TAX 655 Final Project Guidelines and Rubric

Overview

The final project for this course is the creation of a memorandum with an appendix of supporting IRS forms and schedules.

Working as an accounting associate in a financial organization requires the ability to apply accounting knowledge in unique ways. Being able to identify issues

and communicate them effectively with members of your team and clients is essential for any financial career working in a privately held enterprise or working

with privately held clients.

In the final project, you will demonstrate your ability to communicate your tax efficient investment and business strategy recommendations to a client. Your

proposed strategy could save the client and his family millions of dollars over time, so it is imperative that you utilize your tax research skills and maintain

compliance with all governing rules and 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 Two, Four, Five, and Seven. The comprehensive memorandum with appendix will be submitted in

Module Nine.

The project will address the following course outcomes:

● Recommend appropriate taxable entities, based on comprehensive tax research, for new businesses resulting in optimum solutions that meet clients’

desired economic outcomes

● Evaluate tax consequences between liquidating and non-liquidating corporate distributions for identifying their impact on clients’ tax returns consistent

with governing rules and regulations

● Apply best practices in accounting and moral reasoning for liquidating a business resulting in the best economic solution for the owner

● Illustrate solutions for addressing tax consequences resulting from gifts and inheritances, while maintaining compliance with governing rules and

regulations

● Prepare appropriate tax returns as they apply to various business entities that result in the best economic solution for clients

 

Prompt

 

You are working as an accountant at a mid-size CPA firm. One of your clients is Bob Jones. Bob’s personal information is as follows:

DOB: October 10, 1952

SSN: 444-00-4444

Marital Status: Single

Home Address: 5100 Lakeshore Drive, Pensacola, FL 32502

Bob has a very successful used car business located at 210 Ocean View Drive in Pensacola, Florida. Last year, you filed a Schedule C for Bob that had $1,200,000

in taxable income. The business will have an income growth rate of 10% per year over the next several years. Bob’s personal wealth, including investments in

land, stocks, and bonds, is about $14,000,000.

Last year, he reported interest income of $20,000 and dividend income of $6,000. The $14,000,000 includes land worth $9,000,000 that Bob bought in 1966 for

$450,000. The stocks and bonds have a tax basis of $1,200,000 and they are currently worth $5,000,000. All of the investments have been owned for more than a

year. In addition to his investments, Bob paid $140,000 for his home in 1972 and it is now worth $600,000.

The used car business is currently valued at $53,000,000 including the land and building, which are worth $41,000,000. Bob’s tax basis in the land and building is

$2,000,000 and $400,000, respectively. The inventory is worth $12,000,000, with a cost basis of $10,000,000; the remaining assets, which include office furniture

and equipment, make up the remainder of the business’s total value. The office furniture and equipment are fully depreciated.

Bob wants your professional advice regarding whether he should continue to operate as a sole proprietor or convert the business to a partnership, an S

corporation, or a C corporation. Based on one of the business entities selected, Bob wants to include Mandy—his daughter—in the business as an owner and

manager with a possibility of 40% interest. One of his concerns is what would happen to his business after he passes away.

Mandy’s personal tax information is as follows:

Mandy Jones

DOB: June 30, 1990

SSN: 999-99-9999

Marital Status: Single

Home Address: 5990 Langley Road, Pensacola, FL 35203

You will need to describe the tax and limited liability effects on a chosen business entity should Bob decide to reduce the amount of tax paid per year, as well as

the protection of personal assets should there be a possible claim against the company’s assets.

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. Use logical reasoning based on your tax research to explain why the client should choose your recommended business entity. Consider

referencing appropriate tax code and regulations.

B. Defend your business entity recommendation by describing the accounting method. Consider the advantages and disadvantages of the business

entity based on the following:

1. Cash basis vs. accrual

2. The cost to prep the returns

3. The tax benefits

4. The limited liability protection

5. Employee benefits

C. Interpret the tax law pertaining to the type of business recommended and justify your recommendation using details consistent with tax law,

code, and regulations.

D. Explain the tax effect based on providing $180,000 per year for the client’s salary and $70,000 per year for his daughter’s salary if they withdraw

cash from the business or pay dividends as appropriate.

E. Justify the percentage of ownership the client’s daughter should have in the business based on the type of business entity recommended.

Consider the tax law in reference to the recommendation and how the decision will affect the daughter’s tax return.

F. Create a detailed tax planning proposal explaining how the client’s family can experience tax savings should the client pass away. Cite relevant

governing rules and regulations.

G. Illustrate a strategic plan that addresses the need for a will in handling the estate. Detail what happens to the business, land, and investments

consistent with tax codes and regulations. Consider extending the plan to address the client’s estate tax, trust, and charitable contributions

while minimizing estate tax.

H. Recommend estate planning strategies consistent with tax codes and regulations for the purpose of reducing the taxable estate. Be sure to

include gifting property to heirs in your response.

I. Illustrate the best course of action if the client decides to leave the business in three years. Provide some advice to him should he decide to gift

the business to his daughter or transfer the assets or common stock to her, depending on the business entity you have selected.

J. Illustrate the best course of action if the client wishes to sell the business. Consider the tax consequences with regard to capital gains and losses,

ordinary income issues, and selling an existing operating business.

 

II. Conclusion

A. Compare and contrast the advantages and disadvantages of the sole proprietorship, the partnership, the S corporation, and the C corporation

as a tax vehicle that could meet the client’s need for accounting information about the business. Consider providing justification for why the

client would not necessarily choose the other business entities.

B. Summarize the alternative involving the possibility of liquidating the business using rationale based on tax research, codes, and regulations.

C. Summarize the alternative of transferring the business activity, providing justification based on tax research, codes, and regulations.

 

III. Appendix: To further justify your professional advice regarding whether the client should continue to operate as a sole proprietor or convert the business

to a partnership, an S corporation, or a C corporation, complete the appropriate tax schedules using the most current tax forms for the requirements

below.

A. Prepare Bob’s Form 1040 with the appropriate tax schedules and Mandy’s Form 1040 (based on the salary he wanted to pay her, $70,000 per

year). Assume that you are filing the tax returns using sole proprietorship for the business entity and treating Mandy as an employee, regardless

of your initial recommendation for this client.

B. Prepare the appropriate forms in the event that the client decides to convert the business to a partnership, an S corporation, or a C corporation

based on your recommendation. Also, include the tax effect, if any, of the money that the client and his daughter are taking from the business

for their personal expenses. Include the owners’ personal 1040 forms as well.

C. Justify your recommendation using schedules and tax forms you completed by explaining how the forms and schedules result in the best

economic solution for the client consistent with IRS code and regulations.

 

Milestones

 

Milestone One: Business Entity, Accounting Method, and Tax Laws

In Module Two, you will submit a draft of your recommendation for the business entity you believe will meet the client’s needs, based on your research. You will

also select the accounting method that should be used to interpret the business transactions and for tax reporting. You will also need to summarize the tax law

pertaining to the entity selected. This assignment will address Section I, Parts A, B, and C of the critical elements above. This milestone is graded with the

Milestone One Rubric.

Milestone Two: Tax Effects and Ownership Interest

In Module Four, you will submit a draft explaining the tax effects of salaries if cash is withdrawn from a business. You must also explain the tax consequences of

paying the owners based on the selected business entity, as well as the tax consequences for each individual’s personal tax returns. This assignment will address

Section I, Parts D and E of the critical elements. This milestone is graded with the Milestone Two Rubric.

Milestone Three: Strategic Planning, Gift Taxes, and Disposing of a Business

In Module Five, you will submit a draft of your tax planning proposal and strategic plan recommendation regarding the client’s estate. You must also address the

tax effects of selling the business prior to the death of the founder. This assignment will address Section I, Parts F through J of the critical elements. This

milestone is graded with the Milestone Three Rubric.

Milestone Four: Conclusion

In Module Seven, you will submit a draft of your conclusion. You will compare and contrast the advantages of each type of business entity that the client may

select, summarize the alternative involving the possibility of liquidating the business using rationale, and, finally, summarize the alternative of transferring the

business activity providing justification based on tax research, code, and regulations. This assignment will address Section II of the critical elements. This

milestone is graded with the Milestone Four Rubric.

 

Final Submission: Memorandum With Appendix

In Module Nine, you will complete all necessary tax forms according to Section III of the critical elements. You will then submit a comprehensive memorandum

to the client that covers all critical elements and includes an appendix of IRS tax forms and schedules necessary to support your advice. You may also submit tax

forms and schedules to illustrate the tax effects of continuing to operate the business as a sole proprietorship. The final submission should be a complete

document containing all of the critical elements of the final project. Feedback gained during the course should be reflected in your final submission. This

submission will be graded using the Final Project Rubric.

Note: The textbook includes tax return forms for the prior year in the appendix because of publishing deadlines. Use the most current tax forms to arrive at

your answers.

 

Deliverables

 

Milestone Deliverable Module Due Grading

One Business Entity, Accounting Method, and Tax

Laws

 

Two Graded separately; Milestone One Rubric

Two Tax Effects and Ownership Interest Four Graded separately; Milestone Two Rubric

Three Strategic Planning, Gift Taxes, and Disposing

of a Business

 

Five Graded separately; Milestone Three Rubric

Four Conclusion Seven Graded separately; Milestone Four Rubric

Final Submission: Memorandum With

Appendix

 

Nine Graded separately; Final Project Rubric

 

Final Project Rubric

 

Guidelines for Submission: Submit your memorandum with standard formatting: 7–10 pages, double-spaced, in APA format, with one-inch margins, 12-point

Times New Roman font, and an appendix containing electronic versions of the appropriate IRS tax schedules and forms.

Critical Elements Exemplary Proficient Needs Improvement Not Evident Value

Memo: Business

Entity

 

Meets “Proficient” criteria and

references appropriate tax

code and regulations in

justification

(100%)

 

Explains why the

recommended entity is the

most appropriate choice using

logical reasoning

(90%)

 

Explains why the recommended

entity is the most appropriate

choice but details either lack

relevance or are cursory

(70%)

 

Does not explain why the

recommended entity is the

most appropriate choice

(0%)

 

6

 

Memo: Accounting

Method

 

Meets “Proficient” criteria and

details cover the advantages

and disadvantages

(100%)

 

Defends the decision to choose

the recommended entity by

describing the accounting

method

(90%)

 

Defends the decision to choose

the recommended entity but

details are inaccurate or

cursory

(70%)

 

Does not defend the decision

to choose the recommended

entity

(0%)

 

6

 

Memo: Tax Law Meets “Proficient” criteria and

details illustrate versatility of

thought when using tax law,

code, and regulations

(100%)

 

Interprets tax law pertaining to

the selected business entity

using tax law, code, and

regulations as justification

(90%)

 

Interprets and justifies tax law

pertaining to the selected

business entity but details are

either inaccurate or irrelevant

(70%)

 

Does not interpret and justify

tax law pertaining to the

selected business entity

(0%)

 

6

 

Memo: Tax Effect on

Cash Withdrawals or

Dividends

 

Meets “Proficient” criteria and

provides, in detail, more than

one option

(100%)

 

Explains the tax effect based on

providing the client and his

daughter salaries if they

withdraw cash from the

company or pay dividends

(90%)

 

Explains the tax effect based on

providing the client and his

daughter salaries but details

are inaccurate or cursory

(70%)

 

Does not explain the tax effect

based on providing the client

and his daughter salaries

(0%)

 

6

 

Memo: Percentage

of Ownership

 

Meets “Proficient” criteria and

details explain how the

decision will affect the client’s

daughter’s tax return

(100%)

 

Justifies the percentage of

ownership the client’s daughter

should have based on the

business recommended

(90%)

 

Justifies the percentage of

ownership the client’s daughter

should have but details are

irrelevant or cursory

(70%)

 

Does not justify the percentage

of ownership the client’s

daughter should have

(0%)

 

6

 

Memo: Tax Planning

Proposal

 

Meets “Proficient” criteria and

details include relevant

governing rules and regulations

(100%)

 

Creates a tax planning proposal

explaining how the family can

experience tax savings should

the client pass away

(90%)

 

Creates a tax planning proposal

but details are inaccurate or

irrelevant

(70%)

 

Does not create a tax planning

proposal

(0%)

 

6

 

Memo: Strategic

Plan

 

Meets “Proficient” criteria and

extends the plan to address the

estate tax, trust, and charitable

contributions while minimizing

inheritance tax

(100%)

 

Illustrates a strategic plan that

addresses the need for a will in

handling the estate, which

includes the business, land, and

investments, consistent with

governing code and regulations

(90%)

 

Illustrates a strategic plan that

addresses the need for a will,

but details lack coverage of

business, land, or investments

or are not consistent with

governing code and regulations

(70%)

 

Does not illustrate a strategic

plan that addresses the need

for a will

(0%)

 

6

 

Memo: Estate

Planning Strategies

 

Meets “Proficient” criteria and

details exemplify gift-giving

strategies that reduce the

taxable estate

(100%)

 

Recommends estate planning

strategies consistent with

governing code and

regulations, including gifting

property to heirs

(90%)

 

Recommends estate planning

strategies but details are

inaccurate or cursory

(70%)

 

Does not recommend estate

planning strategies

(0%)

 

6

 

Memo: Gift or

Transfer the Assets

 

Meets “Proficient” criteria and

provides justification of both

the gifting and transferring of

assets

(100%)

 

Illustrates the best course of

action the client should take

including advice on gifting or

transferring assets if he leaves

the business in three years

(90%)

 

Illustrates a course of action the

client should take if he leaves

the business in three years but

details are either inaccurate or

irrelevant

(70%)

 

Does not illustrate the best

course of action the client

should take if he leaves the

business in three years

(0%)

 

6

 

Memo: Sell the

Business

 

Meets “Proficient” criteria and

addresses ordinary income

issues, and capital gains and

losses consistent with tax code

and regulations

(100%)

 

Illustrates the best course of

action if the client wishes to

sell the business and includes

tax consequences when selling

an existing operating business

(90%)

 

Illustrates a course of action if

the client wishes to sell the

business, but details are

inaccurate or cursory

(70%)

 

Does not illustrate a course of

action if the client wishes to

sell the business

(0%)

 

6

 

Conclusion:

Advantages

and

Disadvantages

 

Meets “Proficient” criteria and

shows keen insight into the

advantages and disadvantages

of choosing the other business

entities

(100%)

 

Compares and contrasts

advantages and disadvantages

of all the business entities as

tax vehicles to meet the client’s

needs

(90%)

 

Compares and contrasts

advantages and disadvantages

of all the business entities but

details are either incomplete or

inaccurate

(70%)

 

Does not compare and contrast

advantages and disadvantages

of all the business entities

(0%)

 

6

 

Conclusion:

Liquidating the

Business

 

Meets “Proficient” criteria and

is written in an appropriate

voice for the target audience

(100%)

 

Summarizes the alternative

choice involving liquidating the

business, using tax research,

governing rules, and

regulations

(90%)

 

Summarizes the alternative

choice involving liquidating the

business but details are either

unclear for target audience or

cursory

(70%)

 

Does not summarize the

alternative choice involving

liquidating the business

(0%)

 

6

 

Conclusion:

Transferring the

Business

Activity

 

Meets “Proficient” criteria and

is written in an appropriate

voice for the target audience

(100%)

 

Summarizes the alternative

choice involving transferring

the business activity using tax

research, governing rules, and

regulations

(90%)

 

Summarizes the alternative

choice involving transferring

the business activity but details

are either unclear or cursory

(70%)

 

Does not summarize the

alternative choice involving

transferring the business

activity

(0%)

 

6

 

Appendix: Form

1040 and Tax

Schedules

 

Prepares the appropriate pages

of Form 1040 and the tax

schedules accurately and

completely based on the sole

proprietorship business entity

(100%)

 

Prepares the appropriate pages

of Form 1040 and tax schedules

based on the sole

proprietorship business entity

but details are either

incomplete or inaccurate

(70%)

 

Does not complete the

appropriate pages of Form

1040 based on the sole

proprietorship business entity

(0%)

 

6

 

Appendix: Forms to

Convert the Business

 

Prepares the appropriate

remaining forms for a

partnership, S corporation, or C

corporation accurately and

completely

(100%)

 

Prepares the appropriate

remaining forms for a

partnership, S corporation, or C

corporation but details are

incomplete or inaccurate

(70%)

 

Does not prepare the

appropriate remaining forms

(0%)

 

6

 

Appendix:

Justification of

Schedules and Tax

Forms

 

Meets “Proficient” criteria and

references relevant IRS code

and regulations

(100%)

 

Justifies the selected schedules

and tax forms by explaining

how the schedules and forms

result in the best economic

solution for the client

(90%)

 

Justifies the selection of the

schedules and tax forms but

details are either inaccurate or

cursory

(70%)

 

Does not justify the selection of

the schedules and tax forms

(0%)

 

6

 

Articulation of

Response

 

Submission is free of errors

related to citations, grammar,

spelling, syntax, and

organization and is presented

 

in a professional and easy-to-

read format

 

(100%)

 

Submission has no major errors

related to citations, grammar,

spelling, syntax, or organization

(90%)

 

Submission has major errors

related to citations, grammar,

spelling, syntax, or organization

that negatively impact

readability and articulation of

main ideas

(70%)

 

Submission has critical errors

related to citations, grammar,

spelling, syntax, or organization

that prevent understanding of

ideas

(0%)

 

4

 

Total 100%

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