Case Guidelines
Throughout the case, you may assume that events described unfold over a period of several years, as your client, Dave Novell progresses through life and each module is viewed as a different point in his life, in which his business and private affairs change and evolve. Your task is to assume the role of an accountant and member of an accounting team at a local firm assigned to work with Dave and apply your understanding of tax strategies and regulations to address and resolve issues concerning his tax obligations and liabilities.
Background Information
Dave Novell is a divorced parent with custody of his two children. Dave is an owner-employee with "On-Off-Shore Searchers, LLC" (OOSS). He and his children reside in Phoenix, AZ. When they were young, his children lived with their mother, even though he provided over 50% of their support. OOSS is a Louisiana registered LLC and based in Houma, Louisiana. It operates six drilling rigs now. Adam works a regular 2-weeks-onshore and 2-weeks-offshore schedule.
His prior tax preparer and advisor died unexpectedly. Unfortunately, the tax preparer was a sole practitioner and there was no one to continue the tax services to Dave. His stockbroker recommended you and your accounting firm to advise him and his family on his tax obligations and liabilities.
During the onshore weeks, Dave also manages a small business in Phoenix operating under the name of "Diamond Discovery," a 100% owned small business that develops new musical talents. He operates this currently as a regular Schedule C business. You discover that his ex-wife, Diane, works in this business, he paid for the completion of her education in addition to paying for her house, in which she and the two children previously resided, and he has done this for many years. Once she had completed her education and had become employed, the divorce settlement required the house to be sold and the proceeds, net of the loan payoff, to be divided equally between the two individuals. This has not been done.
Documents Left by the Deceased Tax Preparer Contain the Following Information:
·On prior tax returns, he has deducted his mileage round-trip between Phoenix and Houma as a nonreimbursed business expense.
· Diane does not receive a W-2 or a Form 1099-Miscellaneous for the weekly cash stipend of $500 received from Diamond Discovery, Inc.
·Dave is vague as to if and how the stipend was handled by the deceased tax preparer.
A review of prior tax returns does not reveal any information about this issue. However, Dave claims that he has always deducted it.
·Dave had converted Diamond Discovery to a corporate structure on November 20 of the prior year. However, the prior year returns provided by him consisted only of Dave's 1040.
Dave claims that Diamond Discovery was to be established as an S-Corp. with him as 100% owner. No records from the deceased tax preparer files show this was filed.
· W-2 from OOSS has the following:
o Gross, Box 1, Income, $125,000.
o Federal income tax withheld, Box 2, $21,300
o Social Security Income, Box 3, $106,80
o Medicare Income, Box 5, $125,000
o All Social Security and Medicare taxes were withheld
o Arizona income, $125,000
o Arizona withholding, $5,250
CLC Case Study Report A
Upon being retained by Dave to provide tax advice you are scheduled to meet with him in one week. The tax partner-in-charge assembles several staff members (CLC Team) and begins the task of understanding Dave's tax situation. Dave is to be provided a summary of his current tax issues and at least three alternative plans to address these issues before tax returns need to be completed for his current tax year. During the first session Dave expects to be provided with an analysis of his individual tax situation, tax structure, and potential tax liability issues.
Please refer to the assignment grading rubric at the assignment's drop box for information regarding how the assignment will be graded. The CLC team is to prepare a two-page (double-spaced) report with the required information to be submitted by the end of Module 2.
Individual Case Study Report A
As a member of the staff (CLC) team assigned to work with Dave, you are assigned the individual task of developing a summary of the legal restrictions placed on the client, the areas of tax planning that you recommend for the taxpayer, and what sources of interpretation of tax laws, regulations, and rules (search audit trail to be included as citations and references) should be used by the staff (CLC) team.
Additional information provided by Dave during a previous meeting included the following:
a) Dave is under a full investigation by the Internal Revenue Service for failure to file tax returns for a former company, Tucson to Texas Travelers (3T), a sole proprietorship, which ran a series of truck stops between Tucson, AZ and Houston, TX until it was closed down due to net losses for the last 4 years of the 7 years it was in operation.
b) A document produced by Dave indicates that the former tax preparer had rolled over a net operating loss (NOL) into the last 4 years of tax returns prepared for the client
c) You discover a handwritten note in the files provided that the NOL was used to offset taxable income in other business ventures for the taxpayer in each of the last four years of returns prepared for the taxpayer.
d) A single piece of paper was discovered in the prior tax preparers file that reveals that 3T had not prepared and submitted payroll reports including W-2s and 2099s for its last 3 years.
You are to work independently of the CLC Team, but use the CLC report being developed for Module 1 with the anticipation that your additional work will be merged with that of other staff (CLC) members later.
Please refer to the assignment grading rubric at the assignment's drop box for information regarding how the assignment will be graded. Prepare a two- to three-page (double-spaced) report with the required information to be submitted by the end of Module 2.