Experiences with the model tax curriculum.

Traditionally, a college student's first tax course has stressed tax topics for individuals. The basic concepts of income, business deductions and property transactions are taught within the context of their effect on individuals. If students do not take a second tax course, they may be unable to relate these broad concepts to other entities. Even when a student takes a second tax course, the coverage of business taxation and tax planning may be insufficient to meet the needs of today's employers. To address this problem, the AICPA developed the ModelTax Curriculum (MTC), which places greater emphasis on business taxes and tax planning.

The breadth of topics encompassed in the MTC necessitates that teachers limit the depth of coverage. Instructors who traditionally covered all the rules and exceptions must decide what to eliminate to make room for the expansion of topics. Although the MTC suggests a specific number of classroom hours for each topic, these are just guidelines. If an instructor needs additional time (due to local requirements or students' needs), he can deviate from the time specified in the MTC. The MTC can be found on the AICPA Website at http://www.aicpa.org/members/ div/career/edu/introduc.htm.

Although many schools have already made the change to the MTC, faculty who have not yet made the transition have asked for guidance on what has worked for those who have. In response to this request, the experiences off our faculty who are now using the MTC approach are examined: two for the first tax course and two for the second tax course. Suggestions are then offered to those faculty who wish to start making a gradual transition toward the MTC.

First Tax Course at the University of Texas

At the University of Texas at Austin (UT-A), students planning to become accounting professionals usually enroll in one of two programs leading to a master in professional accounting (MPA) degree. In the Professional Program in Accounting (PPA), students receive their bachelors and masters degrees concurrently. They apply for this integrated program at the end of their sophomore year and admission to the program is selective. The other program (a stand-alone MPA) is designed for students who already have a bachelor's degree, but it need not be in accounting. Within either program, students have the opportunity to concentrate in one of several areas, including taxation.

The PPA requires that all students take an introductory tax course in their junior year. Over half of the students take the course the first semester of their junior year when they are enrolled in one other accounting course (either financial or managerial). All these students have completed sophomore-level introductory financial accounting and managerial accounting courses. The introductory tax course for PPAs has been a four-semester-credit-hour offering; beginning in fall 2001, it will become a three-hour course.

Students who are pursuing only a masters degree waive the introductory tax course (a three-hour course especially for MPA students) if they have completed an undergraduate tax course in the U.S. with a grade of B or higher. Thus, most students who enroll in this course are either international students or nonaccounting majors.

The approach for the introductory course was changed in fall 1999, placing more emphasis on business entities. The change was made because of a firm belief that, if students take only one tax course (as is the case with many students who do not pursue the tax concentration), they should have some basic understanding of the taxation of various business entities to enhance their abilities to serve their clients or their corporate employers. Even with a four-hour course (as has been the case for PPAs), all of the material from the MTC could not be included; a judgment call about the most important topics for the students had to be made. Exhibit 1 shows a comparison of the content of the UT-A introductory tax course with that of the MTC proposals for a one-semester introductory course.

Exhibit 1: Comparison of course content at UT-A with MTC

                                                           Number of
                                                Proposed   sessions
                                                 hours      at UT-A

Introduction                                       2           1
Tax research                                       1           0
Accounting periods, methods                        2           0
Income                                             4           2
Deductions and losses, including
  passive activity losses                          5           4
Property transactions                              6           5
C corporations                                     4           2
Partnerships                                       3           2
S corporations                                     3           1
Individuals                                        5           4
Fringe benefits, retirement plans                  2          (*)
Computation of tax                                 3           1(**)
Professional responsibilities in tax practice      2           0

(*) Fringe benefits are covered in the sessions on individuals.

(**) Includes business credits, AMT.

Note: In the past, classes have met 1.75 hrs. (for undergraduates) or
1.25 hrs. (for graduates) per session. Additional class sessions have
been devoted to the following issues: the first class day--an overview
of the course and the subject matter, two exam days (plus a
comprehensive final during the final exam period), two review days
and one day for a speaker who discusses tax practice issues.

A conscious decision was made not to cover tax research in the introductory course, leaving that material for a graduate-level tax research course (required for students in the tax concentration); a number of nontax students take this course as an elective. A portion of a session, however, is spent discussing the various authorities to which one turns for answers to tax questions and their relative hierarchy. As a result, the students can better understand footnotes in the text that cite various authorities. Discussion of professional responsibilities is integrated in various places in the course, including responses to students' questions. Although full class periods are not devoted to accounting periods and methods, certain period and method issues are discussed in connection with other topics. One example is installment sales, which is covered with property transactions.

On the first class day, students are asked to complete and turn in a survey (a "consciousness-raising" activity). It serves as a "teaser" for issues discussed later in the semester. One of the objectives is that students leave their first tax course as more informed citizens/residents on tax issues and better "consumers" of information reported in the media; Exhibit 2 provides some examples of the open-ended questions from the survey.

Exhibit 2: Excerpts from first-day survey

                                  Range of      Most common
                                  responses      responses
What do you think is the
highest Federal income tax
rate in effect for individuals?   15-55%      30-34% or 40-44%

What do you think should be
the highest Federal income tax
rate for individuals?              5-45%           11-30%

What do you think should the
highest Federal income
tax rate for corporations?        18-50%           40-44%

What do you think should be
the highest Federal income
tax rate for corporations?        10-50%           30-34%

Corporation X had the following results for the current year.
Calculate what you think its Federal income tax base should be.

Sales less cost of goods sold                         $780,000
Total salaries paid to its 12 salesmen                 360,000
Salary paid to its president, the sole stockholder     380,000
Cost of new machinery purchased                         75,000
Dividends paid to stockholder                            2,000
Dividends received from stock in a public company        1,500
Appreciation between January 1 and December 31
  of the stock in the public company                    19,000

Note: In discussing this question, I point out that later we will
address such issues as reasonable compensation, capitalization of
costs, tax treatment of dividends received and paid and tax
recognition of gains.

A group project to complete a corporate tax return includes providing the students with a trial balance and other information; it places a major emphasis on book-tax differences, as does one of the exam questions. For the project, the students are provided with a trial balance as their starting point. This emphasis on book-tax differences is especially important for those students who will not take an additional tax course.

Student comprehension is consistent with the experience prior to the MTC course revision. At the same time, it is a challenge to cover the revised course material in the time allotted, and it would be impracticable to cover all topics from the MTC in one semester. A move toward the MTC better serves the students by providing them with more exposure to business entities and helping them integrate tax with the rest of the accounting curriculum. This aspect of the revision is especially important for students who take no additional tax courses.

First Tax Course at the University of Connecticut

Over 90% of the students in this course are accounting majors, most of whom are first-semester juniors. Accordingly, the students have little financial accounting background, let alone overall business knowledge. Most students participate in internships shortly after taking the tax class, so preparation for their work experiences is an important objective. Most students will enter the MS in Accounting graduate program, in which all students take an entities-based tax course that covers the major issues in subchapters C and K (sub C/K).

When preparing to teach the undergraduate tax course for the first time in spring 1999, the idea of following the MTC was appealing. Most appealing was the low emphasis on individual-specific tax concepts and the focus on a book-tax differences approach to understanding taxable income. The overall experience, however, was not a good one. The students lacked interest in the course material, and there was not sufficient time to cover all the suggested topics.

Objective #1. To introduce students to a broad range of tax concepts and types of taxpayers. In attempting to accomplish this objective, initially too many technical details were addressed. Also, the students were most interested in individual issues, which, unfortunately, were not covered until late in the semester. To capture the students' attention, the course now starts with individual tax concepts and then covers general tax principles in a variety of settings, giving rigorous treatment to property acquisitions and dispositions. Sub C/K issues are not covered. Further plans for change will be to increase only the focus on corporate taxation (non-sub C issues) and introduce multi-jurisdictional tax concepts.

Objective #2. To emphasize the role of taxation in the business decision-making process. First-semester juniors lacked the appropriate skill set (e.g., finance knowledge) to approach the first tax course from a perspective that emphasizes tax planning concepts. Over time, the course's focus on tax rules should be reduced and more decision-making applications introduced. Doing so in a manner that complements (rather than substitutes for) the students' minimum required knowledge of tax rules is the crucial hurdle to meeting this objective.

Objective #3. To provide students with the ability to conduct basic tax research and tax planning. Students must complete a stand-alone tax research assignment using a tutorial that helps them learn how to use an Internet-based tax research service. This tutorial uses streaming video technology to walk the students through the tax research process. In this way, it it not necessary to devote much class time to tax research. In addition, in the future, students will complete this assignment earlier in the semester and research questions will be introduced into compliance-based projects.

Objective #4. To expose students to professional standards and ethics. Although this topic is a not a "syllabus" topic per se, numerous ethical issues are addressed as they arise in class.

Objective #5. To provide students with knowledge of the interrelationship and differences between financial accounting and tax accounting. Given that the students are predominantly first-semester juniors, this objective is the most difficult one to accomplish. Book-tax differences are introduced, but not in a way that emphasizes such an approach to computing taxable income. For example, students are given GAAP income statements to use in completing a Schedule C in both individual tax return projects. Also, the students complete Form 1120, Schedules M-1 and M-2 during an in-class exercise. Substituting a corporate tax return for one of the individual tax return projects will further highlight the importance of book-tax differences and better prepare the students for their internship experiences.

In summary, the results of implementing the model curriculum objectives were mixed, at best. However, stimulating interest in tax is relatively more important than covering particular tax topics, at least in the first tax course. Once this interest in tax issues is stimulated, the students' future learning should subsume what they learn in the first tax class. Also, a positive experience in the first tax class is crucial to motivating some students to pursue a career in tax and helping others appreciate tax issues throughout their careers.

Second Tax Course at Villanova University

Villanova University has adopted the MTC in both introductory and advanced tax courses at the undergraduate level. The discussion will focus on the use of the MTC in an advanced tax course.

The advanced taxation course is an elective for senior accounting majors. Given the size of the program, typical enrollment in this course ranges from five to 12 students. All enrollees have completed a required introductory tax course.

The MTC proposes four main objectives for the advanced tax course:

1. To expand knowledge base as to choice of entity and special tax subjects.

2. To reinforce the importance of ethical considerations, competent tax research and thoughtful tax planning.

3. To enable students to start with a trial balance and make necessary adjustments to arrive at taxable income.

4. To enable students to prepare tax returns using tax preparation software.

Villanova's course adopts the first three objectives, with one exception: Ethics are not emphasized to a great degree, as students take required ethics courses both in liberal arts and in the business school. The fourth objective is not adopted in the advanced course, because the introductory course includes a significant corporate tax return preparation project. The advanced course places significant emphasis on planning and decision-making, while incorporating tax research skills and knowledge of book-tax differences into the discussion of advanced entities and wealth transfer topics.

Exhibit 3 presents the organization and content of topics included in Villanova's advanced tax course. The course is organized into six parts. Part I, strategic tax planning, sets the focus of the course and reviews planning tools introduced in the required introductory tax course. Part II focuses on wealth transfer tax planning, including estate and gift taxation and the use of trusts for transfer planning purposes. The remaining four parts address advanced business taxation issues using an evolutionary framework. Part III considers tax issues associated with start-up businesses. Part IV addresses tax implications of ongoing business operations. Part V considers tax issues involving business growth and expansion. Part VI addresses changes in business form and business terminations. The left column of Exhibit 3 identifies coverage of topics proposed by the MTC. The right column of Exhibit 3 identifies additional topics covered in the course, including additional detail on what is covered relative to the topics specified in the MTC.

Exhibit 3: Advanced taxation course organization and content

Part I--Strategic Tax Planning MTC topics covered:

* Rate differences

* Character differences

* Entity differences

* Timing differences

Additional topical coverage:

* Review of net present value concepts and goal of effective tax planning

Part II--Personal Wealth Planning MTC topics covered:

* Estate and gift taxation

* Fiduciary accounting

* Planning strategies

Additional topical coverage:

* Proposals for repeal of transfer tax system

Part III--Tax Strategies for Start-up Businesses MTC topics covered:

* Entity legal requirements

* Choice of entity

* Contributions to capital

* Sole proprietorships

* Compensation and benefits, retirement, deferred compensation

* Related-party losses

* Partnership debt allocations

Additional topical coverage:

* Review basic tax consequences of alternative forms of doing business

* Compensatory equity--options, restricted stock, stock and partnership interests for services

* Debt vs. equity financing

Part IV--Business Operations MTC topics covered:

* Overall accounting methods

* GAAP, book/tax differences, FAS 109--Accounting for Income Taxes

* Partnerships and S corporations allocations, basis, loss limitations, AAA

* Corporate AMT

Additional topical coverage:

* Partnership capital accounts

* Partnership substantial economic effect rules

* Federal tax business incentive provisions

Part V--Strategies for Business Growth and Expansion MTC topics covered:

* Corporate and partnership distributions

* Earnings and profits

* Taxes on accumulations

* Corporate groups and consolidated returns

* State income taxes

* International taxation

* E-commerce tax issues

* FSC, FTC, transfer pricing, foreign corporations

* Foreign tax systems

Additional topical coverage:

* Reinvest or distribute decision

* Multiple entity business structures, including tiered partnerships and corporate groups

* State sales, use and other taxes

* Nexus issues

Part VI--Business Capital Transactions MTC topics covered:

* Mergers and acquisitions

* Redemptions

* Sales and exchanges of partnership interests

* Dispositions of equity interests

Additional topical coverage:

* Corporate divisions

* GAAP and FAS 109 issues related to mergers and acquisitions

* Insolvency, bankruptcy and liquidations

While the approach detailed in Exhibit 3 captures most of the advanced tax topics specified by the MTC, there are several suggested topics omitted. Specifically, the course includes little (or no) discussion off

* History of the income tax and the legislative process.

* S corporation eligibility requirements.

* Individual alternative minimum tax (AMT).

* Tax-exempt organizations.

* Circular 230 and Statements on Standards for Tax Services (SSTSs).

The first two topics are covered in the introductory tax course and are not repeated in the advanced course. While the introductory course also mentions the individual AMT, it is not covered in detail. The advanced course restricts attention to the corporate AMT. Tax-exempt organizations are not covered, primarily due to time constraints and because the focus is on business tax issues. Finally, there is a need to creatively incorporate coverage of Circular 230 and the SSTSs, maybe involving an out-of-class research assignment that would explore issues addressed in these statements.

Second Tax Course at Georgia State University

In 1999, the University System of the State of Georgia changed from the quarter to the traditional semester system. At the same time, the State Board. of Accountancy implemented the 150-hour requirement for the minimum collegiate hours required to sit for the CPA examination. As the Georgia State University School of Accountancy transitioned to the five-year program, the tax faculty reexamined the Tax I and II courses.

In the four-year program, Tax I and II were required of all accounting majors and were offered at the undergraduate level. In the new five-year program, Tax II is now a graduate-level course. This decision was made to better facilitate the MTC for Tax II. Additionally, feedback from the profession and Georgia State's Board of Advisors made it clear that the MTC was the direction of the future and, therefore, the tax faculty adopted that approach.

The course outline for a second semester of tax had as a prerequisite a three-hour Tax I sequence at either Georgia State University or at the student's undergraduate institution. Students taking the second three-semester hours of tax would already have an introduction to the basic concepts of corporate and partnership taxation. This provides an opportunity to further elaborate on the more complex issues of these business entities. In Tax II, a Socratic teaching method is used, with court cases assigned, briefed and presented by the students to integrate theory and practice. This teaching methodology enhances a student's ability to apply principles and better recognize practice issues. With issue identification intertwined throughout the course structure using the Socratic method, the student tendency to rely on rule application is easily diverted.

Georgia State's Tax II course uses a traditional textbook, a casebook and a Website. The Website, developed as part of a tax writing skills initiative, provides the strident with writing samples and instructions on briefing a tax case, writing tax file memoranda and client correspondence. The site is located at http://www.gsu.edu/~accerl/.

The Tax II course structure begins with tax research, tax writing and introduction to the tax writing site. The course design ensures that the tax and nontax accounting professional has exposure to tax research. Students are assigned cases from the casebook and are required to brief the cases and make class presentations. In conjunction with these assignments, students also are exposed to online research, as they follow the case brief examples on the tax writing Website.

The course then covers the various types of business entities. Each entity is studied using a "life cycle" approach. Case studies are assigned with the intent of further integrating the theoretical and practical application of the principles. This enhances the student's ability to recognize issues in a practice environment. With this approach, many practice issues are bridged from one entity to another during certain phases of its life. This has been a successful part of the course due to the cooperative learning process. The course concludes with the topics of estate and gift, tax-exempt entities, fiduciary accounting, state and local taxes and international taxation. Research and tax planning are again integrated throughout these chapters as they apply to the specific topic.

An underlying focus, but a continuing theme throughout the course, is the difference between financial and tax accounting. FAS 109 is discussed early in the semester to lay a foundation for future lectures. Case development and discussions are periodically focused on emphasizing the difference between financial and tax reporting.

The move to the MTC approach has been a success at Georgia State University. Students in the program have better writing skills and improved issue identification and practice skills. The course is fast-paced and designed as a survey-level course. Further, the sequence of tax topics provides a base on which students can build their tax knowledge to pass professional examinations and better prepare for their careers.

Suggestions for Making a Gradual Transition

For faculty unable to adopt the MTC in its entirety, there are a number of ways the basic concepts of business taxation can be included within the curriculum using a traditional text for the first course:

* Avoid the tendency to include all rules and exceptions, focusing more on concepts and less on details.

* When discussing the basic concepts of income, deductions and property transactions, create examples for students using a corporation or partnership as the taxpayer (rather than an individual).

* When assigning problems, ask students to complete appropriate problems as if the taxpayer were a corporation or a partnership.

* When discussing dividend income for individuals, introduce the corporate dividends-received deduction.

* Discuss the concept of a partnership as a passthrough entity when discussing income and deduction items given special treatment for individuals.

* Consider asking students to complete a basic Form 1120 or 1065 when they complete a Schedule C for an individual return. Students can be referred to the IRS Website for additional background material needed regarding these entities.

* Assign cases or research problems involving tax planning.

* To provide more class time for adding these topics, some things can be assigned for self-study outside the classroom. Tax research is one such topic. This self-study material can be provided to students via a course Webpage, instructor handouts or materials placed on reserve in the library. Encouraging students to participate in a voluntary income tax assistance (VITA) program is another way to move topics outside the classroom.

Requiring students to learn some topics on their own can provide them with an introduction to the real-world challenge of keeping up with current tax laws and learning on their own. This should help better prepare students for their roles as business advisers and tax professionals. Although adopting a new approach to teaching can be time-consuming, it can also reenergize teaching skills and bring new excitement to the classroom for faculty as well as students.

Editor's note: Shirley Dennis-Escoffier is a member of the AICPA's Pre-certification Education Executive Committee.

Questions relating to the University of Texas-Austin program should be directed to Anna C. Fowler at anna.fowler@bus. utexas.edu. Questions relating to the University of Connecticut program should be directed to John Phillips at jphillips@sba. uconn.edu. Questions relating to the Villanova University program should be directed to Shelley Rhoades-Catanach at [e-mail]. Questions relating to the Georgia State University program should be directed to Tad D. Ransopher at [e-mail]. Other questions can be directed to Shirley Dennis-Escoffier at [e-mail].

Shirley Dennis-Escoffier, Ph.D., CPA Professor, University of Miami, Coral Gables, FL

Anna C. Fowler, Ph.D., CPA Professor, University of Texas-Austin, Austin, TX

John Phillips, Ph.D., CPA Professor, University of Connecticut, Storrs, CT

Tad D. Ransopher, MTx, MPA, MBA, J.D. Professor, Georgia State University, Atlanta, GA

Shelley Rhoades-Catanach, Ph.D., CPA Professor, Villanova University, Philadelphia, PA