shortfalls or missing schedules that moderately altered the tax result. Points:
42.5 (17.00%)
Created a Form 1065 with all required schedules and insufficiencies that do not sufficiently alter tax result. Points:
50 (20.00%)
Created a Form 1065 with all required schedules and correct tax result.
Explain why Henry, Hunter and Harry would need to know the tax basis in their partnership interests, justifying your answer with relevant tax code citation. Points:
0 (0.00%)
Did not describe or incompletely identified in what situations Henry, Hunter and Harry would need to know the tax basis in their partnership interest. Did not identify tax code citations for how often a partners tax basis in his partnership needs to be adjusted. Points:
32.5 (13.00%)
Lacks identifying in what situations Henry, Hunter and Harry would need to know the tax basis in their partnership interest. Lacks identifying tax code citations with direct relevance for how often a partners tax basis in his partnership needs to be adjusted. 56 key areas are missing. Points:
37.5 (15.00%)
Identifies in what situations Henry, Hunter and Harry would need to know the tax basis in their partnership interest. Identifies tax code citations with direct relevance for how often a partners tax basis in his partnership needs to be adjusted. 34 key areas are missing. Points:
42.5 (17.00%)
Described in what situations Henry, Hunter and Harry would need to know the tax basis in their partnership interest. Described tax code citations with direct relevance for how often a partners tax basis in his partnership needs to be adjusted. 12 key areas are missing. Points:
50 (20.00%)
Explained in what situations Henry, Hunter and Harry would need to know the tax basis in their partnership interest. Explained tax code citations with direct relevance for how often a partners tax basis in his partnership needs to be adjusted. All key areas are represented.
Explain why each commonly stated items should be separately stated for the partners, citing relevant tax code for at least three of your identified separately stated items. Points:
0 (0.00%)
Did not submit or incompletely stated why each commonly stated items should be separately stated for the partners. Did not submit or incompletely cited relevant tax code for any of your identified separately stated items. Points:
24.375 (9.75%)
Lacks stating why each commonly stated items should be separately stated for the partners. Lacks citing relevant tax code for at least one of your identified separately stated items. Points:
28.125 (11.25%)
Stated why each commonly stated items should be separately stated for the partners, citing relevant tax code for at least one of your identified separately stated items. Points:
31.875 (12.75%)
Described why each commonly stated items should be separately stated for the partners, citing relevant tax code for at least two of your identified separately stated items. Points:
37.5 (15.00%)
Explained why each commonly stated items should be separately stated for the partners, citing relevant tax code for at least three of your identified separately stated items.
Explain in what order are the loss limitation rules applied to limit partners losses from partnerships. Points:
0 (0.00%)
Did not submit or incompletely Points:
24.375 (9.75%)
Lacks identifying in what order are the loss limitation rules applied to limit partners losses from partnerships. Points:
28.125 (11.25%)
Identified in what order are the loss limitation rules applied to limit partners losses from partnerships. Points:
31.875 (12.75%)
Described in what order are the loss limitation rules applied to limit partners losses from partnerships. Points:
37.5 (15.00%)
Explained in what order are the loss limitation rules applied to limit partners losses from partnerships.
Explain how Henry, Hunter, and Harry would determine whether they are passive participants in Widgets Unlimited when applying the passive activity loss limitation rules. Points:
0 (0.00%)
Did not submit or incompletely stated how Henry, Hunter, and Harry would determine whether they are passive participants in Widgets Unlimited when applying the passive activity loss limitation rules. Points:
24.375 (9.75%)
Lacks stating how Henry, Hunter, and Harry would determine whether they are passive participants in Widgets Unlimited when applying the passive activity loss limitation rules. Points:
28.125 (11.25%)
Stated how Henry, Hunter, and Harry would determine whether they are passive participants in Widgets Unlimited when applying the passive activity loss limitation rules. Points:
31.875 (12.75%)
Described how Henry, Hunter, and Harry would determine whether they are passive participants in Widgets Unlimited when applying the passive activity loss limitation rules. Points:
37.5 (15.00%)
Explained how Henry, Hunter, and Harry would determine whether they are passive participants in Widgets Unlimited when applying the passive activity loss limitation rules.
Use at least two quality sources to support your writing. Choose sources that are credible, relevant, and appropriate. Points:
0 (0.00%)
Did not cite any sources. Points:
8.125 (3.25%)
Did not cite the required number of sources and one or more sources were not credible, relevant, or appropriate. Points:
9.375 (3.75%)
Cited the required number of sources, but more than one source was not credible, relevant, or appropriate. Points:
10.625 (4.25%)
Cited the required number of sources, but one source was not credible, relevant, or appropriate. Points:
12.5 (5.00%)
Cited at least two credible, relevant, and appropriate sources.
Writing contains accurate grammar, mechanics, and spelling in accordance with SWS style. Points:
0 (0.00%)
Writing contains excessive grammar, mechanics, or spelling errors that impede the reading of the assignment. Points:
16.25 (6.50%)
Writing contains more than 5 grammar, mechanics, and/or spelling errors. Points:
18.75 (7.50%)
Writing contains 35 grammar, mechanics, and/or spelling errors. Points:
21.25 (8.50%)
Writing contains 12 grammar, mechanics, and/or spelling errors. Points:
25 (10.00%)
Writing contains no grammar, mechanics, and/or spelling errors.
Name:w08a1
Description:Creating a Partnership Tax Return
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