ACCT SYLLABUS 5301 PART 1: Income Tax Accounting Spring/Summer 2008 ProfessorRobert Ricketts BA 503 [phone]/[phone] [e-mail] Course Description This course provides an overview of the basic conceptual framework underlying the U.S. federal income tax system. The focus of the first part of the course is on how taxes impact business practice and business planning, including how taxes increase or decrease the cost of acquiring assets, how they impact the analysis of risk and reward, how they impact the choice of entity in which a business is conducted, and how they impact where and how business is conducted. Required Text Jones, Sally, M and Shelly Rhoades-Catanach, Principles of Taxation for Business and Investment Planning 2008 Edition. McGraw-Hill Higher Education, New York, NY Course materials will be available at the following web site: http://rricketts.ba.ttu.edu Course Objectives 1. 2. 3. 4. Develop students understanding of the concerns of tax policy makers and how the policies that result from those concerns affect the business climate. Provide students with an understanding of the multiple types of taxes in modern societies, the different jurisdictions to which those taxes are paid, and the manner in which those multiple jurisdictions interact. Teach students to recognize how taxes increase the cost of basic business transactions and how those transactions can be structured to minimize tax costs. Distinguish between minimizing tax costs and maximizing after-tax cash flows.
Grading Grading will be based on the quantity and quality of students efforts. Assignments will be divided into 3 categories. In order to receive a C for this half of the course, students will be required to complete the two-part basic assignment illustrating the magnitude of the U.S. federal tax system, submitting above average work. To receive a B, students must complete the assignment on the economic effects of taxation, also at an above average quality level. To receive an A, students must submit all assignments in categories C and B, along with the assignment on tax planning. Required assignments are summarized below. ACCT 5391 Income Taxation MBA Program for Working Professionals
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Assignments for Business Taxation Portion of the Class Basic AssignmentMagnitude of Tax Burden Imposed at the Federal Level You must complete this two-part assignment to receive a grade of C in this half of the course. The next two years are likely to see a significant amount of debate over the proper direction of tax policy in the new administration. The current administration implemented relatively significant tax cuts in 2001 and 2003, and at least one tax bill has been passed every year of this century. A number of ideas seem to be swirling about the country regarding the effects of tax reform, the shape future tax changes ought to take and so on. Often, these ideas are supported with rather shaky arguments. For this assignment, we will analyze tax return data in an attempt to measure the real impact of certain tax proposals. Go to www.irs.gov and click on Tax Stats. That link will take you to the following web page: http://www.irs.gov/taxstats/index.html. (You can bypass the first step and go straight to this page if you wish). You will now be able to access a large number of data sets, all conveniently available in Microsoft Xcel format. Use these data sets to answer the following two questions. Your paper should incorporate your answers to the questions asked with your opinion about what this means for tax policy in the next administration. You may wish to include questions/issues that we did not discuss in class in writing your paper. Your paper need not be especially lengthy (4-6 pages single spaced should suffice), but it should be based on your own opinion (no surfing the web for other peoples arguments), and on the calculations you make from the data available to you. Be sure to note any limitations of the data you use to support your analysis, and clearly articulate any assumptions important in that analysis. Part 1: The Current Income Tax Much of the national debate has centered on the distribution of the current income tax. Using 2005 individual income tax return data, compute the effective tax rates (actual tax liability divided by AGI) for each of the following groups in that year: Incomes from 0 - $25,000 Incomes from $25,000 - $50,000 Incomes from $50,000 - $100,000 Incomes from $100,000 - $200,000 Incomes from $200,000 - $500,000 Incomes above $500,000 What portion of the total income tax collected comes from each of the above groups? What portion of total income is earned by each of the above groups?
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How do you think the social security tax burden is distributed across each of the above groups? (You should consider the amount of salary and wage income earned by each group, along with the earnings ceiling. an Assume earnings ceiling for 2005 of $90,000). Be sure to discuss the assumptions that you have to make to estimate how this burden is shared. Part 2: Flat Tax Proposals Assume the country decided to move to a flat tax, with generous exemptions, standard deductions, etc. to protect lower income citizens. Assume further that the flat tax would replace the income tax system only the social security tax and all other federal taxes would remain in place. What rate would be necessary to fully replace 2005 individual income tax revenues if the first $20,000 of family income were not taxed (e.g., by a generous combination of exemptions and standard deductions)? Assume that no deductions would be allowed. How would this change affect the different income groups you analyzed above? Now, calculate the rate that would be necessary to both replace the revenues generated by the 2005 individual income tax and to generate an additional $300 billion to eliminate the federal operating deficit. (The actual operating deficit for 2005 was $493.6 billion, after accounting for the $173 billion Social Security surplussee http://www.cbo.gov/budget/historical.shtml). Given your estimates, do you think a single rate flat tax with a $20,000 exemption per family is a feasible policy in the U.S.? Explain. Note that in making your computations, you will have to adjust income for affected brackets by subtracting the $20,000 or $30,000 exemptions from total incomes for each AGI group.
Assignment 2The Economic Effects of Taxation You must complete this assignment (along with the one above) to receive a grade of B for this half of the class. The Wall Street Journal recently ran two articles on its editorial page regarding the value of the dollar and the price of oil. They are linked on my web page (http://rricketts.ba.ttu.edu) along with an assortment of other articles that you should find interesting. In these editorials, the journal argues that the fall of the dollar is the largest factor in the rapid
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increase in oil prices we have experienced over the past 5 years. To address this problem, the journal editorial board suggests further cuts in tax rates and an increase in interest rates.
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Prepare a graph of the monthly price of West Texas Intermediate light crude oil in dollars vs. euros from June 2001 through June 2008. Historical oil prices are available from the U.S. Energy Information Administration, and can be downloaded from the following web site: http://tonto.eia.doe.gov/dnav/pet/hist/rwtcM.htm. A very good currency converter is available at http://www.oanda.com/. What would presumably be the current price of oil, in dollars, if the exchange rate between the dollar and the euro remained 1:1.16 as in June 2001? Note that June, 2001 was when the 2001 tax act was passed. You can choose different dates to begin this analysis and get slightly different results. Analyze the Wall Street Journals suggested policy prescription to address the declining value of the dollar. Do you think further tax cuts would help or hurt the cause? What would be the potential economic ramifications of increasing interest rates? What else can the country do?
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3. Because the issue came up in class, I have also posted an editorial discussing the significance to us of having the dollar serve as the worlds reserve currency. (This article also notes the relative change in the GDP levels of the U.S. and the Eurozone, another issue that came up in our class discussion). This article discusses several significant economic costs associated with the fall of the dollar. It also notes those groups in the U.S. likely to suffer the most from these costs. Pick one or two of the costs the author discusses that are most meaningful in your opinion and expand on his discussion. What are the most significant likely consequences of the decline in the value of the dollar and why should we be concerned about those consequences in the business community and in society in general?
Assignment 3Tax Planning You must complete this assignment (along with the two above) to receive an A for this half of this course. We discussed several dimensions of income tax planning in class (entity shifting, jurisdictional shifting, character shifting, and shifting over time). Each of these is discussed in your text. Write a 3-6 page paper explaining each of these dimensions of tax planning. For each provide examples of how they are or could be used to reduce the tax burden on your company or business.
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If you have any questions as you progress through these assignments, you can contact me at [e-mail], or by telephone at [phone]. I will be happy to discuss any questions you may have, clarify what I am asking in the assignments, or discuss any other types of issues associated with the class or the assignments, or both. These assignments are due in December.
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