acct613 group project 1 latest 2016 august

Group project 1

 Group Project 1: Tax Research

I. Title:

Requisite Tax Research to Prepare an Individual Income Tax Return

II. Introduction:

In this learning demonstration, you work for one of the four largest multinational

accounting and auditing firms. Your professional goal is to become a senior partner of the

firm someday. To achieve this goal, you plan to work in each department of the firm for at

least one year. Your current position is in the taxation department, where you will conduct

tax research to prepare an individual income tax return in a subsequent learning

demonstration.

This hypothetical tax case has one (1) main activity:

! Conducting tax research

Throughout this learning demonstration, your professor will play the role of a senior

partner in the taxation department with whom you discuss various issues and submit draft

documents for approval in advance of communicating with clients.

To successfully complete this Learning Demonstration, you must demonstrate your

knowledge of and abilities to complete the following goals and competencies:

Goal 1: Communication: Learners demonstrate ability to communicate clearly both orally

and in writing.

o Competencies:

! 1.1 Organize document or presentation clearly in a manner

that promotes understanding

! 1.2 Develop coherent paragraphs or points so that each is internally

unified and so that each functions as part of the whole document or

presentation

! 1.3 Provide sufficient, correctly cited support that substantiates the

writer’s ideas

! 1.4 Tailor communications to the audience

! 1.5 Use sentence structure appropriate to the task, message and

audience

! 1.6 Follow conventions of Standard Written English

Goal 2: Critical Thinking: Learners demonstrate ability to apply logical, systematic

decision-making processes to formulate clear, defensible ideas and to draw ethical

conclusions.

o Competencies:

! 2.1 Articulate and frame the issue

! 2.2 Collect and evaluate information

! 2.3 Evaluate the underlying causes or conditions of elements

contributing to an issue

! 2.4 Use systems thinking to arrive at a decision in the context of

an issue

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! 2.5 Apply ethical principles when determining actions.

Goal 3: Quantitative Reasoning: Learners demonstrate the ability to use mathematical

operations and analytical concepts and operations to address problems and to inform

decision-making

o Competency

! 3.1 Construct models that represent real-world problems or processes

! 3.2 Develop visible representation of data

! 3.3 Analyze data using mathematical/algebraic operations

! 3.4 Use calculated results to inform the problem or process

Goal 4: Leadership, Facilitation, and Collaboration: Learners lead, facilitate, and

collaborate with a variety of individuals and diverse teams to achieve organizational

objectives.

o Competency

! 4.1 Demonstrate an ability to plan a particular objective or goal

Goal 9: Functional Competencies for Federal Taxation: Learners demonstrate an applied

understanding of U.S. federal income tax laws for individuals and business entities used in

the professions and in accordance with U.S. Internal Revenue Code.

! Competencies:

o 9.1 Legal and regulatory: Students demonstrate a general understanding of

the Internal Revenue Code.

o 9.4 Decision Making: Apply tax laws, regulations, and court cases to

individual situations, identifying and communicating planning opportunities

and compliance needs.

o 9.5 Communication: Effectively communicate relevant tax information based

on specific reporting requirements of the U.S. Internal Revenue Service or

other U.S. taxing authorities in U.S. commonwealths and territories.

As the newest member on the tax department team, the senior partner assigns you to

conduct tax research for Jerome Horowitz (nickname: Jerry), a client who has been with

the firm for many years. You will need to research various tax issues the client confronts

given activities that occurred over the past 5 years. Unfortunately, the firm does not have

copies of Jerry Horowitz’s tax documents from prior years.

Jerry Horowitz, is a divorced man, decided to take the plunge and get married one more

time. Before he tied the knot this time, he wanted to protect his personal assets and

individual wealth. Jerry was hesitant to bring up the subject of a prenuptial agreement to

his fiancée Debra Francois (nickname: Debbie). To sweeten the upcoming awkward

discussion, he surprised Debbie by having roses delivered to her office one Friday

afternoon. Debbie was gleeful the rest of the workday as her co-workers admired and

made jovial comments about her marrying the best catch in town; Jerry was handsome,

from a wealthy family, and known for his daredevil bungee jumping hobby. Rumor has it

that Jerry has made millions working for JPM Real Estate Company. After work, Jerry

took her to dinner at one of the finest restaurants downtown.

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Knowing the Internal Revenue Service (IRS) has audited Debbie multiple times; Jerry

hired a tax attorney to write the prenuptial agreement. Aaron Levine, Esq. was highly

respected in the community and had the reputation of being the best tax attorney around.

Levine prepared an equitable and fair prenuptial agreement to protect the respective

assets of both Jerry and Debbie in the case of divorce or death. Jerry was substantially

older than Debbie and was most concerned about leaving all real property to his grown

children upon his death. Debbie would receive the proceeds from a one million dollar life

insurance policy if Jerry passed away first.

After cocktails and dinner, Jerry garnered the courage to discuss the prenuptial agreement

with Debbie. Fortunately, Debbie was a fair-minded woman and completely understood

that her past dealings with the IRS could be an issue moving forward. Both Jerry and

Debbie agreed they wanted to use the “married filing joint” status on their future income

tax returns. She was glad Jerry had taken care of having Levine prepare the prenuptial

agreement, which she agreed to sign at Levine’s office that night.

On December 31, 20X5, Jerry and Debbie had a fabulous wedding ceremony overlooking

the turquoise waters of the Caribbean. They took a honeymoon by cruising from St.

Thomas, in the U.S. Virgin Islands to Jamaica and back on a 95-foot sloop. The weather,

food, and crew provided a dream come true honeymoon. Debbie was ecstatic!

Before marrying Jerry, Debbie had been married to an outside salesperson named Donald

Draper; they had two children, Sally and Sam. He pushed the envelope a little too far

when it came to deducting the entertainment and travel costs associated with his job.

Draper did not keep accurate records or save receipts associated with business travel

expenses. Like Debbie, he too had trouble with the IRS. Specifically, the IRS claimed that

Donald was not keeping accurate business or tax records and even more incriminating, he

was fabricating travel and entertainment expenses. Since Donald and Debbie selected

the “married filing jointly” status on their 20X1 and 20X2 tax returns, the IRS indicted both

Donald and Debbie on criminal tax fraud. Debbie was unaware that Donald was fabricating

expenses on their jointly filed tax return. Unfortunately, the new bride continued to be

under investigation by the IRS even after her tropical honeymoon.

Imagine the surprised look on Debbie’s face when Jerry received a letter from the IRS

dated January 8, 20X5, stating the IRS is auditing him for tax years 1989 and 1999.

Unaware he too had IRS problems, Debbie felt even more relieved she had signed the

prenuptial agreement. Jerry manages JPM Real Estate Company, Inc. where he earns a

very nice salary, which he reported on his personal income tax return. Sometimes, Jerry

sold a few properties as an independent real estate agent. When he remembered, he

reported these commissioned earnings on Schedule C of his tax return. The IRS letter

asserted that Jerry understated his gross income 26% and 31% for the 1989 and 1999 tax

years respectively.

Jerry always had a passion for jumping off high objects since he was a toddler, thus it was

no surprise when he started a bungee jumping business about 5 years ago, which he

named Jerry’s Jiant Jumps Company. He never filed any official paperwork for the

company since it started out as a hobby. Given his upcoming audit, Jerry decided to clean

up as much of his sloppy business practices as possible. Therefore, he began the online

application process for an IRS Employer Identification Number (EIN). The application

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required the business address: 1858 Bungee Drop Lane, Terrapin Falls, MD 20783 and

Jerry’s social security number 100-00-0001. Jerry did not intend to put Debbie’s name or

social security number 100-00-0002, on the application since he owned 100% of the

company. Jerry was certain he was using a cash basis accounting method but unsure of

which business form to select on the EIN application, so he could not finalize the EIN

application process. Wisely, Jerry decided it was time for an accountant’s perspective.

At the beginning of February, Jerry came to the CPA firm with a box of tax documents and

a list of questions. Jerry’s previous accountant had retired from the firm, so it was no

surprise when a senior partner introduced the two of you and assigned you as Jerry’s new

accountant.

In your role as Jerry’s accountant, your first step is to conduct tax research to answer all of

his questions and provide Jerry with much needed guidance regarding his upcoming audit.

III. Steps to Completion

Conduct Tax Research:

To begin, you should review the Tax Research Tutorial

(http://businesslibrary.uflib.ufl.edu/taxresearch), and read the process to conduct tax

research as described in the IRS document: REVIEW OF TAX RESEARCH MATERIALS

(http://www.irs.gov/pub/irs-tege/eotopich87.pdf). You may also find the Georgetown

University Law Library Tax Research-Federal Guide to be helpful in learning more about

federal taxation research:

http://www.law.georgetown.edu/library/research/guides/federal_tax.cfm. Other useful sites

include: FindLaw.com and CornellLaw.com.

There are three types of primary authoritative documents:

1. Statutory

a. Internal Revenue Code

b. Tax legislative process

2. Administrative

a. Treasury regulations

b. Revenue rulings

c. Revenue procedures

d. Private letter rulings

e. General counsel memorandums

f. Internal revenue manual

3. Judicial.

a. Tax court

b. U.S. District Court

c. U.S. Claims Court

d. U.S. Circuit Court of Appeals

e. U.S. Court of Appeals for the Federal Circuit

f. U.S. Supreme Court

g. Actions on decisions

To the extent possible, please support your research with appropriate legal citations that

refer to primary authority as shown in the list above. If you cannot find primary authority

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to support your research, then it may be necessary to refer to secondary

authority. Secondary authority would include tax reference services, journal articles, and

textbooks.

Once you feel confident you understand how to conduct tax research and correctly cite the

authoritative sources, research with the following topics.

1. Entity Type:

Review business formation literature to gain a better understanding of the

advantages and disadvantages of sole proprietorships and corporations.

Prepare a tax research memorandum and be prepared to defend your decision

for a meeting you plan to have with the senior partner. State the issues and the

rules of law regarding each issue using the Issue, Rule, Application, and

Conclusion method, commonly referred to as the IRAC Method. If needed,

review resources on the IRAC Method to prepare this tax research

memorandum.

Assume Jerry accepted your recommendation and completed the online IRS

EIN application process. The IRS issued Jerry’s Jiant Jumps Company EIN: 96-

123456789 with a Business Code of 713900.

2. Legality of Audit:

Research relevant tax literature to determine the legality of the IRS conducting

an audit of Jerry’s 1989 and 1999 tax returns even though the IRS did not notify

Jerry of the audit until March 1, 20X5. Prepare a tax research memorandum

regarding the legality of the audit for a meeting you plan to have with the senior

partner. State the issues and the rules of law regarding each issue using the

Issue, Rule, Application, and Conclusion method, commonly referred to as the

IRAC Method. If needed, review resources on the IRAC Method to prepare this

tax research memorandum.

3. Business vs. Hobby:

Review the Internal Revenue Code rules on operating a business versus a

hobby to determine whether Jerry’s Jiant Jumps is a business or a hobby.

Prepare a tax research memorandum regarding business vs. hobby rules and

be prepared to defend your decision for a meeting you plan to have with the

senior partner. State the issues and the rules of law regarding each issue using

the Issue, Rule, Application, and Conclusion method, commonly referred to as

the IRAC Method. If needed, review resources on the IRAC Method to prepare

this tax research memorandum.

4. Employee vs. Independent Contractor:

Research IRS regulations related to employees versus independent contractors.

Prepare a tax research memorandum regarding employee vs. independent

contractor regulations and be prepared to defend your decision for a meeting

you plan to have with the senior partner. State the issues and the rules of law

regarding each issue using the Issue, Rule, Application, and Conclusion

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method, commonly referred to as the IRAC Method. If needed, review

resources on the IRAC Method to prepare this tax research memorandum.

5. Tax Fraud:

Research criminal tax fraud literature related to Debbie’s tax issues.

Prepare a tax research memorandum regarding anti-tax fraud laws and be

prepared to defend your decision for a meeting you plan to have with the senior

partner. State the issues and the rules of law regarding each issue using the

Issue, Rule, Application, and Conclusion method, commonly referred to as the

IRAC Method. If needed, review resources on the IRAC Method to prepare this

tax research memorandum.

6. Exemptions:

Review IRS rules regarding claiming exemptions to determine whether Debbie

or her ex-husband Donald can claim Sally and Sam Draper as exemptions in

20X5.

Prepare a tax research memorandum regarding exemptions rules and be

prepared to defend your decision for a meeting you plan to have with the senior

partner. State the issues and the rules of law regarding each issue using the

Issue, Rule, Application, and Conclusion method, commonly referred to as the

IRAC Method. If needed, review resources on the IRAC Method to prepare this

tax research memorandum.

Now that you have completed conducting tax research to answer Jerry’s and Debbie’s

questions and provide them with research-based recommendations, it is time to prepare

the deliverables.

IV. Deliverables

Format:

You will combine all research files into one PDF document. If you are unfamiliar with

combining multiple documents to create one PDF file, the following site explains how using

16 different methods: http://www.wikihow.com/Merge-PDF-Files.

Naming convention:

Name the PDF file using the following convention:

FirstName_LastName_TaxResearch.pdf

LEO Assignment folder:

Submit the PDF document in your LEO assignment folder.

(Continue to next page)

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1. Summary Table of Tax Research Deliverables:

Research topic: Deliverables

Entity Type 1. Prepare tax research memorandum regarding entity type and

be prepared to defend your decision for a meeting you plan to

have with the senior partner. State the issues and the rules of

law regarding each issue using the Issue, Rule, Application, and

Conclusion method, commonly referred to as the IRAC Method.

If needed, review resources on the IRAC Method to prepare this

tax research memorandum.

Legality of Audit 2. Prepare a tax research memorandum regarding the legality of

this audit for a meeting you plan to have with the senior partner.

State the issues and the rules of law regarding each issue using

the IRAC Method as explained in deliverable number one.

Business vs.

Hobby

Prepare a tax research memorandum regarding whether you

believe the hobby loss rules will limit the deduction. State the

issues and the rules of law regarding each issue using the IRAC

Method as explained in deliverable number one.

Employee vs.

Independent

Contractor

Prepare a tax research memorandum regarding the propriety of

Jerry classifying his workers as independent contractors rather

than as employees. State the issues and the rules of law

regarding each issue using the IRAC Method as explained in

deliverable number one.

Criminal Tax

Fraud

Prepare a tax research memorandum regarding the likelihood of

Debbie being liable for criminal tax fraud. State the issues and

the rules of law regarding each issue using the IRAC Method as

explained in deliverable number one.

Exemption Prepare a tax research memorandum examining whether Debbie

or her ex-husband Donald can claim Sally and Sam an

exemptions. State the issues and the rules of law regarding each

issue using the IRAC Method as explained in deliverable number

one.