...Performance Management at Perelson Weiner LLP1 Jan Bell Babson College Alfred J. Nanni, Jr Babson College Introduction and entrepreneurs. (See Exhibit 3 for a description of PW’s business.) PW’s business development is relationship-based; the firm doesn’t advertise for business. Instead, personnel develop long-term relationships with clients. These relationships typically start with tax return or financial statement preparation and then grow to include services that provide value to the client in other ways. Weiner explains his client focus this way: “We don’t seek short-term transactional services; we want to spend our time developing client relationships that last 40 years rather than seeking one-time opportunities.” To ensure that clients receive value from PW’s services, Weiner insists that personnel have unique expertise before offering services to clients. PW’s expertise and its ability to add unique value lie in providing traditional tax preparation, accounting, and auditing services, which are then enhanced by meaningful proactive business and tax consulting advice. Weiner has made a strategic decision to focus on these sources of client value plus one other sort of advice. With a New York City location, Weiner feels that PW can also add value for its clients by assisting them in the selection of the best specialized professional service firms in other areas. For example, PW personnel help clients find the best asset management firms and...
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...Introduction: H&R Block (H&R) is a leading company in tax preparation industry. Risk management is very important in the competitive tax service industry. The purpose of this report is to analyze H&R's macro- environment using STEEP model and identify the potential threats. Social: According to statistic Canada, the death rate will be over birth rate in the following years. Less population will results in less requirements to file tax return. Another factor which can't be ignored is immigration. Statistic Canada predicted that before year 2056, immigrant will be the main source of annually 1% population growth. This will create a demand for bi-lingual employee who can speak the immigrants' native language. Also, the components of the immigration is very important. For example, the company needs to train staff regarding foreign income in an area with a lot of investment immigrants. Re-target market segment is very important for H&R, especially in a city like Toronto. Technological: During the recent years various software make DIY tax filing very convenient and less expensive. To compete with this, H&R developed their own software and put them on the market. After years of development, "block at home" is one of the leading software on the market. But with more and more free software emerging, H&R block still face severe competence. To maintain their tradition tax service competitive advantage, H&R guaranteed that company will reimburse the penalty and interest from CRA...
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...applicable tax rate of 40% and no unused tax loss or credit carryforwards. The Company’s fiscal year ends on December 31. Relevant Issue This case provides an opportunity to use accounting authority to account for the two issues in the case. Under issue 1 we must determine the adjustment required to the Company’s preliminary 2009 financial statements to comply with ASC 740-10 by completing the table that was provided and justify our position. In addition, we must determine what periods the interest should be accrued in 2010 for financial reporting purposes. Under issue 2 we must do the same thing in issue one only using the facts from issue 2 instead. Case Facts In prior years, Bricks & Mortar determined it had no uncertain positions that required recognition under ASC 740. The last date of payment of fiscal year 2009 tax is March 17, 2010 for purposes of accruing interest and penalties under the tax law. The Company is preparing its financial statements for the year ended December 31, 2009. In determining the amount of its 2009 tax provision, the company has prepared a draft of its 2009 tax return. The following is the company’s tax working papers: Balance sheet accounts Current tax liability $2,000 and deferred tax liability $800---Income statement accounts Current tax expense $2,000 and deferred tax expense $200. Management has identified two deductions, taken in its 2009 draft return, for which the tax law is...
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...Part 1 William as a tax preparer may do a couple different moves with this sort of situation. When preparing a tax return, it is really important for the preparer to evaluate whether or not the authority or authorities are favorable or unfavorable in every situation. In this case, William is aloud to recommend a position on this tax research question for his client and try to avoid penalties if the most substantial authority supports the position. According to Tax Codes, Substantial authority suggests that the probability that the taxpayer’s position is sustained upon audit or litigation is in the 40-plus percent ranges or above. According to IRC SECTION 6694, the preparer who prepares any return or claims a refund with any understatement with knowledge will be penalized with respect to each return or claim. To be careful when dealing with what is substantial authority, the standard is used to determine whether a tax practitioner may take a tax return position without being subject to the penalty. Since William estimates that there is 48 percent chance that the position will be sustained, William can make this return without worrying about a penalty. The tax preparer does not have to disclose this information because it does have the necessary backing from the substantial authority. According to the same section, a taxpayer will not be subject to the underpayment penalty because there is a substantial authority that supports the tax return. Due to the stated facts, William...
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...revenue agents not only need the basic skills required to perform auditing, but agents also need important qualities such as integrity and commitment. A wide variety of skills are needed to perform audits at an efficient level. IRS agents must be dedicated to their work and willing to work with other to accomplish tasks. Communication skills: IRS agents will be in contact with their co-workers, management, and customers. Customers will be comprised of high-ranking members of companies tax departments. Must be able to communicate effectively with specialized tax language. Analytical skills: IRS agents will be examining income, sales, and excise tax returns for large and small corporations. Agents will be searching for any problems with these returns. Must be knowledgable with tax information and able to spot discrepancies in returns. Organization skills: Agents will be handling large amounts of tax returns, records, and tax laws. Agents will deal with multiple corporations returns and cannot mix records. Must be able to keep an orderly workplace. Computer skills: In today’s world, technological improvements have increased efficiency in the IRS. Agents will need to be able to operate auditing programs with ease. Integrity: Agents will be dealing with confidential...
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...Identify the facts Bricks & Mortar is a manufacturer of construction equipment. They have been in business for over 50 years and profitable for the past 25 years. They have an applicable tax rate of 40% and no unused tax loss or credit carryforwards and their fiscal year end is December 31st. Company has no uncertain tax positions that require recognition under ASC 740. Last payment was made March 17, 2010 for fiscal year end 2009, for purposes of accruing interest and penalties under this law. In preparing the December 31, 2009 tax return there are two deductions which the tax law is not clear on whether those tax positions should reduce the Company’s 2009 tax liability. Issues 1 and 2, assume that each of the tax positions has substantial authority for the purpose of determining whether penalties may be assessed. Issue 1: Bricks & Mortar implemented a certain tax strategy that allows the company to include $100 deduction in its draft tax return, resulting in $40 reduction to taxes payable. 40% chance that the tax position would be sustained if taken to the court of last resort. On the basis of its past experience with negotiating settlements with the taxing authority, management believes that if it were to negotiate a settlement with the taxing authority it would have the following outcome: Possible Estimated Outcome | Individual Probability of Occurring | Cumulative probability of occurring | $40 | 10% | 10% | $20 | 40% | 50% | ...
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...| | (NOTE: This is a CPAexcel simulated Exam Question, not AICPA licensed Material) Tax preparer Margie is wondering: Why should CPAs make reasonable efforts to obtain and provide for the client appropriate answers to all questions on a tax return? | A. The question may be important in determining taxable income or loss, so its omission may detract from the quality of the return. | | B. The CPA is obligated to sign the preparer's declaration, which states that the return is true, correct, and complete. | | C. A and B. | | SSTS No. 2 lists both A and B as grounds for attempting to answer all questions on a return. | | D. None of the above. | Question #2 (AICPA.151005REG-BL) | | | A client suing a CPA for negligence must prove each of the following factors except | A. Breach of duty of care. | | B. Proximate cause. | | C. Reliance. | | C is the best answer, for reliance is not an element of the negligence cause of action. | | D. Injury. | Question #3 (AICPA.082031REG-1 C) | | | Which of the following is true? | A. Client Tim told CPA Cho that he wished to take a particular deduction that Cho knows must be documented. Cho should ask Tim whether he has kept, or could obtain, the relevant documents. | | SSTS No. 3 provides that a CPA should make "appropriate inquiries" to determine whether a condition for deductibility or other tax treatment has been met. | | B. CPA Harris asked Client Shavell why the rental income...
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...Makers Solutions to Chapter 2 Problem Assignments Check Your Understanding 1. Tax Planning vs. Compliance Distinguish tax planning from tax compliance. Solution: Tax compliance involves the gathering of relevant information, evaluating and classifying that information, filing tax returns, and representing clients at Internal Revenue Service audits. Tax planning is the process of evaluating the tax consequences associated with a transaction and making recommendations to achieve the desired objective at minimal tax cost. It generally involves extensive tax research. 2. Tax vs. Nontax Factors For each of the following independent situations, identify whether the item would be primarily a tax or a nontax factor in performing tax planning. a. The taxpayer lost a quarter of her net worth when the dot-com bubble burst and does not want to own any investments with risk such as stock. b. The taxpayer hates to pay any federal income taxes and would rather pay an equal amount of money to an accountant or attorney than pay taxes to the federal government. c. The taxpayer has a large capital loss carryforward from last year. Solution: a. This is primarily a nontax factor situation. The taxpayer has specified that he or she is risk averse, a personal choice, due to having experienced prior losses. b. The taxpayer’s dislike of paying taxes is really a nontax factor; this dislike, however, leads him to seek income tax advice to reduce taxes and he is willing to pay significant amounts of money...
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...risk of detection to not be probable, eVade estimated the total amount of sales tax payables for the past five years to be $50 millions plus $6 million in interest and $ 4 million in penalties. On March 15, 2012, State X established a tax amnesty program. Any unregistered taxpayer who voluntarily registers to collect tax will be forgiven 50 percent of all unpaid sales tax and all interest and penalties. eVade decides to take advantage of this program. Issue 1 As of December 31, 2011 What amount, if any, of sales taxes due should recognized in eVade ‘s financial statements? Scope In order to analyze what part of the sections sections of the FASB Accounting Standards Codification applies to the case, ASC 450 section was examined since non-income taxes are often accounted for under the contingencies guidance. Next, ASC 740 section was also studied. ASC 740-10-20 defines “income taxes as domestic and foreign federal (national), state, and local (including franchise) taxes based on income.” Since sales taxes are under the umbrella of local and state, the following step will be defining if eVade should recognized a tax position. Definition of a Tax Position ASC 740 includes the following implementation guidance on recognizing tax positions. ASC 740-10-20 states some examples of tax positions as: “A decision not to file a tax return” (e.g., a decision not to file a specific state tax return because nexus was not established). What does nexus mean? Economic nexus refers...
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...Judgment for Deferred Tax Issues Case Study Rigorous or Not?: A Case of Auditor Judgment for Deferred Tax Issues Jan Taylor Morris, PhD, CPA Riggers Inc (“Riggers, “client, or “Company”) is audited by Stone LLC CPA firm (“Stone” or “auditor”). The Compa” ” ny builds and owns offshore drilling rigs. Riggers is a US-based corporation that recently expanded its operations into Brazil (the only foreign-based operations for Riggers). As a result of this expansion, the client has encountered two complex issues related to accounting for income taxes. During the 2012 year-end audit, the auditors must use professional judgment with regard to these two income tax accounting issues. The first issue relates to the client’s valuation allowance against a net operating loss (“NOL deferred ”) tax asset (“DTA”) in Brazil. The second matter is the Company’s uncertain tax position resulting from transfer pricing in the United States. These two items require judgment on the part of management, thus the audit engagement team must apply the professional judgment framework during its year-end audit. Valuation Allowance As of December 31, 2012, Riggers has a $59+ million NOL carryforward on its Brazilian corporate income tax return. In 2011, Riggers had booked a $86,956 valuation allowance against the DTA established in recognition of the future tax benefit of the NOL, as the client believed it was not more likely than not (>50%) that that portion of the NOL future tax benefit would be utilized...
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...Auditor Judgment for Deferred Tax Issues Case Study Rigorous or Not?: A Case of Auditor Judgment for Deferred Tax Issues Jan Taylor Morris, PhD, CPA Riggers Inc (“Riggers, “client, or “Company”) is audited by Stone LLC CPA firm (“Stone” or “auditor”). The Compa” ” ny builds and owns offshore drilling rigs. Riggers is a US-based corporation that recently expanded its operations into Brazil (the only foreign-based operations for Riggers). As a result of this expansion, the client has encountered two complex issues related to accounting for income taxes. During the 2012 year-end audit, the auditors must use professional judgment with regard to these two income tax accounting issues. The first issue relates to the client’s valuation allowance against a net operating loss (“NOL deferred ”) tax asset (“DTA”) in Brazil. The second matter is the Company’s uncertain tax position resulting from transfer pricing in the United States. These two items require judgment on the part of management, thus the audit engagement team must apply the professional judgment framework during its year-end audit. Valuation Allowance As of December 31, 2012, Riggers has a $59+ million NOL carryforward on its Brazilian corporate income tax return. In 2011, Riggers had booked a $86,956 valuation allowance against the DTA established in recognition of the future tax benefit of the NOL, as the client believed it was not more likely than not (>50%) that that portion of the NOL future tax benefit would be utilized...
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...Tax Return Position Paper When it comes to taxes and the Internal Revenue Service (IRS), it can be difficult to take any particular position on a tax return. There are so many different things that must be weighed out before making such a difficult decision. In order to take a firm position on a tax return one would first need to know the primary sources of tax law as well as the secondary sources of tax law. Secondly, there is also the need to know what substantial authority is and to have a clear and decisive understanding of the true meaning of it. Lastly, one needs to understand the role of the Internal Revenue Service and the courts in the aspect of applying tax law. Primary Sources There are multiple sources of tax law that are used. The largest primary source currently being used is the Internal Revenue Code. The Internal Revenue Code is actually part of the United States Code. Other primary sources of tax law consist of treasury regulations and federal regulations. Previous decisions made by the different courts systems (United States Tax Court, federal circuit courts, district courts, supreme court and court of federal claims) are widely used as primary sources of tax law. The previous rulings from the different court systems is a good sources because the information is more detailed and serves as a guideline for different taxpayer situations. The courts and Internal Revenue Code generally have the highest authority. However, there are also other sources...
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...What are some non-tax considerations that should be taken into account in determining whether to operate a business as a partnership or corporation? There are couple things other than tax that need to be considered before staring a business. In a partnership, the owners are personally liable for the partnership’s debt, which means if the assets within partnership could not satisfied, owners are responsible for the remaining balance. However, owners of a corporation are generally not liable for the corporation’s liability. The ownership is easier to be transferred or sold to the other party in a corporation than in a partnership. Moreover, corporations will continue in business upon the death of shareholders. In a corporation, the company is liable for the unemployed insurance; however, the partnership is not responsible for this. In addition, generally, it will cost less to start...
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...businessratioreport ©Key Note Ltd. 2011 All rights reserved No part of this publication may be reproduced, copied, stored in an electronic retrieval system or transmitted save with written permission or in accordance with the provisions of the Copyright and Patents Act 1988. Published by Key Note Ltd. 5th Floor Harlequin House 7 High Street Teddington Richmond Upon Thames TW11 8EE t: O845 504 0452 f: O845 504 0453 e-mail: reports@keynote.co.uk Stringent efforts have been made by Key Note Ltd. to ensure accuracy. However, due principally to the fact that data cannot always be verified, it is possible that some errors or omissions may occur; Key Note Ltd. cannot accept responsibility for such errors or omissions. Details supplied by Key Note Ltd. should only be used as an aid, to assist the making of business decisions, not as the sole basis for taking such decisions. Corporate Telephone Preference Service (CTPS) Under the new Privacy and Electronic Communications Regulations 2004 it is unlawful for a business to make an unsolicited sales & marketing call to a corporate subscriber if they are either registered with CTPS or have requested NOT to receive such calls. Key Note holds and regularly updates (at least every 28 days) their data in accordance with the regulation and ensures their data is compliant, as of the date created. However it is the responsibility of the caller to ensure this data is up to date and as such Key Note do not hold themselves liable for any subsequent...
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...December 31, 2013 Corporate Tax Return Problem - first year of operation Cash $180,000 1,400,000 Other assets (fixed assets and bond investments) Accounts payable and other liabilities $250,000 Capital stock 1,000,000 Retained earnings Service revenue 700,000 Sec. 103 Interest income - State of North Carolina Bonds 50,000 Salary expense, payroll taxes, rent, depreciation, etc. 400,000 Sec. 1211, 1212 Loss on sale of capital assets 20,000 Trial Balance Total (before recording the income tax provision) $2,000,000 $2,000,000 Assume federal corporate income tax rate is 40% for all years, and there is no state income tax. 1 What is the amount of the corporation's GAAP net income before taxes? 3 Points Revenue $750,000 Note: Only two Expenses 420,000 accounts have bookNet income before income tax $330,000 tax differences. 2 Enter net income per books. Present adjustments needed to compute taxable income. 3 Points Net income per books $330,000 Less Municipal bond interest (50,000) Add capital loss 20,000 Taxable income $300,000 3 Compute the deferred tax account balance(s). 3 Points Capital loss $20,000 Tax rate 40% Deferred tax asset $8,000 4 Provide journal entry for income tax provision (current & deferred). Do not record an allowance account for the deferred tax account. Ignore uncertain positions when making this set of journal entries. 3 Points Current income tax expense 120,000 Current income tax payable 120,000 Deferred tax asset 8,000 Deferred tax benefit 8,000 5 Compute GAAP...
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