Corporate Tax Return Project

This assignment requires the completion of a Federal corporate tax return, the 2009 return for the Jackson Corporation. The return involves the first year of operations of Jackson Corporation.

You may prepare the tax return using tax software or use the IRS’s “fill-in” forms. The forms may be found by going to www.irs.gov go to - Forms and Publications. Under Forms and Publications there is a link to “previous years” for the 2009 forms. I highly suggest using the tax software in the book- if you don’t have the software see me.

The returns must be completed no later than July 20, 2011 at 6pm. For every DAY that the return is turned in earlier than the due date 1 bonus point is awarded up to a maximum of 10 points. For each day the project is late there is a penalty of 10 points. The return is worth a base of 100 points.

For any judgment call you must document your position. A very short summary of facts/ law/ conclusion is required.

Instructions:

Complete the corporate tax return for 2009 for Jackson Corporation. This may include the Schedules A, C, D, E, J, K, L, M-1/ M-2, 4626 and 1120-W. Be careful about what additional forms are needed.

This project is an individual assignment. It is NOT a group assignment.

I am looking for the following (and will grade accordingly) with this assignment:

1. Correct use of the Forms. 2. Issue identification. 3. Documentation.

For any judgment call you must document your position. A very short summary of facts/ law/ conclusion is required.

On the second page I have an example of documentation.

Here is an example of what I am looking for in terms of documentation:

1.1 TAXPAYER BIOGRAPHICAL INFORMATION:
Moira qualifies for 3 exemptions determined as follows:
• Moira qualifies for one personal exemption.
• Moira may also claim the following as dependents:
Oliver Plunkett Ryan. All dependency tests have been satisfied for a qualifying child.
Jane O’Dea Sullivan. She has satisfied all tests as a qualifying relative. Social Security benefits are not counted in the gross income test. Therefore, her gross income was limited to dividend and interest income of $1,775, which falls below the $3,650 threshold. She passed all of the other tests of dependency.
• Moira cannot claim the following as dependent:
Dennis Harrison Ryan. He failed multiple tests as either a qualifying child or as a qualifying relative.

3.1 Medical Expenses:
The following medical-related expenses are deductible before the 7.5% of AGI limitation on
Schedule A, line 1.
Doctor bills for Moira $1,200
Dentist bills for Oliver $2,000
Total qualifying expenses $3,200

Funeral expenses are not deductible.

Corporate Tax Return

For the 2009 Year

Information:
Address: 801 W. Campbell Rd
Richardson, TX 75080
EIN: 22-1234567

The Jackson family had a business that was operated as a family partnership. The family decided to convert the method of operating from a partnership to the corporate form. Prior to the conversion the ownership of the partnership was as follows:
|Owners |% of Ownership |
|Mr. Jack Jackson |30% |
|SS: 987-65-4321 | |
|Mrs. Mary Smith-Jackson |30% |
|SS: 999-33-4321 | |
|Jill Jackson (Daughter) |20% |
|SS: 888-33-8765 | |
|Jeff Smith-Jackson (Son) |20% |
|SS: 876-54-3210 | |

The business operated five small luxury food stores. The accrual method of accounting was used by the partnership and will be used by the newly formed corporation. On 1-1-09, partial balance sheet of the partnership were as follows:

|Assets |Tax Basis |Fair Market Value |
|Cash |$300,000 |$ 300,000 |
|Accounts Receivable |$ 30,000 |$ 30,000 |
|Inventory |$175,000 |$ 175,000 |
|Equipment |$ 75,000 |$ 60,000 |
|Depreciation (Equip) |($25,000) | |
|Buildings |$400,000 |$ 300,000 |
|Depreciation (Buildings) |($150,000) | |
|Land |$ 20,000 |$ 10,000 |
|Investments* |$ 25,000 |$ 125,000 |
|Total Assets |$850,000 |$1,000,000 |
| | | |
|Liabilities | | |
|Accounts Payable |$ 75,000 |$ 75,000 |
|Mortgages (Building and Land) |$175,000 |$175,000 |
|Total Liabilities |$250,000 |$250,000 |
| | | |
| | | |

*The investment account includes 1,000 shares of the Far East Fast Foods, Inc. Those shares represented 25% of Far East Fast Foods, Inc. total shares issued and outstanding.

On 1-1-09, the Jackson family formed the Jackson Corporation under Texas state law. They immediately transferred all of the assets and liabilities of the high end/ luxury grocery stores to the Jackson Corporation. In addition to the Jackson's, Mr. Blue (SS: 555-11-6666), an unrelated party to the Jackson’s, was allowed to invest in the new corporation. Mr. Blue invested cash of $187,500 for a 20% interest in the company. Jack and Azul are to be the only officers. The stock with a par value of $1.00 per share was issued to the Jacksons and Mr. Azul Blue as follows:

|Shareholder |# of Shares |
|Jack Jackson | 480 |
|Mary White- Jackson | 480 |
|Jill Jackson | 320 |
|Jeff Smith-Jackson | 320 |
|Mr. Azul Blue | 400 |
|Total Shares Issued |2,000 |

During 2009, the corporation had the following transactions:

|Sales |$5,200,000 |
|Purchases |$3,720,000 |
|Inventory 12-31-09 |$ 625,000 |
|Salaries: | |
|Jack |$ 30,000 |
|Mary |$ 35,000 |
|Jill |$ 20,000 |
|Jeff |$ 20,000 |
|Other Salaries |$ 190,000 |
|Depreciation |$ 20,000 |
|Advertising Expense |$ 10,000 |
|Bad debt expense |$ 8,000 |
|Charitable Contribution of inventory to a qualified charity/ food |$ 200,000 |
|pantry. | |
|Net Capital Loss | ** |
|Dividends Received |$ 40,000 (from FEFF) |
|Dividends Received from IBM (ticker: IBM) |$ 1,000 |
|Dividends paid to shareholders |$ 10,000 |
|The 2009 Income tax liability was paid in 2010. No penalty was | |
|assessed. | |

** On March 15, 2009, the corporation purchased 500 shares of IBM for $60,000. On June 20, 2009, they sold 250 shares for $24,000. On Oct. 15, 2009, they sold the remaining 250 shares for $14,000.

On July 1, 2009 the corporation bought the neighboring building as an addition to an existing store. The cost was $290,000 plus $10,000 allocated to land.

On August 1, 2009 the corporation bought refrigerator units for the new building at a cost of $300,000.

On 6-30-09, Jackson Corporation made cash distributions of $350,000. This distribution was paid to the shareholders in relation to their percentage of ownership.

The company purchased 1,000 shares of AT&T (ticker symbol T) stock for $44,000 on 3-15-09. On 7-15-09, the stock was sold for $80,000.

Jill was married on 9-30-09. The Jack used $25,000 of store inventory for the wedding reception. The only people invited to the wedding were friends of the two families. No adjustment was made on the company's book for the use of the inventory.

sjsPartial Book Balance Sheet as of 12-31-09:

Assets
Cash $ 493,466
Inventory 625,000
AR 40,000
Bad debt reserve -6,000
Equipment 360,000
Depreciation on Equipment -10,000
Building 590,000
Depreciation on Building -10,000
Land 20,000
Investments 175,000

AP 75,000
Bank loan 150,000