ACC 4302 University of Houston Downtown Corporate Taxation Project

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CORPORATION INCOME TAXATION
SPRING SEMESTER 2022
INCOME TAX PROJECT
This Income Tax Project comes with three (3) options. You may complete either of the three (3)
options you choose.
OPTION 1
Option 1 is a C (Regular) Corporation Tax Return.
OPTION 2
Option 2 is a Partnership Tax (Information) Return.
OPTION 3
Option 3 is an S Corporation Tax Return.
You may go to the Internal Revenue Service Website at “www.irs.gov” to download the necessary
Forms and Schedules.
OPTION 1
FACTS
Valerie Lawson and Clara Norman are the sole equal shareholders in the corporation of Lawson And
Norman Enterprises, Inc. The corporation, which is a retail office supplies and stationery store, began
its operations on January 2, 1985 (also date of incorporation). For Federal Income Tax purposes, the
corporation is a calendar year taxpayer and uses the Accrual Method Of Accounting. Its Employer
Identification Number is 76-1234567, address is 4369 Robbie Lane Houston, Texas 77026-3915,
telephone number is (281) 479-8132, fax number is (281) 567-9024 and E-Mail address is
“lawsonandnormanenterprises.com”. The business activity code for the corporation is 453210.
Valerie Lawson is the president of the corporation and its contact person for Federal Income Tax
purposes and Clara Norman is the secretary and treasurer of the corporation. Both are full-time
employees of the corporation devoting one hundred percent (100%) of their time to the business and
each has an annual salary of $75,000. Valerie Lawson’s social security number is 234-56-7890 and
her address is 8124 Annette Court Houston, Texas 77031-9475. Clara Norman has social security
number of 890-12-3456 and her address is 2716 Nanette Drive Houston, Texas 77061-3459.
FINANCIAL INFORMATION
During the year of 2021, Lawson And Norman Enterprises, Inc. reported the following Income and
Expenses (including necessary accruals) for Financial Accounting purposes:
Gross Receipts
$1,482,000
Sales Returns And Allowances
109,000
Purchases
510,000
Dividends Received From Stock (Not Qualified Dividends)
Investments In Less Than twenty percent (20%)
Owned United States (U. S.) Corporation
80,000
Interest Income:
Taxable Interest
18,000
Tax-Exempt Interest
7,200
Salaries: Officers
150,000
Other Employees
108,000
Repairs And Maintenance
19,300
Rent Expense – Office
84,000
Rent Expense – Equipment
15,500
Payroll Taxes (Federal And State)
19,600
Interest Expense
25,200
Advertising Expense
33,500
Charitable Contributions (NONCASH)
48,000
Legal And Professional Fees
18,000
Depreciation Expense
50,000 *
Utilities Expense
27,100
Employee’s Health Insurance Premiums
14,200
Meals For Clients
5,000
Officers’ Life Insurance Premiums
14,600 **
* – Based upon Straight-Line Depreciation, a useful life of five (5) years and no salvage value for all
assets (see specific assets below).
** – Lawson And Norman Enterprises, Inc. Is The Designated Beneficiary.
The Lawson And Norman Enterprises, Inc. owns the following depreciable assets:
ASSET DESCRIPTION
DATE ACQUIRED
ORIGINAL COST
Automobile – 2020 Lexus 460
April 1, 2020
$ 60,000
(Five-year Property)
Automobile – 2020 Cadillac Seville
April 1, 2020
60,000
(Five-year Property)
Furniture And Fixtures
May 1, 2019
150,000
(Seven-year Property)
Each automobile was used a total of 18,000 miles during the year of 2021 all which were business
miles. The automobiles were not available for personal use during off-duty hours and were used
solely by Valerie Lawson and Clara Norman, who both have another vehicle available for personal
use. For Federal Income Tax purposes, all of these assets are depreciated using the Modified
Accelerated Cost Recovery System (MACRS). Section 179 Deduction was not elected in regards to
any of these assets nor was Straight-Line Depreciation used.
BALANCE SHEETS
The Balance Sheets (Financial Accounting) for the Lawson And Norman Enterprises, Inc. at the
beginning and ending of the year of 2021 are as follows:
ASSETS
Cash
Trade Notes And Accounts Receivable
Inventory (Valued At Cost) *
Marketable Securities – Long Term
Depreciable Assets (And Land)
Less: Accumulated Depreciation
Other Assets (Deposits)
TOTAL ASSETS
January 1
$ 36,000
86,000
120,000
130,000
280,000 **
(65,000)
12,000
———–$ 599,000
=======
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts Payable (Non Recourse)
$ 96,000
Federal Income Taxes Payable
8,600
Notes Payable – Short Term (Recourse)
16,000
Notes Payable – Long Term (Recourse)
164,000
Common Stock
10,000
Retained Earnings (Unappropriated)
304,400
TOTAL LIABILITIES AND
———–STOCKHOLDERS’ EQUITY
$ 599,000
=======
December 31
$ 84,000
90,000
100,000
150,000
280,000 **
(115,000)
12,000
————$ 601,000
=======
$ 70,400
?
24,000
212,000
10,000
279,890
———–$ 601,000
=======
* – The rules of Section 263A of the Internal Revenue Code do not apply to the corporation.
** – Includes $10,000 allocated to Land.
ESTIMATED TAX PAYMENTS
During 2021, Lawson And Norman Enterprises, Inc. made the following estimated tax payments:
April 15, 2021
June 15, 2021
September 15, 2021
December 15, 2021
$20,000
$16,000
$10,000
$10,000
The 2020 Federal Income Tax liability for Lawson And Norman Enterprises, Inc. was $52,800 and
no overpayment of 2020 Federal Income Tax is being applied to the 2021 Federal Income Tax liability
of Lawson And Norman Enterprises, Inc.
OTHER INFORMATION
Both shareholders of Lawson And Norman Enterprises, Inc. are United States Citizens. Lawson And
Norman Enterprises, Inc. does not own directly or indirectly fifty percent (50%) or more of the voting
stock in any other domestic corporation and the corporation is not a subsidiary in an affiliated group
or a parent-subsidiary controlled group. During the year of 2021, Lawson And Norman Enterprises,
Inc. paid cash dividends of $280,000 ($140,000 to each shareholder) and the corporation did not pay
dividends in excess of the corporation’s Current Earnings And Profits and Accumulated Earnings And
Profits. In addition, Lawson And Norman Enterprises, Inc. is not a shareholder in any foreign
corporation nor has any interest in or a signature or other authority over any financial account in a
foreign country. Furthermore, during the year of 2021, the corporation did not receive a distribution
from nor was a grantor of, or transferor to, a foreign trust. Moreover, Lawson And Norman
Enterprises, Inc. did not issue publicly offered debt instruments with original issue discount. Finally,
the corporation had no Net Operating Losses (NOL’s) carryover from prior tax years.
REQUIRED
Prepare the C (Regular) Corporation Tax Return for the Lawson And Norman Enterprises, Inc. for
the tax year of 2021. The following Forms are needed to complete the Tax Return:
Form 1120
Form 1125-A
Form 1125-E
Schedule G (Form 1120)
Form 4562
CHECK FIGURES
FORM 1120
INCOME (Page 1)
1. Total Income (Line 11): $941,000.
DEDUCTIONS (Page 1)
1. Charitable Contributions (Line 19): $36,566.
2. Depreciation (Line 20): $58,437. (Also Line 22 – Form 4562)
3. Total Deductions (Line 27): $611,903.
4. Taxable Income (Line 30): $289,097.
SCHEDULE M-1 (Page 6)
1. Net Income (Loss) Per Books (Line 1): $255,490.
2. Expenses Recorded On Books This Year
Not Deducted On This Return (Itemize) (Line 5): $28,534.
SCHEDULE M-2 (Page 6)
1. Balance At End Of Year (Line 8): $279,890.
OPTION 2
FACTS
Valerie Lawson and Clara Norman are the sole equal partners in the general partnership of Lawson
And Norman Enterprises. The partnership, which is a retail office supplies and stationery store, began
its operations on January 2, 1985. For Federal Income Tax purposes, the partnership is a calendar
year taxpayer and uses the Accrual Method Of Accounting. Its Employer Identification Number is
76-1234567, address is 4369 Robbie Lane Houston, Texas 77026-3915, telephone number is (281)
479-8132, fax number is (281) 536-1908 and E-Mail address is “lawsonandnormanenterprises.com”.
The business activity code for the partnership is 453210. Both partners devote one hundred percent
(100%) of their time to the business of the partnership and are equal partners of the partnership in
every respect (ie. profit sharing ratio, loss sharing ratio, ownership, etc.). Valerie Lawson, who is the
designated Tax Matters Partner for the partnership, has social security number of 234-56-7890, her
address is 8124 Annette Court Houston, Texas 77031-9475 and her telephone number is (832) 2468015. Clara Norman has social security number of 890-12-3456, her address is 2716 Nanette Drive
Houston, Texas 77061-3459 and her telephone number is (832) 623-5097.
FINANCIAL INFORMATION
During the year of 2021, the Lawson And Norman Enterprises reported the following Income and
Expenses (including necessary accruals) for Financial Accounting purposes:
Gross Receipts
$1,482,000
Sales Returns And Allowances
109,000
Purchases
510,000
Dividends Received From Stock (Not Qualified Dividends)
Investments In Less Than twenty percent (20%)
Owned United States (U. S.) Corporation
80,000
Interest Income:
Taxable Interest
Tax-Exempt Interest
Guaranteed Payments: Valerie Lawson
(Services)
Clara Norman
Salaries – Employees
Repairs And Maintenance
Rent Expense – Office
Rent Expense – Equipment
Payroll Taxes (Federal And State)
Interest Expense (Trade Or Business Interest)
Advertising Expense
Charitable Contributions (“60%” Charities)
Legal And Professional Fees
Depreciation Expense
Utilities Expense
Employee’s Health Insurance Premiums
Meals For Clients
Partners’ Life Insurance Premiums
18,000
7,200
75,000
75,000
108,000
19,300
84,000
15,500
19,600
25,200
33,500
48,000
18,000
50,000 *
27,100
14,200
5,000
14,600 **
* – Based upon Straight-Line Depreciation, a useful life of five (5) years and no salvage value for all
assets (see specific assets below).
** – Lawson And Norman Enterprises Is The Designated Beneficiary.
On January 1, 2021, the partner’s Capital Accounts equaled $157,200 each. No additional capital
contributions were made during the year of 2021 and each partner made a total of $140,000 (all cash)
withdrawals throughout the course of the year of 2021.
The Lawson And Norman Enterprises owns the following depreciable assets:
ASSET DESCRIPTION
Automobile – 2020 Lexus 460
(Five-year Property)
Automobile – 2020 Cadillac Seville
(Five-year Property)
Furniture And Fixtures
(Seven-year Property)
DATE ACQUIRED
April 1, 2020
ORIGINAL COST
$ 60,000
April 1, 2020
60,000
May 1, 2019
150,000
Each automobile was used a total of 18,000 miles during the year of 2021 all which were business
miles. The automobiles were not available for personal use during off-duty hours and were used
solely by Valerie Lawson and Clara Norman, who both have another vehicle available for personal
use. For Federal Income Tax purposes, all of these assets are depreciated using the Modified
Accelerated Cost Recovery System (MACRS). Section 179 Deduction was not elected in regards to
any of these assets nor was Straight-Line Depreciation used.
BALANCE SHEETS
The Balance Sheets (Financial Accounting) for the Lawson And Norman Enterprises at the beginning
and ending of the year of 2021 are as follows:
ASSETS
Cash
Trade Notes And Accounts Receivable
Inventory (Valued At Cost) *
Marketable Securities – Long Term
Depreciable Assets (And Land)
Less: Accumulated Depreciation
Other Assets (Deposits)
TOTAL ASSETS
LIABILITIES AND PARTNERS’ CAPITAL
Accounts Payable (Non Recourse)
Notes Payable – Short Term (Recourse)
Notes Payable – Long Term (Recourse)
Partner’s Capital (Total)
TOTAL LIABILITIES AND
PARTNERS’ CAPITAL
January 1
$ 36,000
86,000
120,000
130,000
280,000 **
(65,000)
12,000
———–$ 599,000
=======
December 31
$ 84,000
90,000
100,000
230,000
280,000 **
(115,000)
12,000
———–$ 681,000
=======
$ 96,000
24,600
164,000
314,400
$ 94,400
24,000
212,000
350,600
———–$ 599,000
=======
———–$ 681,000
=======
* – The rules of Section 263A of the Internal Revenue Code do not apply to the partnership.
** – Includes $10,000 allocated to Land.
OTHER INFORMATION
Both partners are United States citizens (and individuals) and the partnership is not a partner in any
other partnership. The partnership is not subject to the consolidated audit procedures of Sections 6221
through 6233 of the Internal Revenue Code and the partnership does not meet all three (3)
requirements shown in the instructions (Schedule B) for Question 5. In addition, the partnership is
not a publicly traded partnership as defined in Section 469(k)(2) of the Internal Revenue Code and
the partnership has not filed nor is required to file Form 8264 – Application For Registration Of A
Tax Shelter. During the year of 2021, Lawson And Norman Enterprises had no interest in or signature
or other authority over any financial account in a foreign country. Furthermore, during the year of
2021, the partnership did not receive a distribution from nor was the partnership a grantor of, or
transferor to, a foreign trust. Finally, there were no distributions of property or transfer of a
partnership interest during the year of 2021.
REQUIRED
Prepare the Partnership Return for the Lawson And Norman Enterprises for the year of 2021 and
Schedule K-1 for both partners. The following Forms are needed to complete the Return:
Form 1065
Schedule B-1 (Form 1065)
Form 1125-A
Schedule K-1 (Form 1065) (2)
Form 4562
CHECK FIGURES
FORM 1065
INCOME (Page 1)
1. Total Income (Loss) (Line 8): $843,000.
DEDUCTIONS (Page 1)
1. Guaranteed Payments To Partners (Line 10): $150,000. (Also Line 4c – SCHEDULE K (Page 4))
2. Depreciation (Line 16a and 16c): $58,437. (Also Line 22 – Form 4562)
3. Total Deductions (Line 21): $575,337.
4. Ordinary Income (Loss) (Line 22): $267,663.
SCHEDULE K (Page 4)
1. Interest Income (Line 5): $18,000.
2. Ordinary Dividends (Line 6a): $80,000.
3. Charitable Contributions (Line 13a): $48,000.
4 Net Earnings (Loss) From Self-Employment (Line 14a): $417,663.
5. Gross Nonfarm Income (Line 14c): $843,000.
SCHEDULE M-1 (Page 5)
1. Net Income (Loss) Per Books (Line 1): $316,200.
2. Expenses Recorded On Books This Year
Not Included On Schedule K (Itemize) (Line 4): $17,100.
SCHEDULE M-2 (Page 5)
1. Balance At End Of Year (Line 9): $350,600.
SCHEDULE K-1 (Each) (Page 1)
1. Ordinary Income (Loss) From Trade Or Business (Line 1): $133,831.
2. Interest Income (Line 5): $9,000.
3. Ordinary Dividends (Line 6a): $40,000.
4. Guaranteed Payments To Partner (Line 4c): $75,000.
OPTION 3
FACTS
Valerie Lawson and Clara Norman are the sole equal shareholders in the corporation of Lawson And
Norman Enterprises, Inc. each owning one hundred (100) shares of common stock of the corporation.
The corporation, which is a retail office supplies and stationery store, began its operations on January
2, 1985 (also date of incorporation). For Federal Income Tax purposes, the corporation is a calendar
year taxpayer, uses the Accrual Method Of Accounting and, since its year of inception, properly
elected and maintained the S Corporation status. Its Employer Identification Number is 76-1234567,
address is 4369 Robbie Lane Houston, Texas 77026-3915, telephone number is (281) 479-8132, fax
number is (281) 536-1908 and E-Mail address is “lawsonandnormanenterprises.com”. The business
activity code for the corporation is 453210. Valerie Lawson, who is the designated Tax Matters
Person for the corporation, has social security number of 234-56-7890, her address is 8124 Annette
Court Houston, Texas 77031-9475 and her telephone number is (832) 246-8015. Clara Norman has
social security number of 890-12-3456, her address is 2716 Nanette Drive Houston, Texas 770613459 and her telephone number is (832) 623-5097.
FINANCIAL INFORMATION
During the year of 2021, the Lawson And Norman Enterprises, Inc. reported the following Income
and Expenses (including necessary accruals) for Financial Accounting purposes:
Gross Receipts
$1,482,000
Sales Returns And Allowances
109,000
Purchases
510,000
Dividends Received From Stock (Not Qualified Dividends)
Investments In Less Than twenty percent (20%)
Owned United States (U. S.) Corporation
80,000
Interest Income:
Taxable Interest (Bank)
18,000
Tax-Exempt Interest
7,200
Salaries: Valerie Lawson
75,000
Clara Norman
75,000
Other Employees
108,000
Repairs And Maintenance
19,300
Rent Expense – Office
84,000
Rent Expense – Equipment
15,500
Payroll Taxes (Federal And State)
19,600
Interest Expense (Trade Or Business Interest)
25,200
Advertising Expense
33,500
Charitable Contributions (“60%” Charities)
48,000
Legal And Professional Fees
18,000
Depreciation Expense
50,000 *
Utilities Expense
27,100
Employee’s Health Insurance Premiums
14,200
Meals For Clients
5,000
Officers’ Life Insurance Premiums
14,600 **
* – Based upon Straight-Line Depreciation, a useful life of five (5) years and no salvage value for all
assets (see specific assets below).
** – Lawson And Norman Enterprises, Inc. Is The Designated Beneficiary.
No additional capital contributions were made during the year of 2021 and each shareholder made a
total of $140,000 (all cash) withdrawals throughout the course of the year of 2021.
The Lawson And Norman Enterprises, Inc. owns the following depreciable assets:
ASSET DESCRIPTION
Automobile – 2020 Lexus 460
(Five-year Property)
Automobile – 2020 Cadillac Seville
(Five-year Property)
Furniture And Fixtures
(Seven-year Property)
DATE ACQUIRED
April 1, 2020
ORIGINAL COST
$ 60,000
April 1, 2020
60,000
May 1, 2019
150,000
Each automobile was used a total of 18,000 miles during the year of 2021 all which were business
miles. The automobiles were not available for personal use during off-duty hours and were used
solely by Valerie Lawson and Clara Norman, who both have another vehicle available for personal
use. For Federal Income Tax purposes, all of these assets are depreciated using the Modified
Accelerated Cost Recovery System (MACRS). Section 179 Deduction was not elected in regards to
any of these assets nor was Straight-Line Depreciation used.
BALANCE SHEETS
The Balance Sheets (Financial Accounting) for the Lawson And Norman Enterprises, Inc. at the
beginning and ending of the year of 2021 are as follows:
ASSETS
Cash
Trade Notes And Accounts Receivable
Inventory (Valued At Cost) *
Marketable Securities – Long Term
Depreciable Assets (And Land)
Less: Accumulated Depreciation
Other Assets (Deposits)
TOTAL ASSETS
LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts Payable (Non Recourse)
Notes Payable – Short Term (Recourse)
Notes Payable – Long Term (Recourse)
Capital Stock
Retained Earnings (Unappropriated)
TOTAL LIABILITIES AND
SHAREHOLDERS’ EQUITY
January 1
$ 36,000
86,000
120,000
130,000
280,000 **
(65,000)
12,000
———–$ 599,000
=======
$ 96,000
24,600
164,000
10,000
304,400 ***
———–$ 599,000
=======
December 31
$ 84,000
90,000
100,000
230,000
280,000 **
(115,000)
12,000
———–$ 681,000
=======
$ 94,400
24,000
212,000
10,000
340,600
———–$ 681,000
=======
* – The rules of Section 263A of the Internal Revenue Code do not apply to the corporation.
** – Includes $10,000 allocated to Land.
*** – The beginning Retained Earnings (Unappropriated) balance was allocated to tax accounts of
Lawson And Norman Enterprises, Inc. as follows:
Accumulated Adjustments Account $286,800
Other Adjustments Account
17,600
OTHER INFORMATION
Both shareholders are United States citizens and the corporation does not own directly or indirectly
fifty percent (50%) or more of the voting stock in any other domestic corporation. In addition, Lawson
And Norman Enterprises, Inc. was not a member of a controlled group that is subject to the provisions
of Section 1561 of the Internal Revenue Code. During the year of 2021, the corporation had no
interest in or a signature or other authority over any financial account in a foreign country.
Furthermore, the corporation did not receive a distribution from, nor was the grantor of, or transferor
to, a foreign trust during the year of 2021. The corporation has not filed nor is required to file Form
8264 – Application For Registration Of A Tax Shelter and the corporation did not issue publicly
offered debt instruments with original issue discount. Finally, no estimated tax payments were made
during the tax year of 2021 by the corporation for itself or on behalf of any of the shareholders of the
corporation.
REQUIRED
Prepare the S Corporation Tax Return for the Lawson And Norman Enterprises, Inc. for the year of
2021 and Schedule K-1 for both shareholders. The following Forms are needed to complete the Tax
Return:
Form 1120S
Form 1125-A
Form 1125-E
Schedule K-1 (Form 1120S) (2)
Form 4562
CHECK FIGURES
FORM 1120S
INCOME (Page 1)
1. Total Income (Loss) (Line 6): $843,000.
DEDUCTIONS (Page 1)
1. Depreciation (Line 14): $58,437. (Also Line 22 – Form 4562)
2. Total Deductions (Line 20): $575,337.
3. Ordinary Income (Loss) (Line 21): $267,663.
SCHEDULE K (Page 3)
1. Interest Income (Line 4): $18,000.
2. Ordinary Dividends (Line 5a): $80,000.
3. Charitable Contributions (Line 12a): $48,000.
4 Total Property Distributions (Including Cash) Other Than Dividends (Line 16d): $280,000.
5. Income (Loss) (Line 18): $317,663.
SCHEDULE M-1 (Page 4)
1. Net Income (Loss) Per Books (Line 1): $316,200.
2. Expenses Recorded On Books This Year
Not Included On Schedule K (Itemize) (Line 3): $17,100.
SCHEDULE M-2 (Page 4)
1. Balance At End Of Year (Line 8):
(a) Accumulated Adjustments Account: $330,400.
(b) Other Adjustments Account: $10,200.
SCHEDULE K-1 (Each) (Page 1)
1. Ordinary Income (Loss) From Trade Or Business (Line 1): $133,831.
2. Interest Income (Line 4): $9,000.
3. Ordinary Dividends (Line 5a): $40,000.
4. Charitable Contributions (Line 12): $24,000.

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