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BUS1 123A 1 FALL 2021 CORPORATE TAX RETURN & RESEARCH PROJECT Case Introduction and Background In this case, you will take on the role of a staff accountants at a mid-sized regional accounting firm. You have been assigned to prepare the federal Form 1120, Corporate Income Tax Return, any related tax work papers and return statements for Universal Sports, Inc. (USI). All company and individual names used in this case are fictitious. Requirements for Project 1. Choose your team. a. Team are made up of 3 students to complete this tax return. b. Choose wisely because each team member will provide feedback about the other member(s), which will impact each individual team member’s score. c. Team issues should be resolved within the team. If there are any issues that cannot be resolved by the team, then team members should meet together with the instructor; if it is determined that your issues cannot be resolved then you may request team member(s) be removed or that you be removed from your team. d. Each team member will evaluate themselves and each of their members at the conclusion of the project. e. Each team is responsible for its own deliverables and may not consult with other teams. You are to only work on this project only with your fellow team members. 2. Track your time. In practice, public accounting staff must keep a log of the time spent on each task so that the firm knows how much to bill its clients. At the end of the project, your team will need to complete and submit ONE cumulative time log of all hours of each member spent working on this client. If team members jointly complete a task, then the hours spent on that task should only be counted once. 3. Using only the blank forms available at: www.IRS.gov, prepare USI, Inc.’s Federal income tax return for the 2020 Tax Year – including, but not limited to, the following schedules and forms: Form 1120 Schedule C Schedule D Form 1125-A Schedule G Form 1125-E Form 4562 Form 4797 Form 8949 Form 3800 Form 5884 Form 7004 Form 8809 Form 1099 (only taxpayer form required) Form 1096 (only taxpayer form required) 4. For any part of the tax return where a statement is required, you must attach a statement to the tax return - with a reference to what line of the return it applies to. 5. Prepare and include filing extensions form for BOTH Form 1120 AND for the 1099 forms (two 1099-MISC forms and three 1099-DIV forms) for the 2020 tax year (attach these BUS1 123A 2 extensions behind the Form 1120 (and behind the forms/schedules attached to the Form 1120)). 6. For the 1099 and 1096 forms that you will turn in, you only need to complete the taxpayer’s copy (you do not need to complete all of the 1099 copies) and attach them at the very end of the submitted return project. 7. Prepare a carryforward memorandum to the file detailing what your team has done and why, as well as any tax research that you have performed and its outcome. This memo is being written to the next year’s team who will be preparing the client’s next year’s tax returns. 8. You do not need to prepare any W-2 forms or a W-3 for the client. 9. Remember to list each team member on the tax return as the paid preparers, and for purposes of this project also “sign” the return as the taxpayer as well. Also, list all team member names on the top of the first page of the Form 1120. 10. Every STUDENT (team member) must upload an electronic copy of the Tax Return Project and other required documents via Canvas by the due date and time. If you do not submit the Tax Return Project but your team members do, you WILL NOT receive points. 11. Late submissions of the project will not be accepted and result in a loss of ALL points. 12. Complete all forms as if you are filing them with the IRS – all relevant lines and signatures must be completed. Tax Research 1. If any uncertain tax issues arise during the preparation of the project, then you should research those issues to determine the correct tax treatment. Identify the primary source (i.e., Internal Revenue Code, Regulation) you use, as you will need to include it in the final client memorandum to the file. Appointments with Senior (Student Teaching Assistant to BUS1 123A) 1. Make appointments with the senior when and if you need assistance. Your team may schedule an appointment with the supervising senior to ask questions about this project a maximum of three times. Part of a senior’s responsibility is to mentor staff. It is expected that the senior appointments will be used to help you understand any areas in which you are having difficulty. 2. You are not required to ask questions, but high-quality, thoughtful questions will likely improve your final project. In practice, your employer will not want you to spin your wheels (and exceed their projected budgeted time), so supervisors will expect you to have a list of questions that can be addressed in an efficient manner. BUS1 123A 3 PROJECT FACTS Firm & Staff Preparing the Form 1120 You work for a CPA firm by the name of Paid, Penalty & Paperwork (PPP). Your preparer identification number (PIN) is P00319575. Paid, Penalty & Paperwork’s address is 175 Compensation Drive, Hacienda, CA 91745, its email address is
[email protected], and its phone number is (213) 535-7895. The firm’s EIN is: 77-7268503. The Client’s Background USI is a retailer of consumer goods from brands with a demonstrated commitment to sustainability and the overall welfare of the environment. USI is a C corporation for federal and state purposes. It is a calendar year taxpayer, files federal Form 1120 and utilizes the accrual method of accounting. USI files as a single entity for U.S. federal income tax purposes; it remained a single entity for tax year 2020. USI paid federal estimated tax payments over the course of 2020, and has indicated that it wants any overpayment of federal tax to be refunded. USI’s address is 18 Patagonia Way, Hacienda, CA 91745 and its phone number is: (213) 123-4567. Its Employer Identification Number is 56-2358793. It was incorporated in California on June 1, 2010. It is a privately-owned (non-public) corporation that is not a subsidiary in an affiliated group or a parent-subsidiary group. The only shares of USI are in the form of common stock; there are no preferred shares. The President of the corporation and only corporate officer authorized to sign its tax returns is Natalie McAugh, who is a citizen of the USA. Her social security number is 897-36-2872 and Natalie owns 55% of the shares of the corporation. She has owned 55% of the shares since the corporation incorporated. She spent 2,320 hours working for the corporation and was paid gross wages of $120,000 in 2020. She received no bonuses or other incentive-based compensation in 2020. The $120,000 of wages is comprised entirely of her base salary. Natalie’s home address is 138 Gilman Road, Hacienda, CA 91745. The Chief Financial Officer, Treasurer and Secretary of the USI is Jane Chambers. She also works as the corporation’s head salesperson at the company’s largest store. She spent 2,632 hours working for the corporation and was paid gross wages of $92,000 in 2020. Jane’s social security number is 854-72-4923 and her home address is 8 Yarkley Way, Hacienda, CA 91745. Jane does not own any shares in the corporation. She is a citizen of the United States. There are no other officers for the corporation. Tiffany Lyons and Jeremy Hiller are the two other shareholders in the corporation. Throughout 2020, Tiffany owned 40% of the common stock and Jeremy owned 5%. They have each owned the same percentage of the corporation’s stock since it was incorporated. Both Tiffany and Jeremy are U.S. citizens. Tiffany and Jeremy did not work for the corporation at all in 2020; they are only investors. Tiffany’s social security number is 732-63-9811 and her home address is 282 Solatare Avenue, Aptos, CA 95003. Jeremy’s social security number is 285-60-9302 and his home address is 162 Convue Court, San Mateo, CA 94010. mailto:
[email protected] BUS1 123A 4 2020 Income Statement Revenues Gross sales1: 825,000 Dividends: 10,000 Bank Account Interest: 350 Interest on U.S. Treasury Bonds: 420 Santa Clara County, CA Bond Interest: 180 Cost of Goods Sold2 Inventory as of 1/1/18 of: 100,000 Inventory purchased during 2020: 283,487 Inventory as of 12/31/18 of: 220,000 Other Expenses Store rent: 36,000 Advertising Services: 59,438 Office Supplies: 8,732 Repairs and maintenance: 7,240 Depreciation: 2