AC 371 Tax Return Project
Fall 2022
Student Handout 1: Instructions and Background Materials
Introduction and Background
Scott and Kourtney Smith have been clients of Footem and Filem, LLP (F&F) for the
past few years. Scott owns a landscaping business, Smith Landscaping, which he operates as a
sole proprietorship. Kourtney is an elementary school teacher. The couple has also received
investment income in recent years, including royalties from an oil and gas property as well as
income from a rental house they purchased in Lubbock, TX.
F&F is a CPA firm that provides tax and assurance services. To ensure quality in all
services, the firm has established best practices for staff, seniors, and partners to follow when
providing services to both tax and assurance clients. For tax services, the partner conducts a
meeting with the client after year-end to collect information about the tax year just ended. The
senior accountant performs a preliminary review of information provided by the client
(commonly referred to as “PBC” materials), and this information is forwarded to a staff
accountant for further review and comparison with prior year work papers and tax filings. It is
also at this stage that the staff accountant may begin to research various client tax positions
(using professional research sources such as CCH, BNA, LexisNexis, etc.) that he/she doesn’t
understand and/or that have been identified by the partner as potentially ambiguous issues that
require more in-depth analysis by the firm.
Next, the staff accountant meets with the senior accountant to ask any preliminary
questions about the client and suggest any additional information that might be necessary to
request from the client to complete the current year tax return. The senior accountant either
answers the staff accountant’s questions directly or approves questions to be asked of the client.
This best practice was established to ensure that client interactions are always useful and
productive.
Once the staff accountant has an approved list of questions, he or she must schedule a
follow-up meeting with the client to gather additional information. This meeting is an important
time for the staff accountant to develop client interaction skills, particularly in conveying
technical information in a non-technical manner. The information gleaned from the client
meeting allows the staff accountant to complete the tax return, which is then delivered to the
senior accountant along with work papers detailing key information from the current year. The
senior accountant will follow up with the staff accountant for clarification or correction of items
in the work papers or the tax return.
As a staff accountant for F&F, you are assigned to prepare a personal income tax return
and supporting documentation for Mr. and Mrs. Smith for the current tax year (2022 in this case,
also labeled “CY”) in accordance with the firm’s best practices described above. You will be
provided with prior year (2021 in this case, also labeled “PY”) work papers and client
communications, a copy of last year’s tax return, as well as a letter and supporting documents
from the client for the current year. To complete the case, you will generate questions based on
the initial information provided, meet face-to-face with the client, and roll forward a set of 2021
electronic work papers before submitting a complete 2022 engagement file for senior review.
This case requires a heightened level of critical thinking and reinforces both technical and
communication skills valued in professional practice. The formulation of questions for the client
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will allow you to practice discussing technical topics in a non-technical manner and to better
understand the required balance between attitudes of client advocacy stressed in professional tax
practice and legal requirements for “good-faith” tax return reporting. Details about the case
assignment are provided below and in the supporting materials. In addition to your textbook and
course materials, you may consult professional research materials (CCH, BNA, LexisNexis, etc.)
to assist you with any of the client’s tax positions that you don’t understand and/or which you
feel may warrant additional documentation for the firm’s work papers.
Task 1: Review current and prior year information; begin preparing the current year work
papers and tax return; send questions to senior accountant
Your first task in this project is to familiarize yourself with the client and begin the
preparation of the current year tax return. This will require your review and understanding of
several different documents you will receive from your senior, discussed below:
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Prior year engagement file – contains a copy of the 2021 income tax return F&F
prepared for Scott and Kourtney and manual copies of all work papers used to complete
the 2021 engagement. Items are tick marked (a tick mark is a unique symbol indicating
that a task has been performed, accompanied by a comment in the work papers to
reconcile and/or clarify amounts recorded on PBC documents) and tied within the work
papers, and should be traceable to the tax return. Tickmarks in RED indicate that an item
is either coming from or going to another work paper, while items in BLACK indicate
that an item appears somewhere else on the same work paper. Items denoted “SALY”
(same as last year) in the prior year work papers should be confirmed with the client
and/or applicable IRS guidance for the current year. Look here first to see if and how a
particular item was handled last year, and then determine if any applicable law has
changed that might impact the way you handle similar items in the current year.
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Prior year Excel work papers– electronic work papers used by F&F staff to complete the
2021 engagement. These include a list of questions presented to the client during last
year’s engagement (including client responses), an annual depreciation schedule, a
schedule of itemized deductions to be claimed on Schedule A, a schedule of business
income and deductions to be claimed on Schedule C, and a lead sheet tying all
calculations in the work papers to the final balances reported on the tax return. You will
need to roll forward (i.e., update) the 2021 Excel work papers for current year changes
to complete the 2022 tax return, although minor revisions may be necessary to adapt last
year’s work papers for the current year (e.g., formulas might change when the tax law
changes from the prior year). This will make efficient use of your time and maintain
consistency with last year’s engagement. Note: Your project is not complete without
proper work papers. Failure to provide updated spreadsheets will result in immediate
and severe grade reductions. Handwritten and/or self-created spreadsheets are not
acceptable – use Excel to update the prior year spreadsheets you were given to meet your
needs for the current year (in real life, your bosses won’t want you to “reinvent the
wheel” when they’ve already given you a template they find acceptable).
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Current year PBC manual documents – items prepared by the client for 2022. They
consist of a letter Kourtney Smith wrote to describe some of the major events she and her
husband experienced this year, various W-2 forms for both Kourtney and Scott, as well as
several 1099 forms (1099-B, 1099-DIV, 1099-INT, 1099-MISC, etc.). Each 1099 form
provides detail for a specific type of transaction the client experienced during 2022.
These items are work papers and must be included in your current year file with
proper tick marks – look at the prior year engagement file for examples of acceptable
documentation.
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Current year PBC Excel documents – two documents in an Excel spreadsheet prepared
by the client. The first is an income statement for Smith Landscaping (Scott’s company)
for 2022. The second document is a listing of the couple’s 2022 expenses. It is
categorized into personal expenses, expenses for the couple’s rental property, and
expenses for their oil and gas property. Like the PBC manual documents, these are work
papers that must be included in your file – you will find places in the Excel work papers
(for example, the Schedule A and Schedule C tabs) where this PBC information needs to
be entered.
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Current year Excel Tax Forms and Schedules – an Excel spreadsheet containing most of
the forms and schedules you will need to complete the Smith’s current year tax return.
Complete these forms for the current year while you roll forward the Excel work
papers (i.e., use current year PBC information to fill out the return and the work papers
at the same time), as they are likely to lead you to client/senior questions you might not
have otherwise asked. This spreadsheet is a good example of the typical struggles staff
face when they first start at a firm and have to learn new software. It is admittedly
“clunky” and may require some careful overrides to make the forms agree with the
calculations in your workpapers (alternatively, sometimes the Excel forms are right and
reveal updates you still need to make to your workpapers). Nonetheless, it is necessary to
learn how to use the firm’s resources, as they will save you time in recalculating key
totals throughout the forms as you incorporate new information into the return. Note that
some minor supporting forms/schedules may not be included in the Excel template. You
will need to download any missing forms/schedules from the IRS website and add
them to your engagement file.
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Prior year Excel Tax Forms and Schedules – an Excel spreadsheet containing the forms
and schedules from the Smith’s prior year return. Although the forms change slightly
each year, you can use this file to get an idea of how to fill in the Excel forms and
schedules for the current year (e.g., you can look at prior year to see areas where
overrides and/or formulas were required).
A review of the above listed items should help you get started preparing the 2022 tax
return and work papers. It should also help you generate questions about any additional
documentation needed or whether certain items that applied in the prior year still apply this year.
Please prepare as much of the 2022 tax return and work papers as you can with the
information provided and make a list of questions for your senior and the client.
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To complete Task 1, your team must assign one person to submit all of your team’s
questions for the senior and client using the links provided to you on Blackboard. After all
teams have submitted their questions, you will receive updated information that will help
you finish the project. Note that you will only have one opportunity to submit questions for
the client, so you need to be extremely thorough in Task 1 as you work your way through
the current year return.
To put it bluntly, the majority of your grade will be determined during Task 1. To
do well on this task, you must try to complete as much of the tax return and working
papers as you can AND create a list of questions/missing items to forward to your senior.
Many of your points for the project are devoted to identifying issues and asking the right
questions. There is no penalty for asking a question that is not a part of the case. If you
think something looks strange and/or you aren’t sure what to do with it, your best bet is to
ask during Task 1.
As you prepare this year’s return, make sure you have included the following forms and
schedules, all of which can be found in Excel (preferred) or at www.irs.gov (if missing from
Excel):
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Form 1040;
Schedules 1, 2, 3, 4, 5, A, B, C, D, E, and SE (Section A);
Form 2441;
Form 4562 (for business and rental property);
Form 4797;
Form 8582;
Form 8829;
Form 8949; and
Form 8995.
Task 2: Finalize the current year work papers and tax return
Your final task is to complete the preparation of the current year work papers and tax
return for Scott and Kourtney Smith using the updated information you received following Task
1. As mentioned in Task 1, electronic work papers should be rolled forward from the previous
year. Use the prior year engagement file for examples of how your tick marks should look and
what documentation should be created for the current year. Once the work papers are
complete, they should be printed to PDF for your senior to review and organized in a
similar fashion to the prior year engagement file. All manual work papers and
communications from the client should also be included in the current year file.
Along with your work papers, the tax return should be put into the current year
engagement file for review by the senior accountant. Please ensure that all numbers tick
and tie properly (i.e., tick marked numbers in the work papers should match the tax return
where indicated).
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Following is a detailed list of all team and individual deadlines for this project.
What is due?
When is it
due?
Is this a team or
individual
assignment?
Task 1 list of
No later
TEAM (only one
questions for
than
person needs to turn
your senior and
Wednesday, this in for each team)
client.
October 5
at 11:59
pm.
Task 2 final tax
No later
TEAM (only one
return and work
than
person needs to turn
papers (i.e., the
Monday,
this in for each team)
current year
October 31
engagement file). at 11:59
pm.
Where does it go?
Put all of your questions in a
Microsoft Word document and upload
them to Blackboard using the
provided link. Full credit will not be
given for late submissions under
any circumstance.
Organize all of your final documents
and print them to PDF, in the same
general order and style as the prior
year engagement file. Upload your
final current year engagement file to
the team’s file directory that you
share with Dr. Stinson.
In addition, make sure all of the
supporting files you used to create
your current year engagement file are
saved in the team’s file directory that
you share with Dr. Stinson.
Full credit will not be given for late
submissions under any
circumstance.
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