This is a presentation my group and I did for Deloitte's FanTAXtic tax case competition.

1. 1
Just Peachy, Inc.
Deloitte FanTAXtic Case Study

2. 2
Agenda
o TuFFPeach Joint Venture
− LLC vs. Corporation
o State Expansion
− Subsidiary vs. DRE
− State A vs. State B
o ASC 740
o Corporate Tax Reform Proposals
− Proposal 1
− Proposal 2
o Summary
Agenda
Joint
Venture
State
Expansion
ASC 740
Reform
Proposals
Summary

3. 3
TuFFPeach Joint Venture
o Formation
− Tax Consequences
− Tax Basis of Assets
• Entity
• Owners/Members
Agenda
Joint
Venture
State
Expansion
ASC 740
Reform
Proposals
Summary

4. 4
TuFFPeach Joint Venture
o Initial Expenses
− Treatment
− Recovery of
Capitalized Expenses
Agenda
Joint
Venture
State
Expansion
ASC 740
Reform
Proposals
Summary

5. 5
TuFFPeach Joint Venture
Agenda
Joint
Venture
State
Expansion
ASC 740
Reform
Proposals
Summary
Year 1 Year 2 Year 3 - LLC Year 3 - Corp
Sales Revenues 38,000$ 48,000$ 50,000$ 50,000$
Total Expenses 34,000 40,500 45,000 45,000
Net Income from Operations 4,000 7,500 5,000 5,000
Other Income, Deductions, and Credits:
Qualified Dividend Income -$ -$ 1,000$ 300$
Domestic Production Activities Deduction (360) (360) (360) (360)
Depreciation Deductions (2,800) (2,080) (1,248) (1,248)
Amortization of Startup Expenses (110) (110) (110) (110)
Research & Development Expense (4,000) - - -
Software Development Expense (3,000) - - -
Net Operating Loss - (6,270) (1,320) (1,320)
Total Other Income and Expenses (10,270) (8,820) (2,038) (2,738)
Taxable Income (6,270)$ (1,320)$ 2,962$ 2,262$
Tax Before Credits - - 1,007 769
Research & Development Credit/Carryforward (420) (420) (420) (420)
Tax Due -$ -$ Allocated 349$
TuFFPeach's Projected Income and Losses
(In Thousands)

6. 6
TuFFPeach Joint Venture
o Small Business Stock Provisions
o Allocations to Members
o Distributions
o Liquidation
Agenda
Joint
Venture
State
Expansion
ASC 740
Reform
Proposals
Summary

7. 7
DRE vs. Subsidiary
Agenda
Joint
Venture
State
Expansion
ASC 740
Reform
Proposals
Summary
Subsidiary (Separate entity)
State A State B
Taxable income within state (estimated) 62,000$ 60,000$
Tax Rate 6% 5%
Tax Payment Per Year, If Subsidiary 3,720$ 3,000$
Disregarded Entity (DRE or Branch)
Peachy's estimated U.S. taxable income from all sources 200,000$ 198,000$
Apportionment Factors for States A and B:
State A State B Peachy Total State A State B
(Estimated) (Estimated) (Estimated) Percent Percent
Property 142,200 144,420 600,000 23.700% 24.070%
Payroll 76,110 77,145 400,000 19.028% 19.286%
Sales 580,000 580,000 1,200,000 48.333% 48.333%
Apportionment of income using a double-weighted sales factor: 34.849% 35.006%
Tax Payment Per Year, If DRE 4,182$ 3,466$
DECISION WORKSHEET: DISREGARDED ENTITY V. SUBSIDIARY
(In Thousands)

8. 8
Tax Credits and Incentives
Agenda
Joint
Venture
State
Expansion
ASC 740
Reform
Proposals
Summary
Tax Credit State A State B
Job Tax Credit • $1.2/ new job
• Offset 50% tax liability
• Carried up to 5 years
• $5/ new job
• Offset 50% tax liability
• Carried up to 15 years
Investment Tax
Credit
• 10% of manufacturing equipment
• Offset 50% liability
• Carried up to 5 years
• Cannot be claimed w/ Job Tax on
same project
• 10% of manufacturing equipment
• Offset 100% liability
• Carried up to 15 years
• Can double-dip with Job Tax Credit
Real Property
Tax Abatement
• 50% reduction of real property taxes
• 10 year period
• 50% reduction
• 15 year period
R&D Credit • 10% R&D expenditures
• 10 years
---
Training Credit • $.50/ new full time employee trained ---
Cash Grant --- • $10/new job
• Can exceed tax liability

9. 9
State A Expansion
Agenda
Joint
Venture
State
Expansion
ASC 740
Reform
Proposals
Summary
STATE A - NET INCOME TAX CALCULATION
(In Thousands)
Liability
Before Credits Jobs Tax
Credit (1)
Investment
Tax
Credit (2)
Research &
Development
Credit (3)
Training
Credit (4)
Total
Credits
Net State A
Tax Liability
Year 1 3,700$ 348$ 1,502$ -$ -$ 1,850$ 1,850$
Year 2 3,700 - 1,850 - - 1,850 1,850
Year 3 3,700 - 648 1,202 - 1,850 1,850
Year 4 3,700 - - 798 570 1,368 2,332
Year 5 3,700 - - - - - 3,700
Year 3,700 - - - - - 3,700
Year 3,700 - - - - - 3,700
Year 3,700 - - - - - 3,700
Year 20 3,700 - - - - - 3,700
Total 348$ 4,000$ 2,000$ 570$ 6,918$ 63,382$

10. 10
State B Expansion
Agenda
Joint
Venture
State
Expansion
ASC 740
Reform
Proposals
Summary
STATE B - NET INCOME TAX CALCULATION
(In Thousands)
Liability Before
Credits
Jobs Tax Credit
(1)
Investment Tax
Credit (2)
Total Credits
Net State B Tax
Liability
Year 1 3,000$ 1,500$ -$ 1,500$ 1,500$
Year 2 3,000 1,500 - 1,500 1,500
Year 3 3,000 1,500 - 1,500 1,500
Year 4 3,000 1,200 300 1,500 1,500
Year 5 3,000 1,500 1,500 1,500
Year 6 3,000 1,500 1,500 1,500
Year 7 3,000 900 900 2,100
Year 3,000 - - 3,000
Year 3,000 - - 3,000
Year 3,000 - - 3,000
Year 20 3,000 - - 3,000
Total 5,700$ 4,200$ 9,900$ 50,100$

11. 11
State Expansion Summary
Agenda
Joint
Venture
State
Expansion
ASC 740
Reform
Proposals
Summary
State A Total Cost
(20 Years)
State B Total Cost
(20 Years)
Difference
Property Investment 142,200$ 144,420$ (2,220)$
Wages 1,522,200 1,542,900 (20,700)
Property Taxes 64,000 60,000 4,000
Property Tax Abatement (16,000) (22,500) 6,500
State Income Tax 67,082 50,100 16,982
State Cash Grant - (8,500) 8,500
Total Expenses 1,779,482$ 1,766,420$ 13,062$
13,062$Net Benefit of State B Over State A - 20 Years

12. 12
ASC 740
o Provision for Income Taxes
− Book: $140,300
− Tax Return: $72,400
Agenda
Joint
Venture
State
Expansion
ASC 740
Reform
Proposals
Summary

13. 13
ASC 740
Agenda
Joint
Venture
State
Expansion
ASC 740
Reform
Proposals
Summary
o Income Tax Receivable
o Deferred Taxes

14. 14
ASC 740
Agenda
Joint
Venture
State
Expansion
ASC 740
Reform
Proposals
Summary
o Reinvested Foreign Earnings
− Temporarily vs. Indefinitely
o Rate Reconciliation
− Marginal vs. Effective Rate

15. 15
Tax Proposal 1
o Tax Rate: 25%
o Depreciation: No §179 Deduction
o DPAD: No §199 Deduction
o R&D Credit: Repealed
o Foreign Earnings: All Taxed in U.S.
Agenda
Joint
Venture
State
Expansion
ASC 740
Reform
Proposals
Summary

16. 16
Tax Proposal 2
o Tax Rate: 34%
o Depreciation: Changed to Straight Line
o DPAD: Allowed at 6%
o R&D Credit: Reduced by 50%
o Foreign Earnings: None Taxed in U.S.
Agenda
Joint
Venture
State
Expansion
ASC 740
Reform
Proposals
Summary

17. 17
Impact of Proposals
Agenda
Joint
Venture
State
Expansion
ASC 740
Reform
Proposals
Summary
Years 1 - 4 Year 5 + Year 1 Year 2 +
Earnings Before Taxes 557,630$ 557,630$ 557,630$ 557,630$ 557,630$
Expected Tax 195,171 139,408 139,408 189,594 189,594
State Taxes 6,769 6,769 6,769 6,769 6,769
Indefinitely Reinvested Global Earnings (58,950) - - (66,080) -
Repatriated Earnings of Global Subsidiaries - 34,500 - - -
Research and Development Credit (1,030) - - (515) (515)
Domestic Production Activities Deduction (3,280) - - (2,187) (2,187)
Other, Including Meals & Entertainment 1,620 1,620 1,620 1,620 1,620
Provision for Income Taxes 140,300 182,297 147,797 129,202 195,282
Net income 417,330$ 375,334$ 409,834$ 428,428$ 362,348$
Effective Tax Rate 25.16% 32.69% 26.50% 23.17% 35.02%
Total Tax Burden, Five Years 701,500$
2013:
Before
Proposal 1 Proposal 2
876,983$ 910,328$

18. 18
Summary
Subsidiary DRE
State A State B
o TuFFPeach Joint Venture
o State Expansion
LLC Corporation
Agenda
Joint
Venture
State
Expansion
ASC 740
Reform
Proposals
Summary

19. 19
QUESTIONS?