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DEPAUL UNIVERSITY ACC 565-‐TAX ACCOUNTING PERIODS AND METHODS WINTER QUARTER 2015 William Zink [email protected] Course objectives This course deals with federal income tax issues that arise with respect to the determination of the proper periods for reporting income and deductions, overall methods of tax accounting and all of the choices and options available to taxpayers. Tax accounting periods and methods is a fundamental building block of information in a tax professional’s career. Whether you work in public accounting, industry, government are a general tax practitioner, or a specialist tax practitioner, you will encounter tax period and method issues. Specifically, the course will focus on these selected tax topics concerning tax accounting periods and methods: •
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Accounting periods Accounting methods Accounting methods adoption and change Uniform capitalization Inventories Capitalization of expenses Materials for this course We will address these tax accounting period and method issues through the use of the following materials: •
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Select Bloomberg Bureau of National Affairs (BNA) Tax Portfolio #’s o 574-‐Federal tax accounting o 570 Accounting methods o 572 Accounting methods adoption and change o 576 Uniform capitalization o 578 Inventories o 509 Capitalization Thomson Reuters Checkpoint WG&L Tax series-‐Federal tax Accounting-‐Stephen F. Gertzman Select Internal Revenue Code sections as cited in BNA portfolios Select Income tax regulations as cited in BNA portfolios Select cases and IRS revenue procedures and revenue rulings as cited in BNA portfolios BNA portfolios The assigned BNA portfolio reading for each week will be posted on D2L. Your best option is to down load to a flash drive the BNA portfolio sections each week in D2L. Some topics will be covered in 2 weeks so the same portfolio will be used for both weeks. The BNA portfolios are also available in the DePaul Library either electronically or in paper form. The BNA has been chosen because it will be an important research tool you will use as a tax professional in either public accounting, industry, or government. Getting to know these portfolios now rather than later will benefit you as you move into more tax research. The BNA portfolios cover a vast array of tax topics well beyond what we are covering in this course. Gertzman text The Gertzman text has been selected as supplemental reading for the course. Outside of RIA, CCH, and the BNA portfolios, the Gertzman text is the most frequently used authority on tax accounting matters. The Gertzman text is available in the DePaul bookstore at Barnes and Noble at the DePaul center. It is recommended that you obtain a copy of this important text as you will refer to it in your day-‐to-‐day tax work for this course as well as a tax professional. Code, Regulations, Cases, Rulings The Code and regulatory sections, cases, rulings, and procedures will: •
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either be supplied electronically via D2L and posted for each week where applicable, or handed out in paper form in class or simply referred to from the BNA portfolio Thus, there is no need to drag your Code and Regulations into the classroom, as we will be using citations directly from the BNA portfolio. The most efficient way to attend this course would be to bring your laptop with a flash drive. Homework assignments There will be homework for each of the 10 classes and no homework for the week of the final exam. Homework will consist of: •
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Selected reading from the Gertzman text. Each week there will be recommended reading from the text that will give you a clear understanding of each of our topics. Scanning of BNA portfolio sections to get a sense of the landscape of the issues we will cover each week in class. You will use this scanning process to retrieve your answers for each week’s homework review quiz; For each of the 10 weeks of class there will be a multiple choice review quiz. The review quiz will follow the same sequence as the assigned BNA portfolio so you will be using the BNA portfolio to select your answers. The review quiz will not be timed. You will be allowed only 1 selection choice for each multiple choice question. The answers to the review quiz will be directly referenced to the BNA portfolio section so you can see from the BNA portfolio why you were correct or incorrect. Homework review quizzes will be reviewed during class. •
In Class exercises you see posted each week in D2L are for in class so nothing need be done with them prior to class. They are posted to D2L as a matter of convenience. Suggestions for homework assignments As a tax professional, you will be exposed to extensive amounts of data on any given client matter or project. Most of the time you will have to scan the data, get a sense of content, make a decision, and be prepared to discuss your points. In the tax profession, the days of detailed word for word reading will be something you will have left behind in school. Thus, in this course, you will be reviewing large amounts of data for each class. The skill to practice now is to review the data, summarize it in your own mind and be prepared to discuss. There simply will not be enough time for you to do detailed word for word reading and underlining. Thus I suggest you look at the flow of topics in the BNA portfolio. D2L will have a BNA outline of the homework reading posted each week. Use the outline with the portfolio. For detailed reading I would suggest the sections with a Roman numeral and a Large Case Letter. For example, BNA 576.II.A. I would then get a sense where the topics go from there in terms of 1, 2, 3 and further 1(a), 1(b) etc. At these lower letters you should develop the art of speed reading by looking at the topics, see how they connect, and if something doesn’t make sense then read that particular portion. Use this process to answer the homework review quiz. The review quiz homework assignment has 20 questions that will lead you through the BNA portfolio and ask you detailed questions. The answer you choose to the question will key directly into the BNA Portfolio. You will see from the tet why you were correct or incorrect in your answer. We will also discuss these concepts in class and have more in class activities concerning each week’s topics. I would also recommend the same approach to Gertzman. Please note that No homework assignments will be accepted after the initial due date which will be 6:00 pm the evening class unless exceptional circumstances exist. Homework is important in earning points which will determine your grade. Classroom activities Each class will consist of the following components: •
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Class discussion on the topics assigned from the homework reading from the BNA portfolio and from Gertzman A review and discussion of the homework quiz In class exercises, projects, and discussions Class will be run as business meetings rather than as classes. Hence the class will be interactive with extensive discussion and exercises rather than lecturing. What to bring to each class You will benefit most from each class if you could bring your laptop with a flash drive. It would be recommended to download each week’s homework reading materials to the flash drive. This would allow you to have the materials and have access without the need to connect to D2L in the classroom. You should also plan on bringing electronically or in paper the week’s in class exercises that are posted to D2L each week as these will be worked on in class. If the laptop option is not possible, then the next best option is to bring a printed copy of the outline of the BNA that is the topic being discussed for the particular class. You can use the outline to take notes. Either way, I would not recommend you print the BNA’s as they are too voluminous to print and carry. I would also recommend you bring the Gertzman text with you to class. In any event you need not bring any Code or Regulations, as we will rely on BNA where we need to refer to such precedent. Examination and grading Grading will be on the basis of points. Points will be earned from each week’s homework review questions, class participation in discussion of topics and class exercises, and by the final examination. There is no mid-‐term. The final exam will be open book to be completed electronically from home. Thus the final class is week 10 with an electronic final in the following week. The final, which will be 100 questions, will be open on Tuesday at 9:00 am after our tenth class and will remain opened until the following Monday and then close at 9:00pm. Final grades should be posted within a few days after the close of the final. However, given the grading scale below, and the fact that you will take the final in D2L’s review quiz format, you will know how you did upon your completion of the final exam. Grading will be on a point system corresponding to 4 thresholds and thus 4 letter grades. The point system will be as follows: Review quiz with 20 questions @ 1 point each+20 In class participation in topics and in classroom exercises and projects 1-‐10 points Final exam with 100 questions @ 1 point each Total possible points 10 classes 200 points (50%) 10 classes 100 points (25%) 1 class 100 points (25%) 400 points Grades will be determined on the basis of cumulative points and grade letter scale after the final as follows: Letter grade A B Points 360 points or greater 320 points or greater %’age 90% or greater 80% or greater C D 240 points or greater Less than240 points 60% or greater Less than 60% We will not have a mid term. The homework assignments are heavily weighted for points given the importance of working with the BNA portfolios. Consider each week’s review quiz as part of a final exam. Also consider each week’s participation as part of your final exam. Also, note that in class participation is essential both for the evening’s topics as well as the assignments given in class. Although no attendance is being taken, absence results in 0 points for any week of absence due to no participation. The class schedule with class topics and homework assignments follows. Class schedule Week 1 Main Topic Accounting periods Classroom Overview Taxable Year defined Required taxable year 52-‐53 week year In class exercises 2 Accounting periods 3 Accounting methods 4 Accounting methods Adoption of taxable year Changes & retentions Short taxable years Final taxable year In class exercises Tax period review Overview What is a method of accounting? Permissible methods of accounting In class exercises Income inclusions Deductions and credits In class exercises Tax Accounting method review 5 Accounting methods adoption & change Overview Do accounting method rules apply? Accounting method adoption Voluntary changes Non-‐automatic changes Automatic changes Homework Scan BNA 574 I-‐IV Scan-‐RIA-‐Federal Tax Accounting-‐Gertzman Chapter 10 Prepare and submit Review Quiz #1 Scan BNA 574 V-‐VIII Scan-‐RIA-‐Federal Tax Accounting-‐Gertzman Chapter 10 Prepare and submit Review Quiz #2 Scan BNA 570 I-‐III Scan-‐RIA-‐Federal Tax Accounting-‐Gertzman Chapters 1, 2 Prepare and submit Review Quiz #3 Scan BNA 570 IV-‐V Scan-‐RIA-‐Federal Tax Accounting-‐Gertzman Chapters 3,4 Prepare and submit Review Quiz #4 Scan BNA 572 I-‐VII Scan-‐RIA-‐Federal Tax Accounting-‐Gertzman Chapter 8 Prepare and submit Review Quiz #5 6 Accounting methods adoption & change 7 Uniform capitalization 8 Inventories 9 Inventories Mandatory changes In class exercises 381 changes Involuntary changes Unauthorized changes Changes not under Sec. 446 Non-‐timing issues 481 Adjustments Foreign entities In class exercises Tax Accounting method adoption & change review Overview Manufacturers Retailers and wholesalers Self-‐constructed assets Real property In class exercises Unicap review Overview Need for inventories Basic requirements Valuation Manufacturers Other taxpayers LIFO Overview LIFO history Requirements for adopting LIFO Specific goods method for LIFO Dollar Value Method In class exercises LIFO Pools LIFO items Simplified LIFO Retail LIFO Bargain purchase LIFO liquidations Nontaxable transactions Financial conformity Changes requiring permission Combining and splitting pools LIFO termination Scan BNA 572 VIII-‐XIV Scan-‐RIA-‐Federal Tax Accounting-‐Gertzman Chapter 9 Prepare and submit Review Quiz #6 Scan BNA 576 I-‐V Scan-‐RIA-‐Federal Tax Accounting-‐Gertzman Chapter 6 Prepare and submit Review Quiz #7 Scan BNA 578 I-‐XI Scan-‐RIA-‐Federal Tax Accounting-‐Gertzman Chapter 7 (continues next week) Prepare and submit Review Quiz #8 Scan BNA 578 XII-‐XXII Scan-‐RIA-‐Federal Tax Accounting-‐Gertzman Chapter 7 Prepare and submit Review Quiz #8 10 Capitalization 11 Final exam LIFO recapture C to S conversion In class exercises Inventory review Overview General capitalization principles Tangible property regulations Materials and supplies Tangible property capitalization Tangible [property acquisition or production costs Improvements Creation of intangibles Business transaction costs In class exercises Capitalization review XXXXXXXXXXXXXXXXXX Scan BNA 509 I-‐IX Prepare and submit Review Quiz #10 XXXXXXXXXXXXXXX