Accounting Question

Instructions

There are 4 questions in this examination. You may only discuss the exam between your team members. You may not solicit any outside help or assistance in answering the questions.

Each question must be responded to in memo form. Question #1: the memo may not exceed 3 pages. Questions 2-4: the memo for each question may not exceed 2 pages. Therefore, the total response should not exceed 9 pages.

Use primary sources when possible. Some secondary sources can be used but sparingly.

Make sure that all the citations are correct. Points will be taken off for each incorrect citation. Use spell check and Grammatik or other such software tool to help your team proof the memos. Imagine that a government agent is reading this or your client!

Put your team number and the names of all team members on the cover page. All team members should contribute equal effort. Any free riders will not share the team grade.

Do not leave this assignment to the last minute. The assignment is 20% of your grade. Each question is of equal value.

Have fun!

FINAL EXAM
Instructions
There are 4 questions in this examination. You may only discuss the exam between
your team members. You may not solicit any outside help or assistance in answering
the questions.
Each question must be responded to in memo form. Question #1: the memo may not
exceed 3 pages. Questions 2-4: the memo for each question may not exceed 2 pages.
Therefore, the total response should not exceed 9 pages.
Use primary sources when possible. Some secondary sources can be used but sparingly.
Make sure that all the citations are correct. Points will be taken off for each incorrect
citation. Use spell check and Grammatik or other such software tool to help your team
proof the memos. Imagine that a government agent is reading this or your client!
Put your team number and the names of all team members on the cover page. All team
members should contribute equal effort. Any free riders will not share the team grade.
Do not leave this assignment to the last minute. The assignment is 20% of your grade.
Each question is of equal value.
Have fun!
Question 1: Worker Classification
In general, when a worker classification problem arises a company needs to decide on how
to address it as the consequences of failure to do so can be financially devastating to the
company. There are currently a few different methods to address a possible worker
classification issue:
1.
2.
3.
4.
Do nothing and hope for the best. If examined attempt to fall under the
Classification Settlement Program.
Make modifications to classification on a going forward basis but not advise the
IRS of the change (stealth change) and hope for the best.
Attempt to fall under Section 530 relief provisions.
Enter the Voluntary Classification Settlement Program.
Below you will find a set of facts with respect to Miami Business Services, Inc. In Addition,
an employee census is provided as well as a completed form SS_8, “Determination of
Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding.”
You are to write a memorandum to answer question#1, no more than 3 pages.
You have been asked to write a memorandum to Miami Business Services, a new client, to
advise them of the best course of action with respect to correcting the worker classification
issue that has arisen. Your memo should cover:
1.
2.
3.
4.
5.
6.
7.
Does the company have a worker classification issue? If so, describe why.
Which of the workers are subject to reclassification as employees?
What are the available options?
Which option do you recommend and why do you feel it is superior to other
options?
What are the requirements to qualify for the recommended option?
Based on the option you choose, what needs to be done going forward, if anything?
In making your recommendation you should consider not only the current cost but the
ongoing cost of your recommendation.
FACTS:
Miami Business Services, Inc. (MBS) is a Florida corporation that was formed in 2013. The
sole shareholder and officer is Ronald M. Donald. MBS is in the consulting business. It has
49 employees. A census of employees for 2020 with 2019 data appears on a schedule
attached below:
MBS has treated some workers as employees and others as “independent contractors.”
The sales- consultant independent contractors, in many cases, provided the same services
that the sales- consultant employees provided.
In June 2020 one of the MBS independent contractors (IC) asked to be classified
as an employee. Ronald responded that he could not afford to do so and if the IC wanted
to work for the company, he would accept his status as an independent contractor. As a
side note, workers who were classified as ICs were required to sign a statement that they
were independent contractors and understood and agreed to that status as well as would
be responsible for their own taxes. Also, some of the ICs were provided timely 1099s
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which reported their income as other compensation (see employee census). This had
been Ronald’s practice since forming MBS.
The employee believed that MBS was in fact profitable because one of its regular
customers was a company controlled by the country of North Kim and Ronald drove a
late model Mercedes. The IC was told by a friend of his that the friend’s company had
been examined by IRS and that the friend was reclassified from being an independent
contractor to an employee by IRS. The friend also confided that he had heard that one of
that company’s independent contractors had blown the whistle on the company and
received “big bucks” from IRS. The IC immediately reported it to IRS. The IRS
representative provided the IC with a form SS-8 to complete and submit (see attached).
The IC showed the SS-8 to Ronald and was immediately fired.
ADDITIONAL FACTS:
1.
2.
3.
4.
The company is not currently under examination by the IRS nor the State.
The workers who were treated as independent contractors were always treated as
such.
The forms W-2 or 1099s were issued or not issued as shown on the attached
worker’s census.
At the time MBS was started Ronald had checked around with other consultancy
companies (in the same general industry) in the area and found that these companies
had treated their sales- consultants for the most part as independent contractors.
Ronald never did a formal study to confirm what he was able to determine by making
calls to friends in the same business.
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5
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Wangdoodle Frobash
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