TAX 6105 Research Paper Requirements
This paper is to be a GEB 6215 compliant reference paper (7-20 pages). If you are using this paper for GEB certification, please make sure you circle back with your GEB instructor regarding formats (I know that it is APA for everything but Tax primary sources, where we use the BlueBook referencing that you learned in Tax Research).
The goal of this paper is to give you experience in 1) researching tax issues that are related to accounting methods; and 2) using your research to educate another person about those issues (typically, a client).
Rough paper requirements:
The title of your papers will be "An Illustration of Book/Tax Reconciliation."
First, in a section entitled, "The Need for Book/Tax Reconciliation," you will provide a general overview of Accounting Standards Codification 740 - Income Taxes (Issued pre-codification as FASB Statement No. 109). You must use the Codification and/or approved articles for citation here (ask me for approval).
After the general discussion, state that the point of this paper is to illustrate the first part of the Accounting for Income Taxes analysis - reconciling Book (GAAP) Income to Taxable Income for a given tax year.
Second,in a section entitled, "Facts Used in Illustration", provide a hypothetical fact pattern that you will use to illustrate Book/Tax Reconciliation. Here are the "bones" (you may embellish these facts as needed to aid you in illustrating the topics required to be covered in your paper):
Assume a single domestic C corporation taxpayer (X). The taxpayer is owned 60% by Mr. Jones, an individual, 20% by Mr. Smith and 20% by Mr. Young. Aside from their ownership in X, Messrs. Jones, Smith & Young are not related. X is a calendar year accrual-method taxpayer.
X corporation runs an active auto engine parts sales business. It also holds a couple of investments. It owns 25% of a domestic C Corporation (D) and 12% of a Foreign corporation (F). X acquired its interest in D on the open market in June 1, 2009. X acquired its interest in F on the open market on July 1, 2010.
On 1/1/08, X acquired all of the assets of a local tire seller company. Goodwill was acquired in this transaction. X operated the local company's business as a division through this year. As part of this acquisition, all of the tire seller's employees went to work for X and X allocated basis to a "workforce in place" intangible asset. This year, this business essentially went "bust" (no customers stuck around and X simply didn't have the wherewithal to pursue the tire selling business). However, all tire seller employees remain employed with X in other areas of X's business.
On January 1 of this year, X acquired all of the assets of an out-of-state auto parts company. Goodwill was acquired in this transaction. X has been running the auto parts company as a division.
Third: In a section entitled "Analysis of Book-Tax Differences used in Illustration", address each item listed below, providing the following information:
1. Explain the GAAP treatment of the item (with citation to the Codification).
2. Explain the tax treatment of the item (with citation to the Code or other authority - for example, you will not find a citation in the Code that states that there is no equity-method accounting for tax. However, you may find an article or other secondary source that makes the point directly).
3. Explain how to reconcile book to tax.
Book/Tax Differences to address (using the information above as a starting point):
• Tax Amortization of acquired goodwill (hint - Code section 197).
• Tax Amortization of workforce in place (hint - Code section 197)
• Writing down acquired intangibles (hint - Code sections 165 and 197).
• Section 78 "gross up" (hint - Code section 78).
• Disallowed loss between corporation and 60% individual shareholder (hint - Code section 267).
• GAAP income/loss from Equity Method subsidiary (Tax does not have Equity method accounting).
The goal of this section of the paper is to get you to articulate how a particular item is treated and how it is reconciled. It is perfectly fine to illustrate reconciliation by using examples (numbers).
Keep in mind that if you need to learn about a particular book-tax difference, you are expected to do research to do so. Because this is a GEB paper (and not a tax memo), you are allowed to use secondary sources (and even cite to them). However, do not cite to a secondary source to state a rule (cite to the primary source).
Fourth: At the close of the paper, you will have a section entitled "Illustration of Book/Tax Reconciliation". You will provide use the facts provided to you, above, and embellished by you as necessary to illustrate the book/tax differences. Assume a GAAP Net Income (Loss) amount and reconcile GAAP to taxable income using the items discussed above (come up with some numbers). Assume these items represent the only possible book/tax differences.
Research Resources:
Here is some guidance on research:
- You are expected to provide citation to primary sources - the GAAP Codification (access info is below), the Internal Revenue Code, Treasury Regulations, cases, rulings, etc - supporting your discussion of how items are treated for GAAP and Tax purposes.
- You may also cite treatises, scholarly articles or practice-based articles. If you are in doubt as to whether to cite something, send me an email to seek approval. NO WIKIPEDIA.
- A good place to start to understand GAAP issues...is a Financial Accounting textbook (Intermediate Accounting).
Accounting for Income Taxes is found in: Accounting Standards Codification 740 - Income Taxes (Issued pre-codification as FASB Statement No. 109).