Tax Research
Tax Research
Tax Research: ACCT 6356.501 Tax Research – Fall 2022
Name __________________
RESEARCH ASSIGNMENT 3
Treasury (IRS) Regulations
( Please submit as a Word document by email by 4:00 p.m. next Thursday, 9/15. )
This assignment is worth up to a maximum of five (5) points. Your answer should be written in your own words without any “cutting & pasting” from the source doc-ument(s) you cite except that very brief quotations are acceptable with proper attribution.
Points will be deducted for, among other things, (i) spelling and grammatical er-rors that Word highlighted but you failed to correct and (ii) other egregious errors, including substantive misstatements.
Any submissions received after 4:00 p.m. are worth a maximum of three (3) points. Submissions not received by 7:00 p.m. will not be scored (zero points).
Consult the Citation Style guide in the Syllabus. Be sure to include your name on your work.
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Your client Ms. Executive was, until a few years ago, the CFO of BigCo. She had worked her way up through the Controller’s organization, then became Tax VP in 2009, then CFO in 2014.
Ms. Executive lost her role as BigCo’s CFO for the simple reason that in 2019 BigCo was swallowed up in a merger (an “A” reorganization) by BiggerCo. All of BigCo’s former assets and operations now make up just another one of Bigger’s several divisions.
Ms. Executive was fired the day after the merger closed – Bigger had a CFO and didn’t need two. But there was some happy news . . . because Ms. Executive had been smart enough to negotiate for a generous golden parachute provision in her CFO contract. The merger pulled the ripcord on that parachute and she collected a pre-tax lump-sum $4.4 million in September 2019. Can’t be sad about that!
“Wow, close call!”, you had said to her at the time. “You almost had to pay that nasty 20% excise tax!”
In 2021 Ms. Executive accepted a job in Hawaii and moved. She’d said at that point that although she “love[d] you to death” she felt the need for a local CPA. You agreed that that made sense, and she found one…
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Out of the blue today Ms. Executive called you and she’s really angry. The IRS audited her 2019 return (the audit handled by her new CPA) and no sooner was the IRS finished than they handed Ms. Executive a tax deficiency notice saying “$580,000 excise tax, please.”
“You told me that I wouldn’t have pay any excise tax! Now the IRS says that I do owe it. Not happy with you!” (You can’t blame her for being upset, you only wish that you’d been involved in the audit…)
The IRS bases its position on Ms. Executive’s alleged miscalculation of her base amount. You had told her that her “base amount” was exactly $1.5 million. The IRS says it actually was only $1,460,000, “so the government wins!” Here are the relevant numbers, Ms. Executive’s salary (net of pre-tax deductions) for the most recent five years before she was fired:
2014 : $1,400,000
2015 : $1,450,000
2016 : $1,500,000
2017 : $1,550,000
2018 : $1,600,000
But there’s an important footnote to those numbers: Because of some disarray in BigCo’s Japanese subsidiary, Ms. Executive had “volunteered” to transfer and to work out of the Tokyo office (but still as a BigCo employee) in July 2015. She stayed through 2016 and into 2017 before being called back to Dallas. She claimed the § 911 exclusion in full for 2016 and partially for 2015 and 2017.***
*** Let’s hypothetically say that the exclusion she qualified for amounted to an aggregate total of $200,000 for those three (two partial plus one whole) calendar years together.
The IRS argues that since Ms. Executive didn’t pay FIT on the § 911 exclusion amount, it can’t be included in her base amount calculation. So the government says that her base amount was less than what you’d advised her it was, with the result that her $4.4 million payout was subject to excess tax.
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You need to develop your response to your angry former client. And then com-unicate it to her in writing.
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