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TAX 650 Final Project Guidelines and Rubric

Overview The final project for this course is the creation of a memorandum with appendix (7–10 pages). As an associate working in a privately held enterprise or working with privately held clients, it is impera tive to be able to advise clients on the tax implications of their financial investments. The ability to model the tax consequences of transactions and do cost benefit analysis is crucia l. For your final project, you will model the role of an associate working in a private consulting firm. You will demonstrate your ability to advise clients on whether they should operate as a sole proprietor, a partnership, an S corporation, or a C corporation. Additionally, using your tax research skills and understanding of federal income taxation, you will have the opportunity to evaluate tax consequences from sales and distributions for their compliance with the Internal Revenue Code and Treasury regulations. The project is divided into four milestones, which will be submitted at various points throughout the course to scaffold learning and ensure quality final submissions. These milestones will be submitted in Modules Three, F ive, Seven, and Eight. The final product will be submitted in Module Nine. In this assignment, you will demonstrate your mastery of the following course outcomes:

 Recommend an appropriate business tax entity based on the analysis of a tax situation for achieving favorable economic impact on the client’s taxable income

 Utilize appropriate tax forms and schedules that compute taxable income on individual tax returns and reflect versatility of thought, resulting in the best economic solution for the individual taxpayer

 Apply accrual and cash basis accounting best practices and moral reasoning in de termining when business transactions may be reported for income tax purposes

 Assess the economic impact on taxable income for the business tax entity in relation to Internal Revenue Code and Treasury regulations and the optimum desired outcomes for the client

 Evaluate the tax consequences that result from sales or distributions of property for their compliance with IRS Circular 230, Internal Revenue Code, and the American Institute for Certified Public Accountants and for advising the client

Prompt You are currently working at a mid-sized certified public accounting firm. Your client is Bob Jones. Bob, age 60 and single, has recently retired from IBM. He has $690,000 available in his 401(k) fund and he is thinking of using that money to open a used car busi ness that will be located at 210 Ocean V iew Drive in Pensacola, Florida. Bob has estimated that the business might make $300,000 in taxable income.

Bob’s personal wealth including investments in land, stocks, and bonds is about $14,000,000. He reported a n interest income of $20,000 and dividend income of $6,000 last year. The $14,000,000 includes land worth $9,000,000 that Bob bought in 1966 for $450,000. Bob has hired your firm for professional advice regarding whether he should operate as a sole proprietor, a partnership, an S corporation, or a C corporation. He is also considering transferring a possible 40% interest in his new business to his daughter Mandy, age 23 and single. Prepare a memorandum to the client, recommending a type of business entity, including an appendix of supporting IRS tax schedules and forms. Specifically, the following critical elements must be addressed:

I. Memorandum A. Recommend a type of business entity for the client to consider based on your tax research. Consider justifyin g your recommendation using the

code and regulations that relate to the business entity. B. Differentiate between accrual accounting and cash basis. Based on the type of business and the client’s accounting system, what is the imp act

when revenue is recognized? C. Based on the decision of accrual vs. cash basis, describe when revenue would be recognized on the sale of inventory, and how the accrual

reporting differs from cash basis. D. Determine the economic impact on the client’s financial situation. Based on your decision, determine the potential tax liability, keeping in mind

appropriate Internal Revenue Code and Treasury regulations. E. Identify the tax consequences on the sale or exchange of the land consistent with capital gain rules. Consider the selling expense, broker’s fees,

closing costs, appraisals, and surveys and the correct schedule form to complete. F. Justify whether or not the client should choose a business entity that has limited liability protection. Be sure to include possible future liability

issues based on the potential economic impact and appropriate Internal Revenue Code and Treasury regulations. G. Describe the tax effect on the recommended business entity and the impact it will have on the client’s personal tax return. Consider addressing

how the business entity affects the completion of the 1040 tax form.

II. Conclusion A. Evaluate the economic impact on the client’s personal returns based on the recommended entity. Justify why the client would not choose the

other business entities by informing the client of the differences. B. Justify your recommendation regarding the client’s daughter having an ownership interest. Provide details supporting the recommendation

taking into consideration the jargon and mechanics of the transaction. C. Summarize, using moral reasoning, cash or accrual basis accounting systems in relation to the selected business entity. Consider how the

accounting system impacts revenue recognition, consistent with Internal Revenue Code and Treasury regulations. D. Describe the after tax effects on the client’s cash flow based on the sale of the land that is needed to provide the funds necessary to start the

business. Consider including capital gains tax rules. E. Explain whether or not the client and his child should take a salary or cash distribution according to tax purposes and Internal Revenue Code and

Treasury regulations. Consider the type of business and the tax effect whether it is salary, dividends , or cash withdrawal.

III. Appendix

Based on your recommendation to the client regarding proprietorship, taxable income, and sale of land, complete the appropria te tax schedules and forms described below.

A. Prepare the appropriate page of Form 1040 and include the sale of the client’s land on the appropriate tax schedule and form for the recommended business entity. Be certain to complete each tax schedule and form accurately and complete ly.

B. Prepare the appropriate schedule and tax forms to reflect taxable income based on your calculations and the disposition of asset. Be certain to complete each tax schedule and form accurately and completely.

C. Illustrate how creative problem solving and versatility of thought impact professional advice that you intended to result in the best economic solutions for the client. Consider providing real-world examples to support your claims.

Milestones Milestone One: Gross Income and Capital Gains In Module Three, you will submit a draft of the gross income and capital gains, analyzing the following critical elements: I. Memorandum, section E, and II. Conclusion, sections D and E. You must compute the property disposition capital gain and taxation of gross income. In completing this assignment, consider the tax effect of salary dividends or cash withdrawal in accordance with Internal Revenue Code and Treasury regulations. This assignment will be submitted as a Word document. This milestone is graded with the Milestone One Rubric. Milestone Two: Revenue Recognition and Accounting Methods In Module F ive, you will submit a draft of the revenue recognition and accounting methods, summarizing the following critical elements: I. Memorandum, sections B, C, and D, and II. Conclusion, section C. You will determine revenue recognition and the economic impact of the client’s financial situation. Based on your decision, determine the potential tax liability, keeping in mind appropriate Internal Revenue Code and Treasury regulations. This assignment will be submitted as a Word document. This milestone is graded with the Milestone Two Rubric. Milestone Three: Choice of Business Entity In Module Seven, you will submit a draft of the choice of business entity, analyzing the following critical elements: I. Memorandum, sections A, F, and G, and II. Conclusion, sections A and B. The short paper will communicate tax aspects of business entities to the client. This assignment will be submitted as a Word document. This milestone is graded with the Milestone Three Rubric. Milestone Four: Tax Forms In Module Eight, you will submit IRS draft tax forms, analyzing all of the critical elements in III. Appendix, sections A, B, and C. Based on your research, the tax forms and schedules will support your recommendation to the client. This assignment will be submitted as completed tax forms, which are provided to you in your textbook resource CD or on the IRS website. This milestone is graded with the Milestone Four Rubric.

F inal Submission: Memorandum With Appendix In Module Nine, you will submit a memorandum with an appendix to the client and all IRS tax forms and schedules necessary to support your advice . It should be a complete, polished artifact containing all of the critical elements of the final product. It should reflect the incorporation of feedback gained throughout the course. This submission is graded with the F inal Product Rubric.

Deliverables

Milestone Deliverable Module Due Grading One Gross Income and Capital Gains Three Graded separately; Milestone One Rubric

Two Revenue Recognition and Accounting Methods

F ive Graded separately; Milestone Two Rubric

Three Choice of Business Entity Seven Graded separately; Milestone Three Rubric

Four Tax Forms Eight Graded separately; Milestone Four Rubric

F inal Submission: Memorandum With Appendix

Nine Graded separately; F inal Product Rubric

Final Product Rubric Guidelines for Submission: Your memorandum must be 7 to 10 pages in length (plus a cover page and references) and must be written in APA format. Use double spacing, 12-point Times New Roman font, and one -inch margins. Your memorandum must include an appendix containing electronic versions of the appropriate IRS tax schedules and forms. Include at least three references cited in APA format. Instructor Feedback: This activity uses an integrated rubric in Blackboard. Students can view instructor feedback in the Grade Center. For more informati on, review these instructions.

Critical Elements Exemplary Proficient Needs Improvement Not Evident Value

Memo: Business Entity

Meets “Profi ci ent” cri teri a and detai l s are jus ti fi ed us i ng appropri ate Internal Revenue

Code and Treas ury regul ati ons rel evant to recommended bus i nes s enti ty (100%)

Recommends a type of bus i nes s enti ty for the cl i ent to cons i der that i s bas ed on tax res earch

(90%)

Recommends a type of bus i nes s enti ty but ei ther the ci ted Internal Revenue Code and

Treas ury regul ati ons are i naccurate or detai l s are curs ory (70%)

Does not recommend a type of bus i nes s enti ty (0%)

6.4

Memo: Accrual Accounting vs. Cash

Basis

Meets “Profi ci ent” cri teri a and provi des a ful l des cri pti on of

whi ch enti ti es requi re accrual and when i t i s opti onal (100%)

Di fferenti ates between accrual accounti ng and cas h bas i s and

i denti fi es the i mpact of the revenue (90%)

Di fferenti ates between accrual accounti ng and cas h bas i s and

i denti fi es the i mpact of the revenue, but the detai l s are i naccurate or curs ory (70%)

Does not di fferenti ate between accrual accounti ng and cas h

bas i s or does not i denti fy the i mpact of the revenue (0%)

6.4

Memo: Revenue

Recognized on the Sale

Meets “Profi ci ent” cri teri a and

des cri bes the i ns tal lment method of reporti ng revenue (100%)

Des cri bes when revenue woul d

be recogni zed and how the reporti ng di ffers for accrual accounti ng vs . cas h bas i s (90%)

Des cri bes when revenue woul d

be recogni zed and how the reporti ng di ffers but detai l s are i naccurate or curs ory (70%)

Does not des cri be when

revenue woul d be recogni zed or how the reporti ng di ffers (0%)

6.4

Memo: Economic

Impact

Meets “Profi ci ent” cri teri a and

addres s es payrol l tax i s sues and s el f-empl oyment tax (100%)

Determi nes the economi c

i mpact on the cl i ent’s fi nanci al s i tuati on and potenti al tax l i abi lity, and determi nati ons are cons i s tent wi th Internal

Revenue Code and Treas ury regul ati ons (90%)

Determi nes the economi c

i mpact on the fi nanci al s ituati on and potenti al tax l i abi lity but ei ther the referenced Internal Revenue Code and Treas ury

regul ati ons are i naccurate or detai l s are curs ory (70%)

Does not determi ne the

economi c i mpact on the fi nanci al s ituation and potenti al tax l i ability (0%)

6.4

Memo: Tax

Consequences

Meets “Profi ci ent” cri teri a and

comprehens i vel y addres s es al l expens es i ncl udi ng how bes t to report on the s chedul e (100%)

Identi fi es the tax cons equences

on the s al e or exchange of the l and cons i s tent wi th capi tal gai ns rul es (90%)

Identi fi es tax cons equences but

detai l s are ei ther i ncons i stent wi th capi tal gai ns rul es or curs ory (70%)

Does not i denti fy tax

cons equences (0%)

6.4

Memo: Limited

Liability Protection

Meets “Profi ci ent” cri teri a and

i ncl udes i nformati on about l i mi ted l i abi lity compani es (100%)

Jus ti fi es whether or not the

cl i ent s houl d choos e a bus i nes s enti ty that has l i mi ted l i ability protecti on and i ncl udes pos s i ble future l i abil ity i ss ues cons is tent

wi th Internal Revenue Code and Treas ury regul ati ons (90%)

Jus ti fi es whether or not to

choos e a bus i nes s enti ty that has l i mi ted l i ability protecti on but does not i ncl ude pos s i ble future l i abil ity i ss ues, pos s ible

future l i abil ity i ss ues are not cons i s tent wi th Internal Revenue Code and Treas ury regul ati ons , or detai l s are ei ther

i naccurate or curs ory (70%)

Does not jus ti fy whether or not

to choos e a bus i nes s enti ty that has l i mi ted l i ability protecti on (0%)

6.4

Memo: Tax Effect

Meets “Profi ci ent” cri teri a and addres s es the cl i ent’s after tax

fl ow (100%)

Des cri bes the tax effect on the recommended bus i nes s enti ty

and the i mpact on the cl i ent’s pers onal tax return (90%)

Des cri bes the tax effect on the recommended bus i nes s enti ty

and the i mpact on the cl i ent’s pers onal tax return, but detai l s are i rrel evant or curs ory (70%)

Does not des cri be the tax effect on the recommended bus i nes s

enti ty and the i mpact on the cl i ent’s pers onal tax return (0%)

6.4

Conclusion:

Economic Impact: Personal Returns

Meets “Profi ci ent” cri teri a and

s hows keen i ns i ght i nto the advantages and di s advantages of choos i ng appropri ate bus i nes s enti ti es

(100%)

Eval uates the economi c i mpact

on the cl i ent’s pers onal returns bas ed on the recommended enti ty and jus ti fi es res pons e by i ncl udi ng i nformati on about the

other enti ti es (90%)

Eval uates the economi c i mpact

of cl i ent’s pers onal returns but does not provi de jus ti fi cati on or detai l s l ack rel evance or are curs ory

(70%)

Does not eval uate the economi c

i mpact of cl i ent’s pers onal returns (0%)

6.4

Conclusion: Ownership Interest

Meets “Profi ci ent” cri teri a and us es appropri ate voi ce for the audi ence

(100%)

Jus ti fi es recommendati on regardi ng the cl i ent’s daughter havi ng an owners hi p i nteres t

us i ng detai l s s upporti ng the recommendati on (90%)

Jus ti fi es recommendati on regardi ng cl i ent’s daughter havi ng an owners hi p i nteres t

but detai l s ei ther l ack rel evance or are curs ory (70%)

Does not jus ti fy the recommendati on regardi ng cl i ent’s daughter havi ng

owners hi p i nteres t (0%)

6.4

Conclusion: Cash or

Accrual Basis Accounting System

Meets “Profi ci ent” cri teri a and

i denti fi es the i mpact on revenue recogni ti on cons i s tent wi th Internal Revenue Code and Treas ury regul ati ons

(100%)

Summari zes , us i ng moral

reas oni ng, cas h or accrual bas is accounti ng s ys tems i n rel ati on to the s el ected bus i nes s enti ty cons i s tent wi th appropri ate

Internal Revenue Code and Treas ury regul ati ons (90%)

Summari zes cas h or accrual

bas i s accounting s ys tems i n rel ati on to the s el ected bus i ness enti ty, but detai l s ei ther l ack moral reas oni ng or are curs ory

(70%)

Does not s ummari ze cas h or

accrual basis accounti ng s ys tems i n rel ati on to the s el ected bus i nes s enti ty (0%)

6.4

Conclusion: Tax Effects on Cash Flow

Meets “Profi ci ent” cri teri a and ci tes capi tal gai ns tax rul es

rel ati ng to gai ns and l os s es (100%)

Des cri bes the after tax effects on the cl i ent’s cas h fl ow bas ed

on the s al e of the l and that i s needed to s tart the bus i nes s (90%)

Des cri bes the after tax effects on the cl i ent’s cas h fl ow that are

needed to s tart the bus i nes s but detai l s are ei ther i naccurate or curs ory (70%)

Does not des cri be the after tax effects on the cl i ent’s cas h fl ow

that are needed to s tart the bus i nes s (0%)

6.4

Conclusion: Salary or Cash Distribution

Meets “Profi ci ent” cri teri a and i ncl udes the tax effect on s al ary,

di vi dends , or cas h wi thdrawal (100%)

Expl ai ns whether or not the cl i ent and hi s chi l d s houl d take a

s al ary or cas h di stributi on accordi ng to tax purpos es and Internal Revenue Code and Treas ury regul ati ons

(90%)

Expl ai ns whether or not the cl i ent and hi s chi l d s houl d take a

s al ary or cas h di stributi on but detai l s are curs ory or not cons i s tent wi th tax purpos es and Internal Revenue code and

Treas ury regul ati ons (70%)

Does not expl ai n whether or not the cl i ent and hi s chi l d s houl d

take a s al ary or cas h di stributi on (0%)

6.4

Appendix: Form 1040

Prepares the appropri ate page of Form 1040 accuratel y and compl etel y, i ncl uding the s al e of

the cl i ent’s l and on the appropri ate tax form and s chedul e

(100%)

Prepares the appropri ate page of Form 1040 on the appropri ate tax form and

s chedul e, but detai l s are ei ther i ncompl ete or i naccurate (70%)

Does not compl ete the appropri ate page of Form 1040 and does not i ncl ude the s al e of

the cl i ent’s l and on the appropri ate tax form and s chedul e

(0%)

6.4

Appendix: Schedule

and Tax Form

Prepares the appropri ate

s chedul e and tax form accuratel y and compl etel y, refl ecti ng taxabl e i ncome bas ed

on cal cul ati ons and the di s pos i tion of as s et (100%)

Prepares the appropri ate

s chedul e and tax form refl ecti ng taxabl e i ncome but detai l s are i ncompl ete or i naccurate

(70%)

Does not prepare the

appropri ate tax form refl ecti ng taxabl e i ncome (0%)

6.4

Appendix: Professional Advice

Meets “Profi ci ent” and provi des real -worl d exampl es to s upport

cl ai ms (100%)

Il l us trates how creati ve probl em s ol vi ng and vers ati l ity of

thought i mpacts profes s i onal advi ce i ntended to res ul t i n the bes t economi c s ol uti ons for the cl i ent

(90%)

Il l us trates how creati ve probl em s ol vi ng and vers ati l ity of

thought i mpacts profes s i onal advi ce i ntended to res ul t i n the bes t economi c s ol uti ons for the cl i ent but detai l s are i rrel evant

or curs ory (70%)

Does not i l l ustrate how creati ve probl em s ol vi ng and vers ati l ity

of thought i mpacts profes s i onal advi ce i ntended to res ul t i n the bes t economi c s ol uti on for the cl i ent

(0%)

6.4

Articulation of Response

Submi s s i on i s free of errors rel ated to ci tati ons , grammar, s pel l i ng, s yntax, and

organi zati on and i s pres ented i n a profes s i onal and eas y-to-read format

(100%)

Submi s s i on has no major errors rel ated to ci tati ons , grammar, s pel l i ng, s yntax, or organi zati on

(90%)

Submi s s i on has major errors rel ated to ci tati ons , grammar, s pel l i ng, s yntax, or orga ni zati on

that negati vel y i mpact readabi l ity and arti culation of mai n i deas

(70%)

Submi s s i on has criti cal errors rel ated to ci tati ons , grammar, s pel l i ng, s yntax, or organi zati on

that prevent unders tandi ng of i deas (0%)

4

Earned Total 100%