Instructions: Topic 8 Tax Return Problem

You will be working individually to complete an s-corporation tax return and an individual income tax return. The completed tax returns can be submitted in paper copy during class (if uploaded to LoudCloud – please scan and upload one single document. Note if you upload multiple documents, the assignment will not be graded, and you will be required to turn in a paper copy or resubmit a single document with possible late point deductions). Use 2018 forms only (points will be deducted for using 2017 or 2019 forms).

Required

Prepare an s-corporation tax return. See data below. You will need the following forms:

• Form 1120S and corresponding schedules, including Schedules L and M-1

• Schedule K-1 for Herman Hiebert (from problem C11-64)

• For the Schedule K-1, use the address and SSN information below for Herman.

Individual taxpayer information

Individual tax forms required: 

• Form 1040

• Schedule 1

• Schedule 5

• Schedule A

• Schedule B

• Schedule D

• Schedule E

• Form 8949

• Form 4797 (see item 4.i. below)

1. Herman Hiebert’s social security number is 456-12-3789. He is married but does not have any dependents. His wife’s name is Rebecca, and her social security number is 123-45-6789. They live at 1345 E. 44th Street, Phoenix, AZ 85017

2. Additional information to complete the tax returns:

a. Rebecca works at Intel Corporation and earned $160,000 during the tax year. 

b. Her federal tax withholding was $30,000 and Arizona income taxes withheld were $8,000. Herman made federal estimated tax payments of $15,000 and Arizona estimated payments of $1,500

c. Mortgage interest on their personal residence was $15,200, and property taxes were $5,150.

d. Additional charitable contributions of $10,500 were paid during the year.

e. On July 10, 2018, they sold 1,000 shares of Intel Corporation stock for $70 per share. They purchased the stock on May 1, 2012 for $56 per share. 

f. The taxpayer’s have a long-term capital loss carry forward of $5,000.

g. Assume AMT does not apply. 

h. Apply any refund to estimated tax payments for the next year.

i. Instead of preparing Form 4797 (because it was already prepared for the s-corporation), input any gain/loss from the Section 1231 asset on Form 1040, Schedule 1, line 14.

3. Download the appropriate 2018 tax forms from the IRS website. Include any necessary supporting schedules and supporting documentation. Use 2018 tax forms only (points will be deducted for using incorrect forms).

4. If submitting to LoudCloud, create one PDF file with all the tax forms in the order they should appear in a submitted tax return. If submitting paper copy, remember to put the forms in the proper order. Points will be deducted if forms are placed out of order. Remember to include the appropriate taxpayer information on the forms; points will be deducted for missing items. 

S-corporation Tax Return  

For this assignment complete and submit two tasks in a single document:

• Prepare an S-corporation tax return. Complete problem C:11-61 in your textbook.

• Complete an individual income tax return with the assumption that one of the shareholders

from the entity return is your client. Reference the attached Topic 8 Assignment Instructions

document in order to properly prepare the individual tax return.

When submitting the tax return project to LoudCloud, the tax returns should be in a single document. Do not scan and submit the completed tax forms individually otherwise, as it may cause a delay in grading. Name the PDF file LastnameFirstinitial.ACC460.TR2, where the TR2 refers to the Tax Return 2 assignment.

Question C:11-61.

Prepare an S-corporation tax return. Complete problem C:11-61 in your textbook.

TAX FORM/RETURN PREPARATION PROBLEMSC:11-61

 Bottle-Up, Inc., was organized on January 8, 2008, and made its S election on January 24, 2008. The necessary consents to the election were filed in a timely manner. Its address is 1234 Hill Street, City, ST 33333. Bottle-Up uses the calendar year as its tax year, the accrual method of accounting, and the first-in, first-out (FIFO) inventory method. Bottle-Up manufactures ornamental glass bottles. It made no changes to its inventory costing methods this year. It uses the specific identification method for bad debts for book and tax purposes. Herman Hiebert and Melvin Jones own 500 shares each. Both individuals materially participate in Bottle-Up’s single activity. 

Herman Hiebert is the tax matters person. Financial statements for Bottle-Up for the current year are shown in Tables C:11-2 through C:11-4. Ignore the U.S. (domestic) production activities deduction. 

Prepare a 2017 S corporation tax return for Bottle-Up, showing yourself as the paid preparer.

Question C:11-64. 

Cato Corporation incorporated six years ago in California, with Tim and Elesa, husband and wife, owning all the Cato stock. Immediately thereafter, Cato made an S election effective for that year. Tim and Elesa filed the necessary consents to the election. On March 10 of last year, Tim and Elesa transferred 15% of the Cato stock to the Reid and Susan Trust, an irrevocable trust created three years earlier for the benefit of their two minor children. Early in the current year, Tim and Elesa’s tax accountant learns about the transfer and advises the couple that the transfer of the stock to the trust may have terminated Cato’s S election. Prepare a memorandum for your tax manager indicating any action Tim and Elesa can take that will permit Cato to retain its S election. Research sources suggested by the tax manager include Secs. 1361(c)(2), 1362(d)(2), and 1362(f).

Topic 8 Project: Tax Return Check Figures

Form 1120S, Page 1

• Total income, Line 6: $1,011,000

• Other deductions, Line 20: $226,102

• You should have values on the following lines: 1a, 1b, 1c, 2, 3, 6, 7, 8, 9, 10, 11, 12, 13, 14, 16, 18, 19, 20 and 21.

• Be sure you are using Form 1120S and not 1120 or 1065.

• Remember to use 2018 tax forms. Points will be deducted for 2017 or 2019 forms. Forms can be found on the IRS website. Use the “find forms” or search feature. Depending on the time of year, the 2018 forms may be in the “prior year” section. 

Form 1120S, Page 2, Schedule B

• Answer “no” to all items. If a field does not need to be completed, leave it blank. Points will be deducted for failing to complete this schedule. 

• Answer Lines 1 and 2 based on the information provided in the problem. 

Form 1120S, Page 3 (i.e., Schedule K)

• You should have amounts on the line numbers: 1, 4, 5a, 5b, 8a, 9, 12a, 12b, 12d (include type of item), 15a, 16a, 16c and 16d.

• Line 1 should be the same as line 21 from page 1. 

Form 1120S, Page 4 (Schedules K [continued] and L)

• Line 17a should be the investment income items added together. Review the Schedule K from Page 3 to determine the amount. For Line 17b, the amount is provided in the textbook problem. 

• Line 18 should be $122,733.

• Schedule L is the balance sheet copied directly from the case in the textbook. Remember the assets should equal the liabilities and capital. Complete the values for the beginning and end of the year. 

o Note: Use Column (a) for any items where you may have subtotals, such as net accounts receivable or plant assets. For example, Line 10a should be $374,600 in Column (a), and Line 10b should be $160,484 also in Column (a) with the net result reported on Line 10b in Column (b). The items from Column (b) are added together (or subtracted, as applicable) to get your total assets, liabilities, and equity. 

Form 1120S, Page 5 (Schedules M-1 and M-2)

• Use the information from the problem to complete Schedule M-1. Line 8 should be the same net income you report on Page 3, Line 18. Line 4 should be $147,862. 

• Schedule M-2 is optional. The information to complete is provided in the problem, such as book net income and distributions. If completed correctly, will result in “added” points, at the discretion of your instructor. Hint: ending balance on Line 8 is $312,533. In order to earn points back, you must show the correct calculation on how the ending value is obtained. 

Form 1120S, Schedule D

Complete the Schedule D for form 1120S. Use the boxes on Line 10 to report the information applicable to the capital transaction. 

Form 1120S, Form 1125-A

• You should have values on Lines 1, 2, 3, 5, 6, 7, and 8. Check the applicable boxes for Lines 9a, 9e, and 9f. 

• The information to calculate cost of goods sold is found in the problem. Be sure not to double count any expenses you report on 1125-A on Page 1 of Form 1120S. 

Form 1120S, Form 4797 – 

• Use Line 2 to report the items associated with the sale of the business property, as provided in the problem. 

Form 1120S, Schedule K-1

• You should have amounts in the same boxes as you reported on the Schedule K (Page 3 of Form 1120S). 

• For Lines 12, 15, 16 and 17, be sure to include both the amounts and the applicable code. The codes are located on Page 2 of the Schedule K-1 form. 

• For Line 17, use code T at $5,000 for the loan repayment to Herman. 

• You are only required to prepare the Schedule K-1 for Herman. It is okay to ignore the second shareholder for purpose of this project. 

• Herman is an individual. He has owned 50% of the s-corporation interest all year. 

Below are check figures for the individual income tax return:

Form 1040

Taxable income, Line 10: $194,667a

Total tax due, Line 78 $112,934 (use 2017 tax tables) b, c

a: For purposes of this assignment, ignore the Qualified Business Income Deduction. It is a topic beyond the scope of this course and will be covered in the Corporation Taxation (ACC-668) course. 

b: Ignore the 3.8% net investment income tax for high-wealth individuals. 

c: Remember to take into consideration the items subject to the capital gain tax preference rate when calculating the total tax liability. 

Schedule 1

• Line 22 should be $69,017

Schedule A – 

• For Line 9, include the investment interest expense from the s-corporation. 

• On Line 11, remember to include the cash contributions from the s-corporation. 

Form 8949 

• Line 2h (Part II), $14,000

Schedule D

• Line 15, $33,333

Bottle-Up-Income-Statement1

Bottle-Up-Income-Statement2