AC-330 Taxation

Course Description:

This is a one-semester first tax course aimed at introducing students to a wide range of tax concepts and types of taxpayers. While the course mainly focuses on the taxation of business entities in both the United States and in the Federated States of Micronesia, it also covers individual taxation in the two countries - individuals as proprietors, shareholders, or partners in business entities, and as employees.

A.  PROGRAM LEARNING OUTCOMES (PLOs):

The student will be able to:

1.      Demonstrate an understanding of intermediate accounting principles by describing the financial reporting environment and the conceptual framework of financial accounting, analyzing financial statements in detail, and accounting for cash and receivables, inventories, property, plant and equipment, intangibles, liabilities, stockholders’ equity, and other special areas.

2.      Demonstrate an understanding of cost accounting systems relevant to managerial-decision making, planning and control by solving problems involving various costing and budgeting methods; by applying financial, inventory and production management techniques in cost accounting; and by accurately measuring short- and long-term organizational performance.

3.      Demonstrate competence in analyzing and recording various transactions for state and local governments, the federal government, colleges and universities, and other nonprofit organizations; in preparing and interpreting financial statements; and in explaining differences between public and private sector accounting.

4.      Demonstrate an understanding of wide range of tax concepts with special focus on the taxation of business entities in the United States and the Federated States of Micronesia and a minor emphasis on the individual taxation in the two countries.

5.      Demonstrate an understanding of the statistical methods of sampling and estimating population statistics and competence in using computer software to calculate point estimates and confidence intervals and use statistical methods to test hypotheses, recognize trends and make forecasts to support decisions in the business/economics environment

6.      Apply knowledge acquired from accounting and other courses by solving real world accounting and general workplace problems in a particular organization in the COM-FSM Internship Program.

B.  STUDENT LEARNING OUTCOMES (SLOs) – GENERAL:

The student will be able to:

1)      Explain a wide range of tax concepts, taxation process and the nature and types of taxpayers,

2)      Calculate taxable income, income tax and tax due for each type of taxpayer in the USA and the FSM,

3)      Compute gains/losses on property taxes and applicable taxes on property transactions, and

SLO

PLO1

POLO2

PLO3

PLO4

PLO5

PLO6

1

IDM

ID

2

IDM

ID

3

IDM

ID

4

IDM

ID

I = Introduced

D = Demonstrated

M = Mastered

C.  STUDENT LEARNING OUTCOMES (SLOs) – SPECIFIC:

The student will be able to:

General SLO 1. Explain a wide range of tax concepts, taxation process and the nature and types of taxpayers.

Student Learning Outcomes

Assessment Strategies

1.1. Define taxation and tax. Explain the aspects of taxation, basic principles of a sound tax system, limitations to the powers to tax, and the essential characteristics of a tax.

Pre-/Post-Testing

1.2. Understand the components of a tax. Identify the various taxes affecting business enterprises. Recall the basic formula for individuals and taxable business entities. Understand the relationship between business entities and their owners. Recognize tax planning opportunities and apply a general framework for tax planning. Recognize the economic, social, and political considerations that underlie the tax law. Describe the roles played by the IRS and the courts in the evolution of the Federal Tax System. (Introduction to Taxation)

Pre-/Post-Testing

1.3. Understand the statutory, administrative, and judicial sources of the tax law and the purpose of each source. Locate and work with the tax law and understand the tax research process. Communicate the results of the tax research process in a client letter and a tax file memorandum. Have an awareness of how best to use a computer when performing tax research. (Working with the Tax Law)

Pre-/Post-Testing

General SLO 2. Calculate taxable income, income tax and tax due for each type of taxpayer in the USA and the FSM.

Student Learning Outcomes

Assessment Strategies

2.1. Explain the tax law for individual taxpayers in FSM. Calculate the annual income tax on salaries, tax credits/refunds, and periodic tax remittance. Demonstrate knowledge on the responsibilities of employers in the computation and remittance of taxes.

Pre-/Post-Testing

2.2. Describe the tax laws governing income taxation for business entities in the FSM. Compute periodic gross income, allowable deductions, taxable income, income tax and tax due. Explain the consequences of delayed reporting, delayed payments, fraudulent returns and other tax reportorial violations.

Pre-/Post-Testing

2.3. Explain the concepts of gross income and realization and distinguish between the economic, accounting, and tax concepts of gross income. Understand when the cash, accrual, and hybrid methods of accounting are used and how they are applied. Identify who should pay the tax on an item of income. Understand what statutory authority is required to exclude an item for gross income. Apply the internal Revenue Code provisions on loans made at below-the-market interest rates. Determine the extent to which receipts can be excluded under the tax benefit rule. Understand the Internal Revenue Code provision that excludes interest on state and local government obligations from gross income. Use the Internal Revenue Code’s exclusion of leasehold improvements from gross income. Determine the extent to which life insurance proceeds are excluded from gross income. Describe the circumstances under which income must be reported from the discharge of indebtedness. Describe the tax consequences of property transactions. (Gross Income)

Pre-/Post-Testing

2.4. Understand the meaning and application of the ordinary, necessary and reasonableness requirements for the deduction of business expenses. Describe the cash and accrual methods of accounting for business deductions. Apply a variety of Internal Revenue Code deduction disallowance provisions. Understand the limitations applicable to the charitable contribution deduction for corporations. Recognize the alternative treatments for research and experimental expenditures and understand several other common business deductions. Determine the amount of cost recovery under MACRS, and apply the §179 expensing election and the deduction limitations on listed property and automobiles when making MACRS calculation. Identify intangible assets that are eligible for amortization and calculate the amount of the deduction. Determine the amount of depletion expense and recognize the alternative tax treatments for intangible drilling and development costs. (Business Deductions)

Pre-/Post-Testing

2.5. Determine the amount, classification, and timing of the bad debt deduction. Understand the tax treatment of worthless securities including §1244 stock. Identify a casualty and determine the amount, classification, and timing of casualty and theft losses. Recognize the impact on the net operating loss carryback and carryover provisions. Discuss tax shelters and the reasons for at-risk and passive loss limitations. Describe the at-risk limitation and the passive loss rules limit deductions for losses and identify taxpayers subject to these restrictions. Discuss and be able to apply the definitions of activity, material participations, and rental activity under passive loss rules. Recognize the relationship between the at-risk and passive loss limitations. Discuss special treatment of real estate activities. (Losses and Loss Limitations)

Pre-/Post-Testing

2.6. Recognize major tax and nontax considerations associated with the corporate form of doing business. Compute the corporate income tax. Explain the rules unique to computing the tax of multiple corporations. Describe the reporting process of corporations. (Corporations: Organization, Structure and Operating Rules) 

Pre-/Post-Testing

2.7. Understand the tax consequences of transactions of different forms of businesses. (Comparative Forms of Doing Business)

Pre-/Post-Testing

2.8. Understand and apply the components of the Federal income tax formula for individuals. Apply the rules for arriving at personal exemptions. Use the proper method for determining tax liability. Identify and report kiddie tax situations. Recognize filing tax requirements and proper filing status. Identify specific inclusions and exclusions applicable to individuals. Determine an individual’s allowable itemized deductions. Understand the adoption expenses credit, child tax credit, education tax credits, credit for child and dependent care expenses, and earned income credit. (Introduction to the Taxation of Individuals)

Pre-/Post-Testing

2.9. Distinguish between employee and self-employed status. Understand the exclusions from income available to employees who receive fringe benefits. Apply the rules for computing deductible expenses of employees including transportation, travel, moving, education, and entertainment expenses. Appreciate the difference between accountable and non-accountable employee plans. Understand the tax provisions applicable to proprietors. Distinguish between business and hobby activities and apply the rules limiting the deduction of hobby losses. (Individuals as Employees and Proprietors)

Pre-/Post-Testing

General SLO 3. Compute gains/losses on property taxes and applicable taxes on property transactions.

Student Learning Objectives

Assessment Strategies

3.1. Understand the computation of realized gain or loss on property dispositions. Distinguish between realized and realized gain or loss. Explain how basis is determined for various methods of asset acquisition. Describe various loss disallowance provisions. Apply the non-recognition provisions and basis determination rules for like-kind exchanges. Explain the non-recognition provisions available on the involuntary conversion of property. Identify non-recognition provisions contained in the code.

Pre-/Post-Testing

3.2. Distinguish capital assets from ordinary assets. Understand the relevance of a sale or exchange to classification as a capital gain or loss. Determine the applicable holding period for a capital asset. Describe the tax treatment of capital gains and losses for noncorporate taxpayer. Describe the tax treatment of capital gains and losses for corporate taxpayers. Distinguish §1231 assets from ordinary and capital assts and calculate §1231 gain or loss. Determine when recapture provisions apply and derive their effects. ( Poperty Transactions: Capital Gains and Losses: Section 1231, and Recapture Provisions)

Pre-/Post-Testing

General SLO 4. Compute gains/losses on property taxes and applicable taxes on property transactions.

Student Learning Objectives

Assessment Strategies

3.1. Understand the computation of realized gain or loss on property dispositions. Distinguish between realized and realized gain or loss. Explain how basis is determined for various methods of asset acquisition. Describe various loss disallowance provisions. Apply the non-recognition provisions and basis determination rules for like-kind exchanges. Explain the non-recognition provisions available on the involuntary conversion of property. Identify non-recognition provisions contained in the code.

Pre-/Post-Testing

3.2. Distinguish capital assets from ordinary assets. Understand the relevance of a sale or exchange to classification as a capital gain or loss. Determine the applicable holding period for a capital asset. Describe the tax treatment of capital gains and losses for noncorporate taxpayer. Describe the tax treatment of capital gains and losses for corporate taxpayers. Distinguish §1231 assets from ordinary and capital assts and calculate §1231 gain or loss. Determine when recapture provisions apply and derive their effects. ( Poperty Transactions: Capital Gains and Losses: Section 1231, and Recapture Provisions)

Pre-/Post-Testing

D.  COURSE CONTENT

1.      Introduction to Taxation

2.      Working with the Tax Law

3.      Income Taxation: Individuals – FSM

4.      Income Taxation: Business – FSM

5.      Income Taxation: Business – USA

5.1.Different Forms of Businesses and How are They Taxed

5.2.Gross Income

5.3.Business Deductions

5.4.Losses and Loss Limitations

5.5.Corporations: Organization, Structure and Operating Rules

5.6.Comparative Forms of Doing Business

6.      Income Taxation: Individuals - USA

7.      Property Taxes – USA

7.1.      Basis, Gain and Losses

7.2.       Property Transactions: Capital Gains and Losses, Section 1231, and Recapture Provisions

E. METHODS OF INSTRUCTION

Lectures and electronic presentations

Simulation activities

Provide student learning resources online.

F.  REQUIRED TEXT(S) AND COURSE MATERIALS

Smith, Raabe & Maloney: Taxation of Business Entities (2009) Edition, South-Western Cengage Learning, USA (or most recent edition).

FSMC, TITLE 54.  TAXATION & CUSTOMS, available at http://www.fsmlaw.org/fsm/code/title54/T54_Ch01.htm

Calculator, pens, pencil and ruler 

G.  REFERENCE MATERIALS

FSM Constitution, available at www.fsmlaw.org/fsm/constitution/index.htm

Ballada, Win Lu: Income Taxation Made Easy 2004 Edition (Chapter 1 Only), DomDane Publisher, Sampaloc, Manila: 2004 (or most recent edition)

Willis, et. al: South-Western Federal Taxation Comprehensive Volume, 2011 Edition, South-Western College, USA: 2010 (or most recent edition)

H.   INSTRUCTIONAL COSTS

None

I.  EVALUATION

None

J.  CREDIT BY EXAMINATION

None

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