Key Assignment Draft The owners of The Car Wash have asked you to prepare their tax return. Their financial statements are audited by a local certified public accountant (CPA) firm, and they have provided them to you as a reference. A copy of the Income Statement and Balance Sheet have been reproduced below. In your discussion, you obtained the following pieces of additional information to prepare the tax return: Name of business owner:  Tim Smith, SSN:123-45-6789 Tim Smith’s address:  8765 Warner Street, Huntington Beach, CA 92605 Name of business owner:  Jack Dillard, SSN: 987-65-4321 Jack Dillard’s address:  4321 Courtyard Place, Huntington Beach, CA 92605 Business Name:  The Car Wash Business address:  1046 Broadway Street, Huntington Beach, CA 92605 Business description:  Self-Service Car Wash Employer Identification Number:  99-8877665 Date the business started:  January 1, 2008 Business will file its return using the cash basis of accounting Income Statement December 31, 20XX Revenue: Service Revenue $254,603 Expenses: Advertising 2,520 Depreciation 31,250 Insurance 7,260 Interest expense 36,204 Licenses and fees 7,260 Miscellaneous 4,074 Office expense 8,911 Salaries and wages 67,460 Payroll taxes 9,444 Employee benefits 1,349 Professional fees 1,210 Repairs and Maintenance 20,674 Telephone 900 Travel 1,500 Utilities 27,752 Net income before taxes 26,835 Balance Sheet January 1, 20XX December 31, 20XX Assets Cash $28,638 $64,979 Buildings and other depreciable assets 555,000 555,000 Accumulated depreciation (62,500) (93,750) Total assets 521,138 526,229 Liabilities and equity Loans 183,757 167,962 Mortgage 233,229 227,280 Equity investment 160,000 160,000 Retained earnings (55,848) (29,013) Total liabilities and equity $521,138 $526,229 Deliverable Length:  Prepare the tax return for your client, addressing the following 2 scenarios: Scenario 1:  The Car Wash is a corporation. Scenario 2:  The Car Wash is a limited liability company (LLC). Obtain the appropriate tax return forms at the following Web site and save them to your computer: www.irs.gov Instructions for how to prepare the applicable forms are available at the same Web site. You may directly input text and numbers on to these forms using Reader. The forms do not self-calculate. Once complete, upload your tax return to the submitted assignments. Complete all of the requested attachments for the applicable tax return. Assume the following: The initial investment for each owner was $80,000. Each owner has an equal interest in the business. A $30,000 salary was paid to each owner. A part-time employee was paid $7,460. The loans and mortgage are long-term obligations. The annual tax depreciation on the car wash building is $47,453. The $555,000, in its third year of service, property was depreciated for tax purposes using a 15-year recovery period, half-year convention (HY) and the Modified Accelerated Cost Recovery System (MACRS) depreciation method. .

1. Key Assignment Draft
The owners of The Car Wash have asked you to prepare their
tax return. Their financial statements are audited by a local
certified public accountant (CPA) firm, and they have provided
them to you as a reference. A copy of the Income Statement and
Balance Sheet have been reproduced below. In your discussion,
you obtained the following pieces of additional information to
prepare the tax return:
Name of business owner:
Tim Smith, SSN:123-45-6789
Tim Smith’s address:
8765 Warner Street, Huntington Beach, CA 92605
Name of business owner:
Jack Dillard, SSN: 987-65-4321
Jack Dillard’s address:
4321 Courtyard Place, Huntington Beach, CA 92605
Business Name:
The Car Wash
Business address:
1046 Broadway Street, Huntington Beach, CA 92605
Business description:
Self-Service Car Wash
Employer Identification Number:
99-8877665
Date the business started:
January 1, 2008
Business will file its return using the cash basis of accounting
Income Statement
December 31, 20XX
Revenue:
Service Revenue
$254,603

2. Expenses:
Advertising
2,520
Depreciation
31,250
Insurance
7,260
Interest expense
36,204
Licenses and fees
7,260
Miscellaneous
4,074
Office expense
8,911
Salaries and wages
67,460
Payroll taxes
9,444
Employee benefits
1,349
Professional fees
1,210
Repairs and Maintenance
20,674
Telephone
900
Travel
1,500
Utilities
27,752
Net income before taxes

3. 26,835
Balance Sheet
January 1, 20XX
December 31, 20XX
Assets
Cash
$28,638
$64,979
Buildings and other depreciable assets
555,000
555,000
Accumulated depreciation
(62,500)
(93,750)
Total assets
521,138
526,229
Liabilities and equity
Loans
183,757
167,962
Mortgage
233,229

4. 227,280
Equity investment
160,000
160,000
Retained earnings
(55,848)
(29,013)
Total liabilities and equity
$521,138
$526,229
Deliverable Length:
Prepare the tax return for your client, addressing the following
2 scenarios:
Scenario 1:
The Car Wash is a corporation.
Scenario 2:
The Car Wash is a limited liability company (LLC).
Obtain the appropriate tax return forms at the following Web
site and save them to your computer:
www.irs.gov
Instructions for how to prepare the applicable forms are
available at the same Web site. You may directly input text and
numbers on to these forms using Reader. The forms do not self-
calculate. Once complete, upload your tax return to the
submitted assignments.
Complete all of the requested attachments for the applicable tax
return.
Assume the following:

5. The initial investment for each owner was $80,000. Each owner
has an equal interest in the business.
A $30,000 salary was paid to each owner. A part-time employee
was paid $7,460.
The loans and mortgage are long-term obligations.
The annual tax depreciation on the car wash building is
$47,453.
The $555,000, in its third year of service, property was
depreciated for tax purposes using a 15-year recovery period,
half-year convention (HY) and the Modified Accelerated Cost
Recovery System (MACRS) depreciation method.
The organization does not have any carry forward net operating
losses or tax credits.
The organization does not qualify for any current year tax
credits.
Assume the following for a corporation:
The corporation made a total of $3,000 in estimated tax
payments for the tax year.
Assume the business owners want to receive any applicable
refunds.
Only common stock has been issued.
Assume the following for a partnership:
The salary paid to each owner is a guaranteed payment.
Partnership profit, losses, and capital are shared 50/50.
The loans and mortgage are both recourse debt.
The K-1 should reflect the partner’s capital account according
to the United States' Generally Accepted Accounting Principles
(U.S. GAAP).
Please submit your assignment.
For assistance with your assignment, please use your text, Web
resources, and all course materials.
Other Information

6. Instructions:
Review Chapters 17, 18, and 21 on C Corporations and
Partnerships in the textbook
For the Partnership (LLC) return, the following items need to be
completed
Form 1065 U.S. Return of Partnership Income:
(included within the 1065 are schedules B, K, L. M1 and M2)
Separate forms
Statement 1; Listing of Other Deductions for the 1065 Page 1
Line 20
Schedule K1 Partner’s Share of Income, Deductions, Credits,
etc for Tim/Jack
o
You only have to include a single K1 since Tim and Jack are
50/50 partners, their K1’s are identical
For the Corporate return, the following items need to be
completed
Form 1120 U.S. Corporation Tax Return
(included within the 1120 are schedules J, K, L. M1 and M2)
Separate forms
Statement 1; Listing of Other Deductions for the 1120 Page 1
Line 26
A total of 5 forms; 1120, 1120 statement 1, 1065, 1065
statement 1, 1065 K1 (Tim/Jack)
Label each form as such “1120;” 1120 statement 1;” 1065;”
“1065 statement 1;” “1065 K1 Tim/Jack”
You may NOT use Tax preparation software! Use of software is
considered a violation of CTU’s Academic Dishonesty Policy
and will result in an F for the assignment

7. The Income Statement and Balance Sheet are the same as in the
previous assignments as are the treatment of all financial
information. There are some items in the income statement that
were only partially or non tax deductible and this has not
changed for this assignment.
Salaries to owners are considered “guaranteed payments to
partners” or “officer’s compensation”
Don’t forget the previous IP we did on Schedule M1: recall that
not all miscellaneous expenses in the income statement are tax
deductible!
Hint; since you’re using the same financial statements for both
the Corporation and the LLC, should there be a difference in
taxable income between these two entities?
Instructor's Comments:
Submitting your 1065 and 1120 – read carefully!
You are responsible for ensuring the forms correctly upload to
CTU’s website. There have been instances of IRS forms
uploading BLANK, with no data! I HIGHLY SUGGEST
uploading your forms then taking the time to download them
and double-check that the information is still there! Remember
that BLANK FORMS YIELD 0 POINTS!
I cannot award points if your forms are blank!
PLEASE ensure data has been retained when you uploaded your
forms to CTU!
Upload your forms to Submitted Assignments, then download
them to doublecheck that your data has been retained in the
form.

8. This is your responsibility as a student; blank forms will yield
zero points! I cannot grade blank forms, nor will you have the
opportunity to resubmit forms.
To mitigate the possibility of this happening you have two easy
options;
You may print and scan your Tax Forms and submit the scans
(one scan for each form or even all forms in a single scan)
OR
You make take screenshots of the form using the Windows
Snipping tool or other function and paste them into a Word
Document
o
Ensure you capture the entire form but NOT your entire
computer screen; this make it difficult or impossible to read the
data on your form, if I can’t read the data I can’t grade it
If you submit your forms in either fashion, I do expect that your
forms are submitted in order; 1040 page 1, 1040 page 2, 1040
Schedule A
Do not submit individual screenshots of each page.
It is your responsibility to ensure you submit ALL portions of
each assignment, you need to ensure all forms are submitted for
grading.
If you’re missing one or more forms, your grade will be
impacted and you will not have the opportunity to submit
additional portions of your assignment after it has been graded.
Do not submit forms piecemeal;
submit them all at once!
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