GOVERNORS STATE UNIVERSITY College of Business and Public Administration Division of Accounting, Finance, Economics, and Information Technology

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1 GOVERNORS STATE UNIVERSITY College of Business and Public Administration Division of Accounting, Finance, Economics, and Information Technology College of Business and Public Administration Mission Statement The mission of the College of Business and Public Administration is to offer high quality programs in business and public administration at the junior, senior, and masters levels to a diverse student body primarily from the Metropolitan Chicago region. Our programs provide the knowledge, skills, and experiences to support rewarding careers in business, public administration and the not for profit sector for our commuter student body comprised largely of part-time nontraditional adult learners and transfer students from the region s many community colleges. COURSE INFORMATION: COURSE NO.: ACCT COURSE TITLE: Taxation of Individuals SESSION: Fall 2012, August 21, 2012 November 29, 2012 Room C-3331 CLASS TIME: Tuesday and Thursday 1:30 p.m. 2:45 p.m. CREDIT HOURS: Three PREREQUISITE: ACCT 2110 (formerly ACCT 301) Introduction to Financial Accounting or its Equivalent INSTRUCTOR INFORMATION: PROFESSOR: Brian J. McKenna, J.D., LL.M, M.B.A., C.F.A., C.P.A. OFFICE: G-189 PHONE NO.: ADMIN. ASST.: Cynthia Matthias, bmckenna@govst.edu HOMEPAGE: Under construction FAX NO.: OFFICE HOURS: Tuesday: 3:00 p.m. 7:00 p.m. Thursday: 3:00 p.m. 4:00 p.m. By Appointment. Page 1

2 COURSE DESCRIPTION: Covers the study of individual federal income taxation with an emphasis on the following topics: income, exclusions from income, deductions, exemptions, credits, property transactions, and depreciation. Explores the tax structure and its role, both as a source of revenue and as a device to control the economy. Emphasizes Form 1040 tax return preparation using tax preparation software including common schedules and worksheets. REQUIRED TEXT: Taxation of Individuals 2013 edition written by Spilker, Ayers, Robinson, Outslay, Worsham, Barrick and Weaver published by McGraw-Hill. GRADING: The course grade will be determined as follows: Category Points Mid-Term Exam 150 Final Exam 150 Homework Assignments 300 Attendance 100 Total Points 700 The following standard grading scale will be adopted in assigning your course grades: Total Points Letter Grade 630 and Above A 560 ~ 629 B 490 ~ 559 C 455 ~ 489 D 454 and Below F Page 2

3 Exams: The Exams will be taken online and will be multiple choice. You will have only one attempt for each exam and these must be taken during the assigned time period. Make-up exams will not be given after the feedback for the exams has been provided. The mid-term exam will be on October 4, 2012 and will cover Chapters 1-7 The final exam will be on November 29, 2012 and will cover Chapters We will not meet as a class on exam days. Homework Assignments: The pool of homework assignments consists of four groups with a total point potential of 330 points. You will need to earn 300 of these points to receive maximum credit. You may choose any combination of assignments to satisfy this requirement. The first group of homework assignments consists of weekly chapter quizzes. Each quiz is worth 15 points for a total of 210 points (14 chapters at 15 points per chapter). The second group consists of a two tax preparation problems from Appendix C. There will be one tax return preparation problem for the first half of the course and one tax return preparation problem for the second half of the course. Each tax return is worth 30 points for a total of 60 points. The third group consists of a tax research problem. There will be one tax research problem for the first half of the course and one tax research problem for the second half of the course. Each tax research paper is worth 15 points for a total of 30 points. The fourth group consists of tax forms problems. There will be one tax forms problem for the first half of the course and one tax forms problem for the second half of the course. Each tax forms problem is worth 15 points for a total of 30 points. Chapter Quizzes: There will be an online Chapter Quiz for each of the 14 chapters that we cover during the course. The Chapter Quiz will consist of 15 multiple choice questions. You will have two hours to complete each quiz and you will have two attempts for each quiz. After your first attempt, you will learn the questions that were answered correctly as well as the questions that were answered incorrectly. These quizzes will be available as follows: Availability Availability Begins Ends Chapter Sunday Sunday 1 8/19/2012 8/26/ /26/2012 9/2/ /26/2012 9/9/ /2/2012 9/9/ /9/2012 9/16/ /16/2012 9/23/ /23/2012 9/30/2012 Page 3

4 8 10/7/ /14/ /14/ /21/ /21/ /28/ /28/ /4/ /4/ /11/ /4/ /18/ /11/ /25/2012 Tax Return Preparation: Appendix C includes 6 tax preparation problems. You may choose to do Problem Two (the Fredickson tax return) which will be due October 4, 2012 or Problem 4 (the Dunphys tax return) which will be due November 29, You are strongly encouraged to prepare these tax returns using a tax software package. This assignment requires submission of a full and properly completed tax return for the year Tax Research Problem: The tax research problems are Problem 2-74 due October 4, 2012 and Problem due November 29, Tax research problems should be answered using the style of the sample research memo in the text. (Exhibit 2-9 on page 2-21). Tax Forms Problem: The tax forms problems are Problem 7-87 due October 4, 2012 and Problem 14-64, 65 due November 29, Tax research problems should be answered using the Excel file for personal tax planning. Attendance: We will meet as a class for 27 sessions. We will not meet on Thanksgiving or the days of the two online exams. If your grade for attendance is lower than your grade for the exams and homework assignments, the attendance factor will be dropped. In such a case, the total points would be 600 rather than 700 and grades would be assigned on a 90/80/70/65 scale. In short, attendance can help your final grade but it cannot hurt you. For example, if you earn an A for attendance and a B on the other aspects of the course, attendance will be factored-in. Alternatively, if you earn a B for attendance and a A for the other aspects of the course, attendance will not be factored-in. Page 4

5 Academic Honesty: College students are expected to conduct themselves in accordance with the highest standards of academic honesty. Students are subject to penalty for all forms of cheating including forgery and plagiarism. Students should read the applicable parts of the Student Handbook. Syllabus Statement for Persons with Disabilities: GSU is committed to providing all students equal access to all university programs and facilities. Students who have a documented physical, psychological, or learning disability and need academic accommodations, must register with Access Services for Students with Disabilities (ASSD). Please contact the Coordinator of ASSD in Room B1201 in person; by , assd@govst.edu; or by calling If you are already registered, please contact your instructor privately regarding your academic accommodations. Page 5

6 Course Content and : Chapter 1 An Introduction to Tax 1. Demonstrate how taxes influence basic business, investment, personal, and political decisions. 2. Discuss what constitutes a tax and the general objectives of taxes. 3. Describe the different tax rate structures and calculate a tax. 4. Identify the various federal, state and local taxes. 5. Apply appropriate criteria to evaluate alternate tax systems. Chapter 2 Tax Compliance, the IRS, and Tax Authorities 1. Identify the filing requirements for income tax returns and the statute of limitations for assessment. 2. Outline the IRS audit process, how returns are selected, the different types of audits, and what happens after the audit. 3. Evaluate the relative weights of the various tax law sources. 4. Describe the legislative process as it pertains to taxation. 5. Perform the basic steps in tax research and evaluate various tax law sources when faced with ambiguous statutes. 6. Describe tax professional responsibilities in providing tax advice. 7. Identify taxpayer and tax professional penalties. Chapter 3 Tax Planning Strategies and Related Limitations 1. Identify the objectives of basic tax planning strategies. 2. Apply the timing strategy and describe its applications and limitations. 3. Apply the concept of present value to tax planning. 4. Apply the strategy of income shifting, provide examples, and describe its limitations. 5. Apply the conversion strategy, provide examples, and describe its limitations. 6. Describe basic judicial doctrines that limit tax planning strategies. 7. Contrast tax avoidance and tax evasion Page 6

7 Chapter 4 Individual Income Tax Overview 1. Describe the formula for calculating an individual taxpayer s taxes payable or refund and generally explain each formula component 2. Explain the requirements for determining a taxpayer s personal and dependency exemptions 3. Determine a taxpayer s filing status Chapter 5 Gross Income and Exclusions 1. Apply the concept of realization and explain when taxpayers recognize gross income. 2. Understand the distinctions between the various sources of income, including income from services and property. 3. Apply basic income exclusion provisions to compute gross income. Chapter 6 Individual Deductions 1. Identify the common deductions necessary for calculating adjusted gross income (AGI) 2. Describe the different types of itemized deductions available to individuals and compute itemized deductions 3. Explain the operation of the standard deduction, determine the deduction for personal and dependency exemptions, and compute taxable income Chapter 7 Individual Income Tax Computation and Tax Credits 1. Determine a taxpayer s regular tax liability and identify tax issues associated with the process. 2. Compute a taxpayer s alternative minimum tax liability and describe the tax characteristics of taxpayers most likely to owe the alternative minimum tax. 3. Calculate a taxpayer s employment and self-employment taxes payable and explain tax considerations relating to whether a taxpayer is considered to be an employee or a self-employed independent contractor. 4. Describe the different general types of tax credits, identify specific tax credits, and compute a taxpayer s allowable child tax credit, child and dependent care credit, American opportunity credit, lifetime learning credit, and earned income credit. 5. Explain taxpayer filing and tax payment requirements and describe in general terms how to compute a taxpayer s underpayment, late filing, and late payment penalties. Page 7

8 Chapter 8 Business Income, Deductions, and Accounting Methods 1. Describe the general requirements for deducting business expenses and identify common business deductions. 2. Apply the limitations on business deductions to distinguish between deductible and nondeductible business expenses. 3. Identify and explain special business deductions specifically permitted under the tax laws. 4. Explain the concept of an accounting period and describe accounting periods available to businesses. 5. Identify and describe accounting methods available to businesses and apply cash and accrual methods to determine business income and expense deductions. Chapter 9 Property Acquisition and Cost Recovery 1. Explain the concept of basis and adjusted basis and describe the cost recovery methods used under the tax law to recover the cost of personal property, real property, intangible assets, and natural resources. 2. Determine the applicable cost recovery (depreciation) life, method, and convention for tangible personal and real property and calculate the deduction allowable under basic MACRS. 3. Explain the additional special cost recovery rules ( 179, bonus, listed property) and calculate the deduction allowable under these rules. 4. Explain the rationale behind amortization, describe the four categories of amortizable intangible assets, and calculate amortization expense. 5. Explain cost recovery of natural resources and the allowable depletion methods. Chapter 10 Property Dispositions 1. Calculate the amount of gain or loss recognized on the disposition of assets used in a trade or business. 2. Describe the general character types of gain or loss recognized on property dispositions. 3. Explain the rationale for and calculate depreciation recapture. 4. Describe the tax treatment of unrecaptured 1250 gains and determine the character of gains on property sold to related parties. 5. Describe the tax treatment of 1231 gains or losses, including the 1231 netting process. 6. Explain common exceptions to the general rule that realized gains and losses are recognized currently. Page 8

9 Chapter 11 Investments 1. Explain how interest income and dividend income are taxed. 2. Compute the tax consequences associated with the disposition of capital assets, including the netting process for calculating gains and losses. 3. Describe common sources of tax-exempt investment income and explain the rationale for exempting some investments from taxation. 4. Calculate the deduction for portfolio investment-related expenses, including investment expenses and investment interest expense. 5. Understand the distinction between portfolio investments and passive investments and apply tax basis, atrisk and passive activity loss limits to losses from passive investments. Chapter 12 Compensation 1. Discuss and explain the tax implications of compensation in the form of salary and wages from the employee s and employer s perspectives. 2. Describe and distinguish the tax implications of various forms of equity-based compensation from the employer s and employee s perspectives. 3. Compare and contrast taxable and nontaxable fringe benefits and explain the employee and employer tax consequences associated with fringe benefits. Chapter 13 Retirement Savings and Deferred Compensation 1. Describe the tax and nontax aspects of employer-provided defined benefit plans from both the employer s and employee s perspective. 2. Explain and determine the tax consequences associated with employer-provided defined contribution plans, including traditional 401(k) and Roth 401(k) plans. 3. Describe the tax implications of deferred compensation from both the employer s and employee s perspective. 4. Determine the tax consequences of traditional and Roth Individual Retirement Accounts and explain the differences between them. 5. Describe the retirement savings options available to self-employed taxpayers and compute the limitations for deductible contributions to retirement accounts for self-employed taxpayers. 6. Compute the saver s credit. Chapter 14 Tax Consequences of Home Ownership Page 9

10 1. Determine whether a home is considered a principal residence, a residence (not principal), or a nonresidence for tax purposes. 2. Compute the taxable gain on the sale of a residence and explain the requirements for excluding gain on the sale. 3. Determine the amount of allowable interest expense deductions on loans secured by a residence. 4. Discuss the deductibility of real property taxes and describe the first-time home buyer credit. 5. Explain the tax issues and consequences associated with rental use of the home, including determining the deductibility of residential rental real estate losses. 6. Describe the requirements necessary to qualify for home office deductions and compute the deduction limitations on home office deductions. Page 10