Marty Blaze (258-13-7946), Ron Barnett (915-46-7382), Dwayne Seller (753-82-4691), and Laura Mouse (465-28-1397) are equal members in Champs Equipment, LLC. Champs serves as agents and managers for prominent athletes in the Detroit area. The LLC’s Federal ID number is 63-9875421. It uses the cash basis and a calendar tax year, and it began operations on January 1, 2001. Its current address is 1397 Townsend Avenue, Suite 6500, Detroit, MI 56007. Champs was the force behind such athletic icons as Harry Berd and Mike Jarden., and it has had a very profitable year. The following information was taken from the LLC’s income statement for the current year.
Fees and commissions $4,800,000
Taxable interest income from bank deposits 1,600
Tax-exempt interest 3,200
Net gains on stock sales 4,000
Total revenues $4,808,800
Advertising and public relations $380,000
Charitable contributions 28,000
Section 179 expense 20,000
Employee salaries and wages 1,000,000
Guaranteed payment, Marty Blaze, office manager 800,000
Guaranteed payment, other members 600,000
Entertainment, subject to 50% disallowance 200,000
Legal accounting fees 132,000
Office rentals paid 80,000
Interest expense on line of credit for operations 10,000
Insurance premiums 52,000
Office expense 200,000
Payroll taxes 92,000
Total expenses $3,968,800
During the past few years, Champs has taken advantage of bonus depreciation and §179 deductions and fully remodeled the premises and upgraded its leasehold improvements. This year, Champs wrapped ups its remodeling with the purchase of $20,000 of office furniture, for which it will claim a §179 deduction. Champs uses the same cost recovery methods for both tax and financial purposes. There is no depreciation adjustment for alternative minimum tax purposes.
Champs invests much of its excess cash in non-dividend-paying growth stocks and tax-exempt securities. During the year, the LLC sold two securities. On June 15, 2012, Champs purchased 1,000 shares of Mark, Inc. stock for $100,000; it sold those shares on December 15, 2012 for $80,000. On March 14, 2006, Champs purchased 2,000 shares of Lure, Inc. stock for $136,000; it sold those shares for $160,000 on December 15, 2012.
Net income per books is $840,000. The firm’s activities do no constitute “qualified production activities” for purposes of the §199 deduction. On January 1, 2012, the members’ capital accounts equalled $200,000 each. No additional capital contributions were made in 2012. In addition to their guaranteed payments, each member withdrew $250,000 cash during the year.
Champ’s book balance sheet as of December 31, 2012 is as follows.
Cash $360,000 $ ??
Tax-exempt securities 120,000 120,000
Marketable securities 520,000 300,000
Leasehold improvements, furniture, and equipment 960,000 980,000
Accumulated depreciation (960,000) (980,000)
Total assets $1,000,000 $ ??
Line of credit for operations $200,000 160,000
Capital, Blaze 200,000 ??
Capital, Barnett 200,000 ??
Capital, Seller 200,000 ??
Capital, Mouse 200,000 ??
Total liabilities and capital $1,000,000 $ ??
All debt is shared equally by the members. Each member has personally guaranteed the debt of the LLC.
The business code for “Agents and Managers for Artists, Athletes, Entertainers, and Other Public Figures” is 711410. The LLC’s Form 1065 was prepared by Marty Blaze and sent to the Wichita, KS IRS Service Center. All of the owners are active in Champ’s operations. Prepare Schedule K-1 for Marty Blaze, 67920 Hammond Road, Conway, MI 56008.