What is cost of labor on form 1125 a

Tax Project

Final Project

OVERVIEW Using the information below, prepare Peterson Golf Corporation’s 2015 Federal income tax return (Form 1120), including all needed supporting statements, schedules, and forms. Unless otherwise noted, assume Peterson Golf follows the policies of making all elections to minimize its current income taxes and, to the extent possible, of conforming procedures for financial and tax accounting. Round amounts to the nearest dollar. If additional information is needed, make realistic assumptions and fill in all required data. While this assignment is not designed to be tricky, it may be difficult for many students, and it will most certainly require a significant input of your time. The purpose of this project is twofold. First, your ability to examine the receipts, disbursements, and situation of taxpayers, identify the relevant tax issues, and determine the appropriate tax treatment, as covered explicitly in the text, lectures, and homework, will be gauged. Second, completion of the project will require you to use forms and publications from the Internal Revenue Service to actually prepare the documents the taxpayer would be required to submit. Completion of the project will aid in your understanding of the translation of theory and concepts into practice and returns. GUIDELINES AND INSTRUCTIONS Students must work in groups of 2-5 people and complete the final project using resources from http://www.irs.gov, lecture notes, tax texts, etc (only one project needs to be turned in per group). As this is a project, and not a homework assignment, I will be providing less guidance in office hours, etc. for students, although I will strive to point everyone in the right direction. Forms downloaded from IRS.gov are in the PDF format and, using Adobe Reader software, students MUST type their answers into the blanks on these IRS forms available at the following website: https://apps.irs.gov/app/picklist/list/formsPublications.html. For the entire project, students must assume that the taxpayers are interested in the tax- minimizing legal position. IRS forms and instructions are designed to be read, understood, and followed by taxpayers without significant accounting backgrounds. While it may be challenging at first, senior accounting students should be able to read the instructions for each form and figure out how to complete the project. When a statement is required for a line, just attach a Word document printout that states the Form and Line number, and what you put on that line.

AGAIN, PLEASE USE 2015 NUMBERS AND FORMS TO COMPLETE THIS PROJECT.

http://www.irs.gov/
https://apps.irs.gov/app/picklist/list/formsPublications.html
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The only submission required for grading is a complete 2015 U.S. Individual Income Tax Return, which will consist of the following forms (SUBMIT IN THE FOLLOWING ORDER):

1. Book-Tax Reconciliation (Template Provided on Blackboard) – This is not an IRS form but will be completed for every entity tax return at most accounting firms.

2. Form 1120 3. Form 1125-A – Cost of Goods Sold 4. Schedule G – Information on Certain Persons Owning the Corporation’s Voting Stock 5. Form 1125-E – Compensations of Officers 6. Form 4562 – Depreciation and Amortization 7. Form 8903 – Domestic Production Activities Deduction 8. Statement for Form 1120, Line 26 (Template Posted on Blackboard) (on same page as #9

& 10) 9. Statement for Form 1120, Schedule L, Lines 6 & 9 (Template Posted on Blackboard) 10. Statement for Form 1120, Schedule M-1, Lines 5 & 8 (Template Posted on Blackboard)

YOU MUST ALSO COMPLETE A BOOK-TAX RECONCILIATION AND INCLUDE IT WITH YOUR RETURN SUBMISSION. A sample book-tax reconciliation is posted on Blackboard. The sample book-tax reconciliation provides a template you should use in completing this project. All forms must be TYPED and printed, that any line with an entry of -0- be left blank, and negative numbers should be indicated in parentheses. Please round all numbers to the nearest whole dollar and omit “00” in the cents column. Please only submit one return for each group. For your final submission, due Friday, December 9 by 3:20 PM, you MUST staple a cover sheet (template provided on Blackboard) to the entire return with your name, PUID, and section clearly printed and easily visible. Good luck! CHECK FIGURES: Form 1120, Line 11: 6,875,000 Form 1120, Line 26: 50,000 Form 1120, Schedule L, Line 28, Column (d): 7,482,256 Form 1120, Schedule L, Line 26, Column (b): 130,000 Form 1120, Schedule M-1, Line 2: 245,000 Form 1120, Schedule M-1, Line 7: 5,000 Form 4562, Line 19b, Column (g): 33,000

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SCENARIO: Peterson Golf Corporation is organized as a C-Corporation and was incorporated May 14, 2009. The company was founded by golf legend Chubbs Peterson but is now owned by two shareholders, Shooter McGavin and Virginia Venit. The acquisition of all of the common stock of Peterson Golf occurred in 2011. The corporation manufactures golf clubs and is known for their signature putters, the Gilmore and the Chubbs (NAICS code number 339900). The corporation has reported positive financial and taxable incomes since inception. The company is located at 2440 Due West Highway, Belton, South Carolina 29627. The company’s employer identification number is 11-1112111, and the calendar year is used for tax purposes. This year the corporation changed its address but did not change its name. Peterson Golf’s phone number is 864-887-9999. Shooter H. McGavin (social security number 121-11-1111) is a 75 percent shareholder and president/CEO of the company. Virginia B. Venit (social security number 987-65-4321) is a 25 percent shareholder and vice president/COO of the company. The company does not have any preferred stock. Shooter’s compensation is $1,000,000 per year, and Virginia’s compensation is $280,000 per year. The third officer of the corporation, Happy S. Gilmore (SSN: 888-88-8888), is paid $300,000 per year as the treasurer/CFO of the corporation. You can assume that due to their expertise, all of these amounts meet the test of being both ordinary and necessary as well as reasonable in amount (under IRC §162). All officers are U.S. citizens and devote 100 percent of their time to the corporation. The corporation is not a personal holding company. While the corporation is a ‘closely-held C-corporation,’ it does not engage in activities to which the at-risk or passive activity loss limitations apply. The corporation files its tax return on the accrual method. Inventory has been consistently valued at Lower of Cost or Market under the FIFO method using the full absorption procedure. Inventory capitalization rules of Internal Revenue Code Section 263A do not apply, since Peterson Golf Corporation is considered a small corporation for these rules. The accounting records are computerized. The corporation’s audited income statement and balance sheet for the current year, prepared by the accounting firm of Purdue, Krannert, and Rawls, LLP (“PKR”), are attached. You also work for the same firm and will need to complete the paid preparer information on the return as such. PKR’s information is as follows: EIN: 56-9291122; Address: 403 West State Street, West Lafayette, Indiana 47907; Phone number: 765-867-5309.

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ADDITIONAL INFORMATION:

1. Ignore state income taxes. 2. Ignore AMT and ACE. 3. Peterson Golf did not sell any fixed assets (buildings, computers, furniture, etc.) during

2015. 4. Peterson Golf made the following estimated payments attributable to 2015:

a. $28,451 applied from the 2014 return b. $216,549 on 6/15/2015.

5. All notes payable were issued at par and provide market interest rates. 6. A patent worth $300,000 arose on a purchase of another business on 1/1/2011. This is a

Section 197 asset for tax purposes. 7. Assume that the only fixed asset addition for the year was new Computer Equipment

worth $330,000 on January 20, 2015. Peterson Golf would like to take bonus depreciation on these assets, and these assets qualify for bonus depreciation (but not Section 179). Assume tax depreciation relating to assets placed in service prior to 2015 totals $97,224.

8. No meals and entertainment expenses qualify for 100% deductibility. 9. All charitable contributions were cash donations made to qualified organizations. 10. Peterson Golf distributed $62,000 in dividends out of its Current Earnings and Profits in

2015 (paid to Shooter McGavin and Virginia Venit pro-rata). 11. Interest income is comprised of the following amounts:

a. $35,00 from Barker Bank b. $5,000 from City of Clemson, South Carolina municipal bonds

12. All dividend income was received from Callaway Golf Corporation. Peterson Golf owns a 0.015% stake in Callaway.

13. Disregard any penalty on underpayment of estimated tax. 14. Peterson Golf’s items related to domestic production of golf clubs consists of the

following items. Since Peterson Golf is a manufacturer of golf clubs, none of these costs are oil-related production costs. Peterson Golf’s W-2 Wages related to this activity are $1.3 million.

a. Allocable Gross Receipts: 6,800,000 b. Allocable Cost of Goods Sold: (680,000) c. Allocable Salaries (Deductions): (1,300,000) d. Other Allocable Expenses (Deductions): (4,420,000)

15. For cost of goods sold calculation, Peterson Golf had $500,000 in labor costs that should be included in cost of goods sold. Remember your COGS formula when preparing Form 1125-A:

a. Beginning Inventory + Purchases + Cost of Labor – Ending Inventory = Cost of Goods Sold

16. The Officers’ Life Insurance expense item includes amounts paid for premiums for term life insurance policies on both officers of the corporation. The beneficiary on the policies is Peterson Golf Corporation.

17. Peterson Golf Corporation made payments that required filing Forms 1099 and filed all of these forms for 2015.

18. Peterson Golf would like any overpayment applied to its 2016 tax liability.