Tax
Planning and Business Strategy Case Study
Case
Guidelines
Throughout the case, you may assume that events
described unfold over a period of several years, as your client, Dave
Novellprogresses through life and each module is viewed as a different point in
his life, in which his business and private affairs change and evolve. Your
task is to assume the role of an accountant and member of an accounting team at
a local firm assigned to work with Dave and apply your understanding of tax strategies
and regulationsto address and resolveissues concerning his tax obligations and
liabilities.
Background
Information
Dave Novell is a divorced parent with custody of his
two children.Dave is an owner-employee with âOn-Off-Shore Searchers, LLCâ
(OOSS).He and his children reside in Phoenix, AZ.When they were young, his
children lived with their mother, even though he provided over 50%of their
support.OOSS is a Louisiana registered LLC and based in Houma, Louisiana.It
operates six drilling rigs now.Adam works a regular 2-weeks-onshore and 2-weeks-offshore
schedule.
His prior tax preparer and advisor died
unexpectedly.Unfortunately, the tax preparer was a sole practitioner and there
was no one to continue the tax services to Dave.His stockbroker recommended you
and your accounting firm to advise him and his family on his tax obligations
and liabilities.
During the onshore weeks,Dave also manages a small
business in Phoenix operating under the name of âDiamond Discovery,â a 100%
owned small business that develops new musical talents.He operates this
currently as a regular Schedule C business.You discover that his ex-wife, Diane,
works in this business, he paid for the completion of her education in addition
to paying forher house, in which she and the two children previously resided,
and he has done this for many years.Once she had completed her education and had
become employed, the divorce settlement required the house to be sold and the
proceeds, net of the loan payoff, to be divided equally between the two
individuals.This has not been done.
Documents
Left by the Deceased Tax Preparer Containthe Following Information:
·
On
prior tax returns, he has deducted his mileage round-trip between Phoenix and
Houma as a nonreimbursed business expense.
·
Diane
does not receive a W-2 or a Form 1099-Miscellaneous for the weekly cash stipend
of $500 received from Diamond Discovery, Inc.
·
Dave
is vague as to if and how the stipend was handled by the deceased tax preparer.
·
A
review of prior tax returns does not reveal any information about this
issue.However, Dave claims that he has always deducted it.
·
Dave
had converted Diamond Discovery to a corporate structure on November 20 of the
prior year.However, the prior year returns provided by him consisted only of Daveâs
1040.
·
Dave
claims that Diamond Discovery was to be established as an S-Corp. with him as
100% owner.No records from the deceased tax preparer files show this was filed.
·
W-2
from OOSS has the following:
o
Gross,
Box 1, Income, $125,000.
o
Federal
income tax withheld, Box 2, $21,300
o
Social
Security Income, Box 3, $106,800
o
Medicare
Income, Box 5, $125,000
o
All
Social Security and Medicare taxes were withheld
o
Arizona
income, $125,000
o
Arizona
withholding, $5,250
CLC
Case Study Report A
Upon being retained by Dave to provide tax advice
you are scheduled to meet with him in one week.The tax partner-in-charge
assembles several staff members (CLC Team) and begins the task of understanding
Daveâs tax situation.Dave is to be provided a summary of his current tax issues
and at least three alternative plans to address these issues before tax returns
need to be completed for his current tax year. During the first session Daveexpects
to be provided with an analysis of his individual tax situation, tax structure,
and potential tax liability issues.
Please refer to the assignment grading rubric at the
assignmentâs drop box for information regarding how the assignment will be
graded. The CLC team is to prepare a two-page (double-spaced) report with the
required information to be submitted by
the end of Module 2.
Individual
Case Study Report A
As a member of the staff (CLC) team assigned to work
with Dave, you are assigned the individual task of developing a summary of the
legal restrictions placed on the client, the areas of tax planning thatyou
recommend for the taxpayer, and what sources of interpretation of tax laws,
regulations, and rules (search audit trail to be included as citations and
references) should be used by the staff (CLC) team.
Additional information provided by Daveduring a previous
meetingincluded the following:
a)
Dave
is under a full investigation by the Internal Revenue Service for failure to
file tax returns for a former company, Tucson to Texas Travelers (3T), a sole
proprietorship, which ran a series of truck stops between Tucson, AZ and
Houston, TX until it was closed down due to net losses for the last 4 years of
the 7 years it was in operation.
b)
A
document produced by Dave indicates that the former tax preparer had rolled
over a net operating loss (NOL) into the last 4years of tax returns prepared
for the client.
c)
You
discover a handwritten note in the files provided that the NOL was used to
offset taxable income in other business ventures for the taxpayer in each of
the last four years of returns prepared for the taxpayer.
d)
A
single piece of paper was discovered in the prior tax preparers file that
reveals that 3T had not prepared and submitted payroll reports including W-2s
and 2099s for its last 3years.
You are to work independently of the CLC Team, but
use the CLC report being developed for Module 1 with the anticipation that your
additional work will be merged with that of other staff (CLC) members later.
Please refer to the assignment grading rubric at the
assignmentâs drop box for information regarding how the assignment will be
graded. Prepare a two- to three-page (double-spaced) report with the required
information to be submitted by the end of
Module 2.
CLC
Case Study Report B
The entire staff assigned to work with Dave (CLC
Team) reassembles and are brought up-to-date by the tax partner.You learn that Dave
has acquired controlling partner interest in OOSSâs second largest competitor,
Deepwater Exploration, LLC, (DE) by purchasing $200 million of common stock
using OOSS assets as collateral for a loan with First Trust Bank.After being appointed
the new general manager of DE, he is considering merging OOSS and DE into a
single company.Dave requests advice on what is the best business structure and
why as it relates to the
compensation structure of DE and perhaps OOSS.He
also wants to know the impact of different business forms of organization on
the compensation of owners.
The staff team (CLC team) is now assigned the task
of developing a recommendation summary of these issues and which is the best
organizational structure to recommend for Dave and his companies. Dave
indicated that even Diamond Discovery should be considered a part of his
reorganization efforts.
Please refer to the assignment grading rubric at the
assignmentâs drop box for information regarding how the assignment will be
graded. The CLC team is to prepare a two-page (double-spaced) report with the
required information to be submitted by
the end of Module 3.
Individual
Case Study Report B
As a member of the staff (CLC) team assigned to work
with Dave, you are assigned the individual task of developing a summary of the
issues related to Dave after being in a meeting with the tax partner-in-charge.
During the latest meeting, you learned that Dave has
remarried. His new spouse owns Dollar Max, Inc., and Dave has agreed to invest
in Dollar Max.Dollar Max is an S-Corporation for tax purposes.Daveâs
contribution consists of personal assets valued at $7,500,000.He requests
information about the special tax rules that will apply to a corporation;
information on what are the possible tax benefits of leverage in the
corporationâs capital structure; whether or not some hybrid of debt-equity
should be used; a summary of tax treatments of corporate distributions; and
what would happen if they decided to liquidate her corporation with the plan to
merge her operations assets into one of his companies; and whether or not a
merger could be done tax free especially if an S Corporation structure was to
be used.
You are to work independently of the CLC Team but
use the CLC report being developed for Module Threewith the anticipation that
your work will be merged with that of other staff members.
Please refer to the assignment grading rubric at the
assignmentâs drop box for information regarding how the assignment will be
graded. Prepare a two- to three-page (double-spaced) report with the required
information to be submitted by the end of
Module 4.
CLC
Case Study Report C
The staff (CLC) team assigned to work with Dave was
notified in a weekly meeting by the tax partner-in-charge that Dave is in
negotiations with the owners of Rough Timber Corporation (RTC) to acquire that
business.RTC owns approximately 2,000,000 acres of timber throughout the U.S.
and leases another 5,000,000 in the U.S. and Canada.Dave wants to know the best
approach to minimize the tax liability for the acquisition for him and the
other owners.The other owners are his brother and sister.He wants to make this
a tax-free acquisition of their C Corporation if possible.If not, then he needs
recommendations on the best way to minimize the tax liability.
The staff team (CLC team) is now assigned the task
of developing a recommendation summary of these issues and which is the best
organizational structure to recommend for Dave and his companies.
Please refer to the assignment grading rubric at the
assignmentâs drop box for information regarding how the assignment will be
graded. The CLC team is to prepare a two-page (double-spaced) report with the
required information to be submitted by
the end of Module 5.
Individual
Case Study C
As a member of the staff (CLC) team assigned to work
with Dave you are assigned the individual task of developing a summary of the
legal restrictions placed on the client, the areas of tax planning thatshould
provide the taxpayer with the services needed, and what sources of tax law should
be used by the staff team.
Dave has informed the tax partner-in-charge that he
plans to bring his wife, children, brother and sister into the operation and
ownership of his businesses. He expresses a desire to begin at the end of the
current tax year to make gifts to his children of cash and ownership interests.
You are to work independently of the CLC Team but
use the CLC report being developed for Module Fivewith the anticipation that
your work will be merged with that of other staff members.
Please refer to the assignment grading rubric at the
assignmentâs drop box for information regarding how the assignment will be
graded.Prepare a two- to three-page (double-spaced) report with the required
information to be submitted by the end of
Module 6.
CLC
Case Study Report D
The tax partner-in-charge provides additional
information regarding Taxpayer Dave and his family-owned businesses.A
grandchild has now entered the business after completion of his college
studies.He recently married a citizen of another country.
Dave needs advice as to how this new family layer
will affect the tax situation of the family-owned and -operated businesses.He
also wants to know if there are any tax issues related to relocating some of
his business efforts to another country, operating in multiple countries, or
operating a business independently in another country.The tax partner-in-charge
believes that Dave plans to turn over some of the business operations to his
grandchild,who has expressed a desire to live in another country.
The staff team (CLC team) is now assigned the task
of developing a recommendation summary of these issues and whatis the best
organizational structure for Dave and his family.
Please refer to the assignment grading rubric at the
assignmentâs drop box for information regarding how the assignment will be
graded. The CLC team is to prepare a final four- to five-page (double-spaced)
report with the required information to be submitted
by the end of Module 8.
Individual
PowerPoint Presentation
Dave, as the senior family member-owner of a variety
of businesses, has requested from the tax partner-in-charge a presentation and
summary of the issues and recommendations provided to him.He would like this in
a PowerPoint slide presentation to be used at a family-business retreat being
planned to review the businesses owned and operated by the expanding family.Of
specific interest to family members is the strategic tax planning issues faced
by the family.
You are to prepare a PowerPoint presentation with
the required information to be submitted
by the end of Module 8.
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