Tax return Project
ACC 410 Partnership Tax Return Project Fall 2020 page 1
ACC 410– Advanced Tax Accounting
Fall 2020
Partnership Tax Return Project
OVERVIEW
Using the information below, prepare Gold Star HVAC LLC’s 2019 partnership Federal income
tax return (Form 1065), including all needed supporting statements, schedules, and forms. Unless
otherwise noted, assume Gold Star HVAC follows the policies of making all elections to
minimize its current income taxes and, to the extent possible, of conforming procedures for
financial and tax accounting. Round amounts to the nearest dollar. If additional information is
needed, make realistic assumptions and fill in all required data.
While this assignment is not designed to be “tricky,” it may be difficult for many students, and it
will most certainly require a significant input of your time.
The purpose of this project is
twofold. First, your ability to examine the receipts, disbursements, and situation of taxpayers,
identify the relevant tax issues, and determine the appropriate tax treatment, as covered explicitly
in the text, lectures, and homework, will be gauged. Second, completion of the project will
require you to use forms and publications from the Internal Revenue Service to actually prepare
the documents the taxpayer would be required to submit. As ACC 410 is largely focused on a
more theory-based approach, rather than a practitioner-based approach, most of you have little or
no experience completing actual tax forms. Completion of the project will aid in your
understanding of the translation of theory and concepts into practice and returns.
GUIDELINES AND INSTRUCTIONS
Students must individually or in groups of no more than four students complete the final project
using resources from http://www.irs.gov, lecture notes, tax texts, etc. As this is a project, and not
a homework assignment, I will be providing less guidance in office hours, etc. for students,
although I will strive to point everyone in the right direction. Forms downloaded from IRS.gov
are in the PDF format and, using Adobe Reader software, students MUST type their answers into
the blanks. Students may opt to instead prepare the return using the software provided via
Connect on Canvas.
For the entire project, students must assume that the taxpayers are interested in the tax-
minimizing legal position.
IRS forms and instructions are designed to be read, understood, and followed by taxpayers
without significant accounting backgrounds. While it may be challenging at first, senior
accounting students should be able to read the instructions for each form and figure out how to
complete the project.
When a statement is required for a line, just attach a Word document printout that states the
Form and Line number, and what you put on that line.
http://www.irs.gov/
ACC 410 Partnership Tax Return Project Fall 2020 page 2
AGAIN, PLEASE USE 2019 NUMBERS AND FORMS TO COMPLETE THIS PROJECT.
The only submission required for grading is a complete 2019 U.S. Partnership Income Tax
Return, which will consist of the following forms:
Form 1065 (and attached schedules)
Schedule B-1
Form 4562
Schedule K-1 (quantity 2)
To ease in grading, I require that the forms be TYPED and printed, that any line with an
entry of -0- be left blank, and negative numbers should be indicated in parentheses. Please
round all numbers to the nearest whole dollar and omit “00” in the cents column.
You may work in groups of 2-3 students. Please only submit one return for each group. For
your final submission, due at the scheduled time of your Final Exam, you MUST include a
cover sheet to the entire return with the full names of each group member.
Good luck!
CHECK FIGURES:
Form 1065, Line 22: $245,652
Form 1065 Schedule M-1, Line 5 $349,692
Form 4562, Line 22 $852,823
ACC 410 Partnership Tax Return Project Fall 2020 page 3
Mitchell Ruiz and Sam Mason have been life-long friends. Both Mitchell and Sam started to
work for the same national HVAC repair company immediately after graduating from technical
college. After nearly a decade of working for that same company, Mitchell and Sam decided to
venture out on their own and form their own HVAC company called Gold Star HVAC (GSH).
They formed their business entity as a limited liability company (LLC). Mitchell and Sam each
own 50% of the company. The company has been successful primarily based upon reputation
and the fact that GSH is available 24 hours a day, seven days a week. Although GSH charges a
premium for after normal business hour calls, most of its competitors will not perform services
past 9 p.m. and, as a result, GSH finds itself often as one of the only available choices for middle
of the night emergencies.
GSH has several employees and, as a result of implementing technology solutions to aid in its
call dispatch program, GSH has been able to expand its service area to now include a three-
county area instead of just one.
Information relating to GSH and its owners is as follows:
Name of Company: Gold Star HVAC, LLC
Address: 1456 East Buena Vista Blvd.
Fresno, CA 93650 (has not changed since inception)
Company formed and started: January 1, 2009
Accounting Method: Cash
Tax-year end: December 31
Employer Identification Number: 34-7652143
Members’ Information:
Mitchell Ruiz
1515 West Indiana Street
Fresno, CA 93650
SSN- 585-30-4060
Profit/Loss/Capital membership interest is 50%.
Sam Mason
19 West Fuschia Circle
Fresno, CA 93650
SSN: 397-19-9119
Profit/Loss/Capital membership interest is 50%.
ACC 410 Partnership Tax Return Project Fall 2020 page 4
Other relevant information:
• GSH is a domestic limited liability company
• Mitchell and Sam are not related.
• Mitchell and Sam are both U.S. citizens.
• Both Mitchell and Sam are managing members.
• GSH has not and did not file a Form 8893 or anything similar to it this year or in the past
• GSH is not a publicly traded partnership
• During the year no debt was cancelled or forgiven in relation to GSH.
• GSH is not required to file a Form 8918
• GSH did not have or control a foreign bank account or have authority over any such
financial account
• GSH was not the grantor of or a transferor to a foreign trust
• GSH has never made a Section 754 election
• GSH has never entered into a like-kind exchange or distributed a tenancy-in-common or
other undivided interest in partnership property
• GSH has never been required to file Form 8858
• GSH was required to file Form(s) 1099 related to certain payments it made during the
year and those forms were filed on a timely basis
• GSH was not required to file any Form(s) 5471 during the year
• Mitchell is the Tax Matters Partner (TMP)
• Both Mitchell and Sam are active in the business and work full-time for GSH
• The debt owed to First National Bank is a non-recourse obligation and neither Mitchell
nor Sam have guaranteed its repayment (see balance sheet below). This debt is not
directly tied to any specific asset but is rather a debt secured against all of the assets of
the company. with neither Mitchell nor Sam personally responsible for its repayment.
• During the year, Mitchell and Sam each contributed $20,000 to the capital of GSH
• GSH does not maintain any inventory. GSH purchases supplies and has a policy of
expensing such purchases as paid for tax and book purposes
• During the year, Mitchell and Sam each received a $75,000 distribution from each of
their respective capital accounts
• GSH’s tax depreciation on assets acquired in tax years prior to 2019 is $409,960
• During the year, GSH acquired the following assets (all assets were placed in service on
the acquisition dates as indicated below):
o Service vans-new (not Luxury Automobiles) July 1, 2019 $500,000
o HVAC machinery/equipment-new July 1, 2019 $250,000
GSH did not claim Section 179 expense for any of the current year asset additions but it
did claim available bonus depreciation.
ACC 410 Partnership Tax Return Project Fall 2020 page 5
GOLD STAR HVAC
Balance Sheet
December 31, 2019
Assets: 1/01/19 12/31/19
Cash $ 30,000 $ 45,000
Tax-exempt Securities 100,000 100,000
Building 4,000,000 4,000,000
Less: Acc. Depreciation (551,282) (653,842)
Equipment 2,500,000 3,250,000
Less: Acc. Depreciation (1,481,400) (2,231,663)
Land 1,000,000 1,000,000
Total Assets: $5,597,318 $5,509,495
Liabilities and Capital:
Note Payable-First National Bank $4,267,318 $4,046,673
Note Payable-Mitchell Ruiz 300,000 300,000
Note Payable-Sam Mason 200,000 200,000
Capital Account-MR 415,000 481,411
Capital Account-SM 415,000 481,411
Total Liabilities and Capital: $5,597,318 $5,509,495
ACC 410 Partnership Tax Return Project Fall 2020 page 6
GOLD STAR HVAC
Income Statement
December 31, 2019
Item Amount
Income:
Service Revenue-Cash $ 343,565
Service Revenue-Credit Cards $1,922,710
Consulting Revenue-Cash $ 50,950
Consulting Revenue-Credit Cards $ 155,005
Interest Income-First National Bank $ 1,540
Municipal Bond Interest Income $ 2,500
Total Income: $2,476,270
Expenses:
Employee Salaries $ 515,735
Guaranteed payment-MR $ 50,000
Guaranteed payment-SM $ 50,000
Repairs and Maintenance-Trucks $ 113,415
Rent $ 35,000
Payroll Taxes $ 41,260
Licensing Fees $ 1,750
Property Taxes $ 77,000
Interest Expense $ 235,000
Depreciation $ 852,823
Office Supplies $ 3,420
Employee Training $ 5,675
Advertising $ 18,850
HVAC supplies $ 15,125
Meals (prior to disallowance) $ 13,740
Travel $ 4,210
Gasoline $ 158,675
Utilities $ 24,940
Telephone $ 16,830
Total Expenses: $2,233,448
Net Income: $ 242,822