Tax Case
Modified April 22, 2020
Assignment is worth 50 points
Cases/Research
I have created assignments related to several chapters that we have covered. Some are very short assignments/activities. The case requires more thought, research, and proper presentation.
A. Exempt Organizations
To Do: Graded—Easy worth 5 points Due date is April 28 at 6 pm
1. Enter into the google search projects.propublica.org/nonprofits. You may get several hits. Look for the one that says Nonprofit Explorer Propublica. It allows you to search Form 990s filed by tax exempt organizations. Identify several organizations that you can research and provide me with the one that provides the most interesting information. You should be able to research several years in the past in case there is not a recently filed Form 990.
2. Make a copy of the one you selected, upload it to me, and in a few words tell me about the organization, its tax exempt purpose, salaries of the highly paid if disclosed, and why you selected this organization.
B. Case Research
Graded worth 40 points
Note: My home state which I selected in Tennessee and I need 4 other states and the one selected from the list so I can post and no one else could select it.
This research piggybacks on the research conducted in January where the question focused on identifying sales and income tax rates in various states. Please read the case below, that I created, and provide a well written response to the questions posed by the taxpayer.
About the Taxpayer
Ellen is a single taxpayer who has grown bored with her job although she earns $80,000 in 2019. She lives in the state which you selected in your original research. This state is your home state. She cannot afford to quit her job for financial reasons due to student loans, car payments, helping her parents, etc. When she leaves work she has free time on her hands, enough free time to make additional money. She learned that you are in a tax class in the MBA program at NCAT and is solicating your tax advice about starting a business.
About her proposed business
She wants to make a dry mix for cookies using her grandma’s recipe. She plans to use her favorite recipes from grandma but plans to develop several new recipes on her own. She plans to make the dry mix in her apartment but will soon move into a house which she will call home. She wants to create and e-commerce business and sell on-line to any customer who would buy her mixes. Her aunt, who lives in North Carolina, will also help her make the mixes. The aunt plans to make the mixes in her home in Charlotte.
Questions
Be sure that your answers are not lifted from the book. Instead, respond to her in common words as if you are talking to a friend.
1. Should she form a hobby or a business? She wants to know the tax advantages and disadvantages of each and your conclusion. (Note: See chapter 6)
2. If she forms a business, what form should the business take? (Note: See chapter 15 at 15-1) Think about number of owners, ease of formation, tax implication.
3. If she chooses a corporate form such as a LLC or C-corp, how does she register her business? Ie who must she contact; which forms must she prepare, what will she receive in return, how long will it take, etc?
4. Must the aunt form a separate business to help Helen? Additional thoughts: The aunt is an active member of her local religious organization and would like to use some of the mixes as a fund raiser for the organization. What are the pros and cons of aunt starting a separate business from Ellen? If she does, what would be the pros and cons be if the aunt started a tax exempt organization?
5. Income tax: What are the federal income tax implications to Helen? Ex: What forms must she prepare and file, what is her tax rate, etc. You may have to create an assumption or projections about the net income from the business. From your own experience determine the average sales price of a box of mix, the cost of the ingredients, other costs such as shipping, setting up on-line advertisement, etc. and project a reasonable profit for her if she works about 15 hours per week on the project. It’s up to you. Attempt to complete the appropriate tax form for the business.
Note: I am not looking for a perfect and completed tax form. I simply want to see if you can select the proper form given the type of business she decides to form and if you can insert selected basic information.
6. What are the multistate income tax implications if she sells her product in her home state. Choose one of the other states that follow: Illinois, North Carolina, California, New York, Florida, Texas, Virginia, Michigan, Hawaii, Mississippi, and Rhode Island and add four other states. Thus, you will have a home state, one state from the above list and 4 other states. If your home state is on the list, please add one additional state so that everyone will have to research a home state and 5 additional states in which the product is sold.
So that no one duplicates the states researched, please post your states to the Discussion board. First post gets the state, so post immediately. You must look up the rules for state income tax apportionment and allocation bearing in mind the type of product, etc. Please cite your authority or better yet, provide a link so that I can go directly to the information for verification. The best way to present this info might be in a form of a well developed chart.
7. In reference to the states identified in 6 above determine if she will have to collect and pay sales tax to those states in which she sold? What is the rate? Also, will she have to pay sales taxes on her purchase of raw materials used in her product? Cite authority
Rubric for case:
(1) Your advice to Ellen should be in memo form.
(2) The grading rubric for the case will be based on a deduction system. Everyone starts out with 40 points for the case. I want to encourage you to be creative and to submit individual work. I am excited about receiving your individual advice and believe that each of you desire the entire 40 points, therefore you will receive deductions from the 40 points for the following:
(a) Deduction of 30 points for submitting a memo that is similar to another student (therefore I would not share my memo with anyone else if I were you)
(b) Deduction of 30 points for lifting (cutting and pasting) information from any source. I know that you know what I mean. Please write this memo to Ellen in your own words so that she can understand it. When it comes to specific terms such as allocation and apportionment, do your best to example the general process.
(c) Deduction of 20 points for lack of organization, gramma, font selection, spacing, etc. (non-professional in presentation, sloppy, no attention to details). Your memo needs to look nice.
(d) Deductions of 20 points for lack of adequate content and explanation to support your answer to the questions posed.
(e) Deduction of 20 points for failure to properly cite (provide link to original source)
(f) Deduction of 10 points for boring presentation, lacking excitement, creativity and originality
Overall; you will earn the total 40 points if you can avoid any of the above. Points a and b above are designed to address what is considered unethical practice. Otherwise, you are free and are encouraged to be creative .