ACC 330 Module Two Adjusted Gross Income Assignment

Research Topic

The local civic center awarded a reward to a taxpayer without the taxpayer having to do anything or render any services to be eligible for the award: ACC 330 Module Two Adjusted Gross Income Assignment.

Primary Sources

Publication 525 (2022), Taxable and Nontaxable Income. Publication 525 (2022), Taxable and Nontaxable Income | Internal Revenue Service (irs.gov)

IRC Section 74. Prizes and awards. 26 USC 74: Prizes and awards (house.gov). Website: IRS.gov

Parameters

Amounts received as prizes and awards given primarily in recognition of religious, charitable, scientific, educational, artistic, literary, or civic accomplishments are not included in gross income but only in the following cases/parameters:

1. The recipient was chosen without taking any steps to enter the contest or proceeding.
2. The payor transfers the prize or award to a governmental unit or organization listed in paragraph (1) or (2) of section 170(c) per a designation made by the recipient (Steinberg, 2021).
3. The recipient is not obliged to provide significant future services as a condition of receiving the prize or award.

Example of Applying AGI

When the winnings are taxable, AGI is applied. Gambling or lottery earnings or losses would be two examples for this case.

Example of Not Being Able to Apply AGI

Awards and prizes that are relevant to the workplace and meet the requirements for employee achievement awards would not be included in AGI.

Tax Planning Implications

It will change the tax rate, which might push the annual income into a higher tax band. For instance, my tax rate would be 22% if I made $42,000 a year and filed as a single person. My income will rise to $43,000 if the reward is $1,000, but the rate will remain 22%. It simply relies on the annual income and the number of prizes or accolades received.

References

Steinberg, R. (2021). The design of tax incentives for giving. In The Routledge Handbook of

 Taxation and Philanthropy (pp. 178-198). Routledge.

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2-2 Assignment Adjusted Gross Income Assignment Guidelines and Rubric

Overview

Research is a big part of being a tax practitioner. Researching income and adjustments to income are critical for arriving at adjusted gross income (AGI). IRS resources, professional publications, and articles written by practitioners will inform your decisions. There isn’t always a clear answer so relying on primary sources and applying the Internal Revenue Code (IRC) will provide the confidence needed to support the tax position you recommend. It is essential that you understand how and when adjustments for adjusted gross income can be applied.

Scenario

You are a junior accountant at a medium-sized CPA firm. Your manager wants you to become familiar with the tax code and how it determines taxability. Your research will assist you in understanding how and when to report certain items as adjustments for AGI. Your manager would like you to document your research in the Module Two AGI Assignment template located in the What to Submit section to clarify your understanding of the tax code and justify your interpretations of the IRC requirements to report (or not report) the topic in question.

Directions

Using the topics listed in Module Two Adjusted Gross Income List in the Supporting Materials section, determine when and how the topic applies to AGI. Give scenarios to show that you understand what is taxable and what is nontaxable. There are several websites listed in the Supporting Materials section that will help you find the code and examples of application.

You may also wish to view the Adjustments to Income section found on Schedule 1 to further understand how deductions are included in the calculation of adjusted gross income. Keep in mind, however, that Schedule 1, and its accompanying information, is updated annually and subject to change. Thus, be sure to research the correct tax year.

Select one topic from the Module Two Adjusted Gross Income List in the Supporting Materials section. Use the Tax Research Guide found in the Supporting Materials section to research the topic you select. Be sure to cite the IRC location (be specific) and describe examples of the application of the code for two different scenarios (one where the deduction applies and one where the deduction would not apply). Add citations for all resources used in this assignment.

Specifically, you must address the following rubric criteria:

1. Identify the research topic you want to investigate.
2. Identify sources specifying code, section, and subsection as applicable. Include the following:
   1. 2–3 sources
3. List parameters for deductibility for your topic. Below are examples of some parameters you may encounter.
   1. Filing status
   2. Income threshold
   3. Time or year in question
   4. Other unique parameters that apply to the circumstances
4. Describe a scenario of qualifying for AGI adjustment.
   1. Explain why the client meets the criteria.
5. Describe a scenario of not qualifying for AGI adjustment.
   1. Explain why the client didn’t meet the criteria.
6. Explain tax planning implications.