a study of the federal income taxation of corporations
TRANSCRIPT
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FGCU, TAX4011 Syllabus (CRN 50063) SUMC 2015 Cecil
Federal Tax Accounting II Marieb Hall 100 5:30-7:25PM T&TH
Description A study of the federal income taxation of corporations,
including formation, operations, distributions, and dissolutions.
HOW THIS COURSE FITS THE CURRICULUM This is the second
introductory course in federal income taxation. This is an elective
course for accounting majors pursuing the CPA or other professional
license. This is a senior level course. This course supports the tax
section of the ACE exam used to assess the BS degree program in
accounting.
Accounting Comprehensive Exam (ACE) in AACG4632 and ETS Exam in GEB 4890:
The sequence of core classes you are taking in the accounting program (intermediate
accounting, cost, auditing, business law and tax) serves to prepare students for the
Accounting Comprehensive Exam (ACE). All accounting majors are required to take
the ACE exam at the end of ACG 4632 to earn a grade in that course. The ACE exam
helps the Accounting Department assess whether students are meeting the learning
goals established for the BS degree in accounting.
The knowledge you are gaining in the business foundation and core courses in
principles of accounting, computers, economics, finance, information systems, law,
management, marketing, and operations prepare students for the Educational Testing
Service (ETS) exam. All business majors are required to take the ETS exam at the end
of GEB 4890 in order to graduate with a BS degree.
While your performance on ACE and ETS exams will not impact your grade in ACG
4632 or in GEB 4890, please take the exams very seriously. They are the main tools
used to assess the BS degree program in accounting. It is imperative students do their
best in answering the questions. Otherwise, the results are not reliable and the
assessments are will not be robust, a result that may jeopardize our SACS
accreditation and the Academic Learning Compact with the State of Florida, along
with a negative impact on our AACSB accreditation (more about AACSB at:
http://www.fgcu.edu/cob/ and click on the AACSB logo at the top left).
Those students performing above the 80% level in each of eight sections of the ACE
exam and those performing above 80% on the ETS exam will receive a letter from the
Chair and/or Dean recognizing these achievement(s) which can be used as a resume
item.
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Prerequisites
Course URL
TAX4001 with a minimum grade of C
None
DLCourse No, it is an on-campus course.
Instructor H. Wayne Cecil
E-Mail [email protected] (Do not use Canvas for emails)
Phone 239-590-7307
Home Page none
Office Lutgert Hall 3312
Office Hours Tuesday and Thursday 4-5PM (subject to change/update)
Other hours by prearranged appointments
No office hours before the first day of class No office hours on test days
No office hours after the last regular class day
Teaching
Philosophy
The essence of teaching is providing the best opportunities to students to learn the
materials. Students are responsible for taking advantage of the learning
opportunities. Learning requires lots of hard work and can be lots of fun. Learning
should include getting to know new people.
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Additional
Instructor
Information
H. Wayne Cecil (Wayne) is a Professor of Tax Accounting. He holds a PhD from
the University of Kentucky (Lexington, KY), a Master in Professional Accounting
from the University of Texas (Austin, Texas), and a Bachelor of Business degree
from the University of North Carolina (Chapel Hill, NC). Wayne is a CPA and has
10 plus years of professional accounting experience. Wayne has 19 years of college
teaching experience.
Required
Course
Materials
NOTE->Students are not permitted to have computers/ebooks on during class.
Students are strongly encouraged to buy a hard copy of the book. Check Amazon
etc. for the lowest possible price.
1. Prentice Hall's Federal Taxation 2015 Corporations, Partnerships, Estates & Trusts
(buy a USED edition)
2. CPA Exam Review Manual (Gleim or Wiley)
Gleim Federal Tax Questions and Explanations (latest edition) ~$30
Wiley CPA Exam Review-Regulation (latest edition) ~$50
3. Texas Instruments BA II Plus calculator
4. Florida Gulf Coast University Catalog (online)
5. Florida Gulf Coast University Student Guidebook (online)
6. Florida Gulf Coast University Code of Conduct (online)
Grading,
Attendance,
and Other
Policies
GRADING Students are assigned course letter grades based on intellectual
performance (test scores) and compliance with university rules and regulations.
"Regular and punctual attendance and participation are expected" per the Catalog.
(10%) Attn/Part/Citizenship
(30%) Test1(up to 90 minutes)
(30%) Test2(up to 90 minutes)
(30%) Test3(up to 90 minutes)
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There are 3 tests. Tests are multiple choice questions (5 choices per question). Test
questions are similar to those in the Gleim and Wiley Guides.
Students are required to show a Photo ID when turning in her/his tests. Tests are
up to 100 multiple choice questions. Tests are closed book and closed notes. Students
may use the TI BA IIPlus calculator during tests. Students may not share calculators
during the tests. Students may be assigned/reassigned seats for testing purposes. A
student that misses 1 of the first 2 tests with an approved reason is assigned their
Test3 score as a substitute score.
Students that miss both Test1 and Test2 are assigned an I or F for the course.
Students that miss Test3/Final are assigned an I or F for the course. Students may
not communicate with anyone (including the Instructor) during the tests. Tests are
very c a r e f u l l y timed evaluations.
Tests are required to be completed during the designated class. Students may not
make copies test questions. Students are encouraged to review scantrons and test
questions during office hours. Test scores are posted on Canvas. Course letter grades
are posted on GULFLINE. The test questions and scantrons are the property of the
instructor/university and are not returned to students. Students may not make copies
of test questions. Students are encouraged to review the scantron and test questions
during office hours or by appointments.
A(100-90)
B+(89.99-85)
B(84.99-80)
C+(79.99-75)
C(74.99-70)
D(69.99-67)
F(66.99-0)
F(100-0) Noncompliance with university rules such as academic dishonesty, lack of
class attendance, recording class, etc. regardless of test scores.
This is a required attendance class. This is the required statement per the Catalog.
Regular and punctual attendance is required for this course. Any instructor who
informs students in writing about the necessity of class attendance may request the
Office of the Registrar to drop the student from the class for not attending. A grade
of W will be posted prior to the deadline for withdrawal without academic penalty.
After that date, the instructor may assign a punitive letter grade to a student who
does not abide by the attendance requirement.
Students may be assigned seats to make recording attendance easier. Late to class is
an absence. Leaving early is an absence. See the Catalog regarding course letter
grades. Course letter grades are made available via Gulfline (see the Catalog).
Please do not come by, phone, or email to ask your test scores and grades. This
delays releasing tests scores and grades.
A student that violates the University's academic honesty policy is assigned an F for
the course. A student that does not satisfy all prerequisites is assigned an F for the
course. A student with excessive absences is assigned an F grade for the course. See
the Catalog.
There are no early, late, makeup or substitute tests. There are no extra credit
assignments. Attendance is taken every class.
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All factors outside the class, including and not limited to grad school applications,
financial aid, scholarships, work requirements, graduation plans, personal plans, etc.
do not affect course letter grades.
Students are encouraged to use office hours. Note that office hours are not a
substitute for class. Students that miss class due to an approved absence and/or an
excused absence are welcome during office hours to review missed class work.
Students that are absent for all other reasons are required to ask other students (not
the instructor) to review missed work.
Your instructor is not a secretary or personal assistant. Any class handouts are available from the instructor only on the first day of distribution.
Students are required to follow the Code of Student Conduct at all times. Students
that are disruptive must stop being disruptive and/or leave the room.
Class will start promptly and generally end promptly (or 1-2 minutes early).
Students may NOT access the internet and may NOT use phones during class. The only electronic device that may be on during class is a TI BA II Plus calculator.
The instructor (to the best of his knowledge and ability) follows all written
University rules for all students on all issues at all times. Please bring any possible
lack of compliance with written rules to the immediate attention of the instructor,
and if there is actual noncompliance, the instructor will immediately change to
comply with the written rules.
KNOW LIST. No early tests. No late tests. No substitute tests. No make-up tests.
No extra credit. No whining. No exceptions. No drama. No entitlements. No eating
in class. No phone calls in class. No internet access in class. No late handout
distributions. No secretary services. No recording class. No surprises. No surprise
tests. No surprise questions on tests. These rules protect the rights of all people in
the class. The last day for a W grade is per the University calendar.
Learning Objective Assessment Strategy
P: Be effective
problem solvers/critical thinkers. ALC-CTS: Formulate
an appropriate solution to
an accounting problem. PL01;
ALC-CTS-Analyze accounting problems and formulate
solutions. Course LO 1.
Students will
apply US federal income tax rules regarding organizing
and operations of corporations.
Test questions
P: Be effective
problem solvers/critical
thinkers. ALC-CTS: Formulate an appropriate solution to
an accounting problem. PL01;
ALC-CTS-Analyze accounting
Test questions
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problems and formulate
solutions. Course LO 2.
Students will apply the
US federal income tax rules
regarding corporate distributions,
dissolutions.
K: Have interdisciplinary business knowledge. ALC
C/DKS Outcome 1; Demonstrate
their knowledge of all areas
of their College of Business
course of study as applied
to business situations.
KLO1;ALC-C/DKS #2-Apply accounting theories/
standards to accounting
practice areas.
Course LO 3. Students will
apply US federal income tax rules regarding S corporations.
UNDERGRADUATE ASSESSMENT STATEMENT When assessing the LOs above, if 90% of the student
answer 80% of the question(s) correctly the assessment
is exemplary; if 80% of the students answer 80% of the question(s) correctly the assessment exceeds
expectations; if 70% of the students answer 80% of the
question(s) correctly the assessment meets expectations. If less than 70% of the students answer
80% of the question(s) correctly, the assessment is
below expectations; and if less than 60% of the students answer 80% of the assessment correctly, the
assessment fails.
Test questions
Additional
Information
This is a VERY VERY VERY challenging course. The easiest way to earn a C or
better course grade is to attend every class, pay very close attention, and take very
careful notes. The rules of financial accounting do not apply to federal income tax
accounting.
This is an applied, real time, in person, class about federal individual income taxes.
This class is not about the political, economic, psychological, criminal, and other
aspects of taxation policy. This is not a forensic accounting class. This is not a
business law class. This is not a hybrid class. This is not an on-line class. This is not a
correspondence class. This is a real time, in person class.
See the FGCU calendar for the last day for a W grade.
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DEPARTMENTAL POLICIES AND RESOURCES
1. Calculator. Texas Instruments BA II Plus. The required calculator is the only
electronic device allowed to be used during class. UNLESS PERMITTED BY THE
INSTRUCTOR, THE USE OF ALL OTHER ELECTRONIC DEVICES (phones,
pads, laptop computers. etc.) is PROHIBITED DURING CLASS.
2. The schedules for the departmental courses offered (information on semester, day/night, other) are at: ACG, TAX, and BUL (BS)-go to the ACG BS program link
on the LCOB web page and click on “curriculum map” on left.
3. Planning for pre-registration and graduation is your responsibility. The above
schedules and LCOB advisors, along with the course prerequisite sequences
described in the FGCU Catalog and degree program sheets, should assist you in
ensuring that your plans are successfully implemented. Course substitutions and
prerequisite exceptions will be granted only for exceptional circumstances that are
clearly beyond the student's control. Poor or lack of planning is not one of those
circumstances.
4. Useful FGCU Resources:
Florida Gulf Coast University Catalog (http://www.fgcu.edu/catalog/)
Florida Gulf Coast University Student Guide Book
(http://studentservices.fgcu.edu/JudicialAffairs/)
Florida Gulf Coast University Code of Conduct
(http://studentservices.fgcu.edu/JudicialAffairs/)
Classroom Policies
Students are required to read and study the materials outside of class. Students can
expect to spend 2-3 hours outside of class for every 1 hour of class. Students unable
and or unwilling to make the appropriate time commitment to the class are likely
earn a D or F grade for the course.
Students may not record class. A student that tape records class commits academic
dishonesty and earns an F for the course regardless of test scores.
The instructor attempts (to the best of his ability) to follow all written university rules
for all students at all times on all issues. Please bring any possible noncompliance
with university rules to the attention of the instructor. After determining any
noncompliance, the instructor will immediately change to comply with written rules.
LCOB Vision, Mission, and Guiding Principles:
LCOB Vision: The AACSB accredited Lutgert College of Business will be
nationally renowned in providing students with the education and capabilities to take
leading roles in a diverse and global environment.
LCOB Mission: The Lutgert College of Business educates and prepares students to
address local and global business challenges. Our faculty are dedicated to student
learning, scholarship, and service that enhances our academic and business
communities. We build relationships that foster entrepreneurship and economic
growth in the Southwest Florida Region and beyond.
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Core Values/Guiding Principles:
Diversity: Foster a climate that enhances awareness of and respect for diversity of
people and ideas, actively encourages it among ours students, faculty, and staff.
Service to Community/Connected: Address current regional issues through extensive
outreach activities and by building relationships on a local, regional, and global basis
to facilitate the economic growth of Southwest Florida.
Sustainability: Educate and develop future business professionals to recognize the
value of and need for social, economic, and environmental sustainability.
Global Perspective: Emphasize the ability to perform effectively across cultures in addressing global business challenges building on the “second circle*” model.
Integrity/Accountable: Maintain the highest standards of ethics, honesty, mutual respect, and accountability for our college’s faculty, staff, and students.
Knowledge/Innovative: Provide an academic environment emphasizing teaching and
scholarship that enhances student learning and the reputation of the college.
*The second circle model was created by Dr. Richard Pegnetter as a process that expands the traditional
college/university to international university partnership model to include the regional business community of Southwest Florida with the regional business community of our international partner thus expanding the
interaction to “second circle”.
ACG BS Program Vision, Mission, Guiding Principles, and Goals:
Vision: Be the program of choice that prepares students to master the accounting subject
matter to become successful in their careers.
Mission: Prepare students for entry level careers in public accounting, service organizations,
government, and industry and/or post-baccalaureate education by ensuring that:
1. graduates are technically competent and possess the full range of business and
professional skills; and
2. faculty members employ cutting edge instructional methods and technologies,
anchored by a balanced mix of applied/educational/basic research outcomes and
institutional/professional/academic/community service.
Guiding Principles:
1. Support the preservation of the AACSB accreditation.
2. Continue to add value to our stakeholders (students, employers. Parents, and the
community).
Goals to Implement the Principles:
Goal 1. Perform continuous review and evolutionary improvements in curriculum design based
on the assessment of program learning outcomes and analysis of external input.
Goal 2. Faculty members will on average exceed the scholarship standards for continued
employment.
Goal 3. Faculty and students will be involved in professional and academic organizations and
produce industry specific experience outcomes.
University Statements:
1. Academic Dishonesty/Cheating Policy:
"All students are expected to demonstrate honesty in their academic pursuits. The university policies regarding issues of honesty can be found under the "Student Code of Conduct" on page 11, and under "Policies and Procedures" on pages 18 - 24. of the Student Guidebook . All students are expected to study this document which outlines their responsibilities and consequences for violations of the policy. "
2. Disability Accommodations Services:
Office of Adaptive Services. Florida Gulf Coast University, in accordance with the
Americans with Disabilities Act and the university’s guiding principles, will provide
classroom and academic accommodations to students with documented disabilities. If you
need to request an accommodation in this class due to a disability, or you suspect that your
academic performance is affected by a disability, please see me or contact the Office of
Adaptive Services. The Office of Adaptive Services is located in Howard Hall, room 137. The
phone number is 590-7956 or TTY 590-7930. In addition to classroom and campus
accommodations, individuals with disabilities are encouraged to create their personal
emergency evacuation plan and FGCU is committed to providing information on emergency
notification procedures. You can find information on the emergency exits and Areas of Rescue
Assistance for each building, as well as other emergency preparedness materials on the
Environmental Health and Safety and University Police Department websites. If you will
need assistance in the event of an emergency due to a disability, please contact Adaptive
Services for available services and information.
3. Student Observance of Religious Holidays
All students at Florida Gulf Coast University have a right to expect that the University will reasonably accommodate their religious observances, practices, and beliefs. Students, upon prior notification to their instructors, shall be excused from class or other scheduled academic activity to observe a religious holy day of their faith. Students shall be permitted a reasonable amount of time to make up the material or activities covered in their absence. Students shall not be penalized due to absence from class or other scheduled academic activity because of religious observances. Where practicable, major examinations, major assignments, and University ceremonies will not be scheduled on a major religious holy day. A student who is to be excused from class for a religious observance is not required to provide a second party certification of the reason for the absence. See: http://www.fgcu.edu/generalcounsel/policies-view.asp
4. Center for Academic Achievement The Center for Academic Achievement (CAA) provides academic support services to all FGCU
students. Students can take advantage of free peer tutoring and Supplemental Instruction sessions for lower-level math and science courses, as well as workshops to facilitate the development of skills necessary for college success. If you would like to participate in any programs, learn about tutoring services, or meet with an Academic Retention Coordinator, please visit the CAA in Library 103 or call us at (239) 590-7906. website is www.fgcu.edu/caa.
Notice and Disclaimers May 12, 2015
This Notice and Disclaimer protects all rights of all persons at all times regarding all issues in accordance
with University rules and local, state, federal laws. All lectures and course materials are for educational
purposes only and do not constitute expressed or implied tax advice. All lectures and course materials are
for educational purposes only and do not constitute expressed or implied legal advice. All lectures and
course materials are the subject of copyright laws. Class may not be recorded for any reason in any
manner at any time by anyone. Any form of recording anyone without their express written
authorization in advance is a violation of Florida privacy laws. All lectures and postings on Canvas are
the property of the instructor and may not be copied and or distributed without the express written
authorization of the instructor in advance. Noncompliance with the above statements violates the academic
honesty policies of the University. All potential violations are rigorously pursed under University rules,
local laws, Florida laws, and federal laws.
The instructor (to the best of his knowledge and ability) follows all university rules and local, state, federal
laws for all persons at all times on all issues. Please give notice of any possible noncompliance to the
immediate attention of the instructor, and if there is actual noncompliance, the instructor will change to
comply (and make retroactive changes to comply to the extent possible).
Example of Test Instructions
TAX XXXX, Test ?of 3, Weekday, Month date, 2014, Time PM, LH1206, Cecil
PRINT YOUR NAME ___________________ SCANTRON NUMBER_________
Instructions This test covers your ability to follow instructions and your tax knowledge. This includes your
ability to both start and finish not later than the designated times per above. Do not waste time. Your
ability/inability to follow these instructions is a scored part of this test. The failure to follow these
instructions can reduce the scantron score by up to 100 points. Remove everything from your desk area
except for a current photo ID, pencils, erasers, Texas Instruments BA II Plus calculator, drink/water, and
watch. Turn off all electronic communication devices. Print your name above. Your last name from above
must match your last name per the university's class list. Print your name and scantron number from
above on the name line on the blue side of the scantron. Use a No. 2 pencil to mark the best response to
each of the test questions on the blue side of the scantron. The best response is the one that matches the
key used to score the scantron. Keep the test pages stapled together. You may write/mark on the questions.
Do not use scrap paper. Do not use any electronic device other than the required calculator. Do not share
calculators. You must turn in the test questions and scantron before the end of the testing period. You must
show a current photo ID when you turn in the test questions and scantron. Do not make stray marks on the
scantron. Sign the academic honesty statement. Do not talk or ask the instructor questions during the test
and/or after class. In the case of a personal emergency (bathroom break, panic attack, etc.), write “personal
emergency” on the top of the test questions, turn your test questions and scantron face down, then leave
the room quietly (do not leave the building), and return when the personal emergency is complete. A
personal emergency does not increase the time allowed to complete this test. If you do not return to the
classroom before the end of the testing period and/or you must leave the building, go directly to the FGCU
Student Health Services (Wellness Center building) for assistance. In the case of a classroom/building
emergency (fire alarm, etc.) turn your test questions and scantron face down, and quickly leave the
building. The test will be rescheduled on a future class date. Test scores will be posted on Canvas. Print
any issues you have with any questions on these lines. Do not waste time. This test is the property of the
instructor and protected by federal copyright laws. GOODLUCK!
_____________________________________________________________________________________
_____________________________________________________________________________________
_________________________________________________________________________ACADEMIC
HONESTY STATEMENT I have not given and I have not received any assistance during the testing
period. I understand the test questions and scantron are the property of the instructor. I understand I must
show a current photo ID and return both the questions and scantron to instructor before the end of the test
period. I understand any violation of these requirements is the failure to adhere to the academic honesty
policies of the University. I understand an F grade for the course is assigned to all students that do not
follow all of the academic honesty policies of the University.
SIGNATURE___________________________ DATE____/_____/_____
TEST SCORES ARE POSTED ON CANVAS. Canvas is the only university approved method of
releasing tests scores. COURSE LETTER GRADES ARE POSTED ON GULFLINE. GULFLINE in the
only university approved method of releasing course letter grades. Please do not phone, email, etc. as that
delays the release of test scores and course letter grades for all students.
TAX4011 SUMC 2015 DAILY SCHEDULE (subject to change) TTH CLASS
1. Tuesday, May 12, 2015 Intro/Syllabus/50 Basics/Chapter 1/Chapter 2
2. Thursday, May 14, 2015 Textbook Chapter 2
3. Tuesday, May 19, 2015 Textbook Chapter 2
4. Thursday, May 21, 2015 Textbook Chapter 3
5. Tuesday, May 26, 2015 Textbook Chapter 3
6. Thursday, May 28, 2015 Textbook Chapter 3
7. Tuesday, June 2, 2015 Test1
8. Thursday, June 4, 2015 Textbook Chapter 4
9. Tuesday, June 9, 2015 Textbook Chapter 4
10. Thursday, June11, 2015 Textbook Chapter 5
11. Tuesday, June 16, 2015 Textbook Chapter 5
12. Thursday, June 18, 2015 Textbook Chapter 6
13. Tuesday, June 23, 201 5 Textbook Chapter 6
14. Thursday, June 25, 2015 Test2
15. Tuesday, June 30, 2015 Textbook Chapter 11
16. Thursday, July 2, 2015 Textbook Chapter 11
17. Tuesday, July 7, 2015 Textbook Chapter 11
18. Thursday, July 9, 2015 Textbook Chapter 11
19. Tuesday, July 14, 2015 Textbook Chapter 11/Chapter 15
20. Thursday, July16, 2015 Test3
From 2014 IRS Data Book Table 2 (first 4 columns, first 7 rows)
Taxpayer Type of Tax Form Number/Returns (2013) FGCU Course Individuals Income 1040 145,996,000 Tax4001 Cecil UG C Corporations Income 1120 2,248,000 Tax4011 Cecil UG S Corporations Income 1120S 4,566,000 Tax4011 Cecil UG Partnerships Income 1065 3,686,000 Tax6205 Placid Grad Trusts/Estate Income 1041 3,192,000 Tax6877 Cecil Grad Individuals-Gift Transfer 709 313,000 Tax6877 Cecil Grad Individuals-Estate Transfer 706 32,000 Tax6877 Cecil Grad Tax Research All All All Tax6045 Placid Grad
TAX4011 50 Basics Relating to US Fed Income Tax for Business 05.12.2015 Cecil
1. There are general rules, there are exceptions to general rules, there are exceptions to exceptions, etc. 2. The legal status and income tax status of a business activity are not always the same 3. LLCs are not recognized for federal income tax purposes
1 member LLC is presumed to be a sole proprietorship for federal tax purposes (but check the box regs)
2 or more member LLC is presumed to be a general partnership for federal tax purposes (but check the box regs)
4. Federal income tax status of business activities are
SP(Form 1040), PS(Form 1065), C Corp(1120), S Corp(Form 1120S) Trust(Form1041), Estate(Form 1041) 5. SP, PS, Trusts, Estates, S Corporations are generally pass through tax entities (measure tax income, assign tax income to owners, owners report assigned income and pay related income taxes) 6. C Corporations are separate taxpaying entities 7. Stock of most corporations are owned by only a few shareholders (less than 5 shareholders)
8. Stock of very few corporations are publicly traded stocks
9. Corporate form of doing business is "best" for shielding personal assets from business risks
10. C corporations are the least risky from exposing shareholders to business risks
11. C corporations are most risky from cumulative federal income tax risks
12. Pretax income of a C corporation is potentially subject to 4 federal taxes
corporate regular inc tax, corporate AMT, tax on dividends paid by shareholders, corporate PHC/AET tax
13. Corporate formations are controlled by state laws (not federal law)
14. Corporations do not recognize gain or loss on issuance or resale of their own stock
15. General rule to that formation of a corporation (issuance of its stock) IS NOT taxable TO the corporation
16. General rule is that the formation of a corporation IS a taxable transaction TO the shareholders
17. Code Section 351 is an important exception to the above general rule FOR shareholders
18. Time period for tax returns is generally the same as the time period for non-tax (book) reporting 19. Method of accounting (cash/accrual/hybrid) for tax is generally the same as for non-tax(book) purposes 20. General Rule-All inflows are gross income-Section 61 defines gross income for all business activities 21. General Rule-No outflows are deductions/credits without a specific code section 22. Major code section for deductions is Section 162 23. Section 162 defines deductions for all business activities (ordinary, necessary, reasonable$, not capital) Ordinary is defined as normal, usual or customary in the type of business and not capital in nature Necessary is defined as incurred by a prudent person and expected to be appropriate and helpful in the business 24. The taxpayer carries the burden of proof (substantiation) for all deductions and credits 25. There are many rules limiting deductions, including….. against public policy, related party deductions/losses, expenditures that generate tax exempt income, lavish and
extravagant, meal and entertainment, annual limits on charitable contribution deductions, political and lobbying limits,
capital expenditures, expenses of illegal activities, investigation of unsuccessful unrelated business activities, 26. Form 1120 Schedule M-1 or M-3 reconciles book income to regular federal taxable income
27. Form 1120 Schedule M-2 reconciles book unappropriated BB retained earnings to EB retained earnings
28. Form 1120 Schedule L reports beginning and ending book balance sheets
29. Special (lower) tax rates for LT capital gains do NOT apply to corporations
30. All C corporation distributions are presumed to be ordinary taxable dividends to the shareholders
31. Special qualifying distributions can be taxed as sales or exchanges of stock (capital gains/loss for shareholders)
32. E&P is presumed to be infinite unless the corporation can prove otherwise
33. Basis of corporate stock is presumed to be zero unless the shareholder can prove otherwise
34. Dividends for tax purposes are distributions from E&P (similar to retained earnings for book purposes)
35. Two categories of E&P 1. Current E&P 2. Accumulated E&P for determining taxable dividends
36. C corporation distributions to shareholders are presumed to 1) dividends then 2)return of capital 3)capital gain
37. General rule is that a complete liquidation is a taxable event to both the corporation and shareholders
38. All C corporation rules apply to S corporations UNLESS there is a special S corporation rule
39. Most corporate federal income tax returns (67%) are S corporation returns (not C corporations)
40. S Corporations must have 100 or fewer shareholders/All shareholders must consent to the S election
41. There are no limits on the amount of assets an S corporation may own in its business
42. Form 1120S is used to compute and allocate taxable income for S Corporations
43. Form 1120S Schedule K reports total allocable taxable items for S Corporations
44. Form 1120S Schedule K items are allocated on a per day per share basis (no special allocations permitted)
45. Form 1120S Schedule K-1 reports allocated shares of taxable income items to the S corporation shareholders
46. Form 1120S Schedule K-1 items are reported by the shareholder on their applicable Form 1040 schedules
47. A corporation that has always been an S Corporation has its income subject to only 1 federal income tax
48. A corporation that converts from C status to S status may be subject to four federal income taxes
1) LIFO recapture tax 2) built in gains tax 3) excessive net passive income tax 4) tax credit recaptures
49. S corporation distributions to shareholders are generally return of S corporation basis (tax free-not dividends)
50. S corporation distributions in excess of shareholders basis is capital gain income to shareholders
TAX4011 Textbook (Subject to update/revision) Cecil 05.12.2015
Textbook Chapter 3 has its focus on the federal taxation of operating results of a C corporation. Pretax income a C corporation is potentially subject to four different federal taxes. 1. Regular income tax (see page 3-3) 2. Alternative minimum tax (see page 3-3) (coverage in Chapter 5) 3. Dividends Tax (income tax on shareholders-for individuals-Form 1040 Schedule B) (coverage in Chapter
4) 4. Accumulated Earning Tax or Personal Holding Company Tax (see page 3-3) (coverage in Chapter 5) Calculation of the Regular Tax begins with net income per books and makes adjustments to get to regular federal taxable income (regular taxable income x rate schedule to get to the Regular Tax). Be sure to study Tax Return Schedules (page 3-39 to 3-43). Be sure to study APPENDIX Pages B-7 to B-
16.
Textbook Most Important Textbook Learning Objectives Most Important
Textbook Examples
Gleim Federal Tax
Exam Questions and
Explanations
23-1 edition
Wiley CPA Exam
Review-Regulation
2013 edition
Chapter 1 8>Professional Guidelines for Tax Practice None
Chapter2 1>Alternate business forms (skim only) 2>Check the box regulations (skim only)
3>Legal and tax issues of forming a corporation
4>Requirements for deferrals on incorporation 6>Taxation of worthless stock and debts
8>Procedural Rules
5,8,9,10,11,12,13,14 16,18,19,24,26,28,29
30,31,32,33,35,36
37,38,39,44,45,46
16.1 (15 questions) 16.2(7 questions)
16.3 (2 questions)
16.4 (9 questions)
Module 38 Q1-8 Module 38 Q8-11
Chapter3 1>Tax years and accounting methods (skim only) 2>Corporate (regular tax) deductions
3>Compute regular corporate income tax
6>Corporate income tax filing requirements
2,5,7,8,11,46,50,51
Appendix B
B-7 to B-8 (facts) B-16 (spreadsheet)
B-9 to B-15 Form 1120
16.5 (20 questions) 16.7 (15 questions)
16.8 (11 questions)
16.9 (17 questions) 16.10 (15 questions)
16.12 (24 questions)
16.14 (10 questions) 16.15 (9 questions)
Module 38 Q29-72 Module 38 Q20
Module 38 Q12-19
Chapter4 1>Key tax questions regards corporate distributions
2>Corporate E&P
3>Taxation of regular corporate distributions 4>Taxation of stock distributions/stock rights
5>Stock redemptions as stock sales or dividends
9>Procedural rules for corporate distributions
1,2,4,5,6,7,8,9,10
12, 14,15,16,19,20
21,24,25,26,31,33 36,38,42
16.11 (2 questions)
17.1 (14 questions)
17.2 (26 questions) 17.3( 18 questions)
Module 38 Q80-94
Chapter5 1>Corporate AMT tax liability
2>Corporate PHC tax liability
3>Corporate AET tax liability 5>AMT, PHC, AET procedural rules
1,2,5,6,12,22 16.13 (21 questions)
17.10 (10 questions)
17.11(8 questions)
Module 38 Q21-28
Module 38 Q104-122
Chapter6
1>Basics of corporate liquidations
2>General tax rules for corporate liquidations 3>Parent corporation liquidation of controlled subsidiary
4>Special reporting issues for corps and shareholders
5>Taxation of retirements of debt 7>Procedural rules for corporate liquidations
1,2,3,4,5,6,7,13,15,16
17,18, 21, 22, 25
17.4 (6 questions)
17.5 (13questions) 17.6 (2 questions)
Module 38 Q95-103
Chapter11 1>Advantages/disadvantage of making an S election
2>Requirements for being eligible for making an S
election 3>How a corporation elects, revokes, terminates S status
4>Classifying reportable items for an S corporation
5>Allocation of reportable items to S Corp shareholders 6>Computing the basis for an S corporation shareholder
7>Taxation of distributions from S Corp to shareholders
8>Other rules for S corporations 10>Procedural rules for S corporations
See Chapter 11 Page
17.12 (18 questions)
17.13 (13 questions)
17.14 (10 questions) 17.15 (12 questions)
17.16 (14 questions)
17.17 (6 questions) 17.18 (11 questions)
Module 38 Q123-152
Chapter15
1>Role of the IRS
10> Professional and Government Stds for Tax Practice
None 22.3 (5 questions)
The attached is a basic summary list of adjustments/reconciling items (referred to as M-1 items) used in the computation of regular federal taxable income for C corporations.
Schedule M-3 is required instead of Schedule M-1 when ending total assets per Schedule L =>$10Million Schedule M-1 is a total of 10 lines while Schedule M-3 is 4 pages!
Schedule M-1/M-3 Items
Permanent Items
1. Federal income taxes
2. Key person life insurance premiums
3. Key person life insurance proceeds
4. 50% of Meal and Entertainment expenses
5. Fines
6. Penalties
7. Domestic Production Activities deduction
8. Political contributions
9. Lobbying expenses
10. Interest income from state and local bonds
11. Interest expense on loans to fund tax exempt income
12. Organizational expenses
13. Tremble damage expenses
14. Unreasonable executive compensation
15. Depletion deduction in excess of basis of natural resources
Timing/Temporary Differences
1. Book depreciation versus Tax depreciation (including Section 179 deduction and bonus depreciation)
2. Book depletion versus Tax depletion to the amount of basis of natural resources
3. Book amortization versus Tax amortization of intangibles
4. Book bad debt expense versus Tax specific write offs of receivables
5. Book charitable contributions versus Tax charitable contributions
6. Book loss versus Tax loss on related party transactions
7. Book gains/loss versus Tax gains/losses on like kind exchanges
8. Book loss versus Tax loss on involuntary conversions
9. Book inventory valuation versus Tax inventory valuation (other than LIFO method)
10. Book versus Tax Recognition of Long Term Contracts (Percentage versus Completed Contract)
11. Book versus Tax (Leases versus purchase of assets)
12. Book versus Tax pension expense
13. Book loss versus Tax Loss on wash sales of securities
Other Items to Reconcile from Net Book Income to Regular Taxable Income
1. Net Operating Loss
2. Special Deductions (Dividends Received Deduction)
TAX4011 Textbook Chapter 11 Study Guide May 12, 2015 Cecil
TEXTBOOK
Chapter 11 STUDY
(P refers to Textbook Page)
Skim Only
EXAMPLE 11-1, 11-2, 11-3, 11-4, 11-5, 11-6
11-7, 11-11, 11-12, 11-14, 11-15
11-18, 11-19, 11-22, 11-25, 11-26
11-30, 11-36
11-8, 11-9, 11-10, 11-13, 11-16, 11-17
11-20, 11-21, 11-23, 11-24, 11-27, 11-28
11-29, 11-31, 11-32, 11-33, 11-34, 11-35
ADDITIONAL
COMMENT
P11-3, P11-4, P11-13, P11-15
P11-17, P11-39
P11-2, P11-6, P11-11, P11-24, P11-28
REAL WORLD
EXAMPLE
P11-3, P11-4, P11-21, P11-39 P11-18
SELF STUDY
QUESTION
P11-10, P11-25, P11-27, P11-39 P11-8, P11-23
TYPICAL
MISCONCEPTION
P11-29, P11-34 P11-19, P11-31
KEY POINT P11-3, P11-16, P11-20, P11-22
P11-25, P11-28, P11-36
P11-7, P11-14
TAX STRATEGY
TIP
P11-21 P11-4, P11-10, P11-11, P11-16. P11-17
P11-31
HISTORICAL NOTE P11-10
PRACTICAL
APPLICATION
P11-17
ETHICAL POINT P11-5, P11-18
APPENDIX B B-37 to B-46
WILEY Guide S Corp Outlines
S Corp Questions and Explanations
(Handout to come)
GLEIM Guide All S Corporation
Questions and Explanations
TEXTBOOK CHAPTER 11
Conversion from C Corporation to S Corporation-LIFO RESERVE RECAPTURE EXAMPLE
Assume ABC Corporation keeps its detail/physical inventory records on FIFO basis
and then converts to a LIFO basis at the end of every year for financial accounting purposes.
FIFO ending inventory is $1,000 and same inventory is only $900 on LIFO basis (12/31/2012)
12/31/2012 journal entry to convert FIFO ending inventory to LIFO basis inventory
Cost of Goods Sold $100
LIFO reserve $100
Assume ABC Corporation elects to be an S corporation effective (01/01/2013)
Fed income tax result regarding the LIFO recapture tax
When ABC makes an S election, the IRS requires ABC to "recapture" the LIFO reserve
LIFO Reserve $100
Cost of Goods Sold/Other Income $100
If ABC has a 35% federal tax rate, then
Fed Income Tax Expense $35
Fed Income Tax Payable $35
Required payments to cover the LIFO recapture tax due to ABC making an S election would be:
2012 Year 1 (Last year as C Corporation) 1/4 of $35=$8.75
2013 Year 2 (1st year as S Corporation) 1/4 of $35=$8.75
2014 Year 3 (2nd year as S Corporation) 1/4 of $35=$8.75
2015 Year 4 (3rd year as S Corporation) 1/4 of $35=$8.75