ADVANCED TAX CONCEPTS
Competency 3028.1.1.10: Tax Planning –The student identifies both retrospective and prospective planning opportunities.
A tax professional must have a working knowledge of the many tax research tools and understand the hierarchy of tax authorities. In this task, you will use tax research to advise a client on tax planning.
John Partner, your supervising partner at Partner, Williams, and Nye, CPAs, has requested that you review the following fact pattern relating to the Smiths, prepare a memo to him summarizing the facts, and draft a letter from him to the Smiths outlining your recommendations.
Mr. and Mrs. Smith are concerned about their future income and estate tax bills. They estimate that their current estate is valued at $15 million, and they want to begin gifting in a manner that will minimize their future income and estate taxes. The Smiths’ annual income exceeds $1 million. They want to know how this will affect their 2015 taxes and the taxes of their daughter. They are also wondering if it would make more sense to put their daughter on the payroll of their S-corporation and pay some or all of her gift as a salary during 2015. Their goal is to minimize the total amount of tax liability paid by the family now and in the future. Mary Smith, the daughter, has no other income, is unmarried, has no dependents, and is the Smiths’ only child. The Smiths have provided you with a summary of their assets, which can be found in the “Summary of the Smith Family Assets” attachment.
Note: In preparing the memo and letter, carefully tailor your level of technical accounting terminology to the audience you are writing for.
A. Write a memo (suggested length of 2–3 pages) to your supervising partner summarizing the Smiths’ case by doing the following:
1. Provide three separate recommendations for the Smiths to minimize their total tax liability.
a. Discuss two pros for each recommendation.
b. Discuss two cons for each recommendation.
c. Provide a final recommendation on which of the three recommendations from part A1 the Smiths should pursue, including a justification for your claim.
Note: More than one recommendation can be provided.
B. Write a persuasive letter from your supervising partner to the Smiths by doing the following:
1. Explain the tax benefits that gifting options will provide for the Smiths relative to other alternatives, including taking no action, as the Smiths transfer their wealth to Mary.
2. Explain your stance on the Smiths’ proposed solution of putting their daughter on the corporate payroll.
C. When you use sources, include all in-text citations and references in APA format.
Note: For definitions of terms commonly used in the rubric, see the Rubric Terms web link included in the Evaluation Procedures section.
Note: When using sources to support ideas and elements in an assessment, the submission MUST include APA formatted in-text citations with a corresponding reference list for any direct quotes or paraphrasing. It is not necessary to list sources that were consulted if they have not been quoted or paraphrased in the text of the assessment.
Note: No more than a combined total of 30% of a submission can be directly quoted or closely paraphrased from outside sources, even if cited correctly. For tips on using APA style, please refer to the APA Handout web link included in the APA Guidelines section.