Archive for June 2017

In October 2010, Joy and Paul separated and have not lived with each other since, but they are still married. Joy supports their children after the separation and pays the cost of maintaining their home. Joy's filing status in 2010 and 2011 is, respectively,

In October 2010, Joy and Paul separated and have not lived with each other since, but they are still married. Joy supports their children after the separation and pays the cost of maintaining their home. Joy's filing status in 2010 and 2011 is, respectively,



A) single for both years.
B) head of household and single.
C) married filing separately for both years.
D) married filing separately and head of household.



Answer: D

To qualify as an abandoned spouse, the taxpayer is not required to

To qualify as an abandoned spouse, the taxpayer is not required to



A) be a U.S. citizen or resident.
B) live apart from the spouse for the last six months of the year.
C) pay more than half the cost of maintaining the home.
D) have a son or daughter in the home for the entire year.



Answer: D

A married taxpayer may file as head of household under the abandoned spouse provisions if all of the following are met except

A married taxpayer may file as head of household under the abandoned spouse provisions if all of the following are met except




A) the taxpayer lived apart from his or her spouse for the last six months of the year.
B) the taxpayer is a U.S. citizen or resident.
C) the taxpayer pays over half of the cost of maintaining a household in which the taxpayer and a dependent son or daughter live for over half of the year.
D) the taxpayer must have been married for at least two years



Answer: D

Liz and Bert divorce and Liz receives custody of their child. Bert is ordered by the court to pay child support of $10,000 per year, and Liz agrees in writing to allow Bert to claim the dependency exemption for the child. If Liz maintains the home in which she and her child live, her filing status and exemptions claimed will be

Liz and Bert divorce and Liz receives custody of their child. Bert is ordered by the court to pay child support of $10,000 per year, and Liz agrees in writing to allow Bert to claim the dependency exemption for the child. If Liz maintains the home in which she and her child live, her filing status and exemptions claimed will be




A) single and one exemption.
B) single and two exemptions.
C) head of household and one exemption.
D) head of household and two exemptions.



Answer: C

Dave, age 59 and divorced, is the sole support of his mother age 83, who is a resident of a local nursing home for the entire year. Dave's mother had no income for the year. Dave's filing status and exemptions claimed are

Dave, age 59 and divorced, is the sole support of his mother age 83, who is a resident of a local nursing home for the entire year. Dave's mother had no income for the year. Dave's filing status and exemptions claimed are




A) head of household and one exemption.
B) single and one exemption.
C) head of household and two exemptions.
D) single and two exemptions.




Answer: C

Sally, divorced in 2009, maintains her home in which she and her sixteen-year-old daughter resided for 2010 and 2011. The daughter is a qualified child. Sally signed the dependency exemption over to her ex-spouse. What is Sally's filing status for 2011 and how many exemptions may she claim?

Sally, divorced in 2009, maintains her home in which she and her sixteen-year-old daughter resided for 2010 and 2011. The daughter is a qualified child. Sally signed the dependency exemption over to her ex-spouse. What is Sally's filing status for 2011 and how many exemptions may she claim?




A) single and one
B) surviving spouse and one
C) head of household and one
D) head of household and two




Answer: C

A surviving spouse is not required to

A surviving spouse is not required to



A) be remarried at the end of the year in which the surviving spouse status is claimed.
B) be a U.S. citizen or resident.
C) be qualified to file a joint return in the year of death.
D) have at least one dependent child living at home the entire year and pay over half of the expenses of the home.



Answer: A

Carter dies on January 1, 2010. A joint return election is made in 2010 and Marjorie properly qualifies as a surviving spouse for the two following years. Marjorie has one child that she claims as a dependent for this same period. The number of personal and dependency exemptions allowed Marjorie in 2010 and in 2011 is, respectively

Carter dies on January 1, 2010. A joint return election is made in 2010 and Marjorie properly qualifies as a surviving spouse for the two following years. Marjorie has one child that she claims as a dependent for this same period. The number of personal and dependency exemptions allowed Marjorie in 2010 and in 2011 is, respectively




A) 1 and 1.
B) 2 and 2.
C) 3 and 2.
D) 3 and 3.



Answer: C

In 2008, Leo's wife died. Leo has two small children, ages 2 and 4, living at home whom he supports entirely. Leo does not remarry and is not claimed as a dependent on another's return during any of this period. In 2009, 2010, and 2011, Leo's most advantageous filing status is, respectively

In 2008, Leo's wife died. Leo has two small children, ages 2 and 4, living at home whom he supports entirely. Leo does not remarry and is not claimed as a dependent on another's return during any of this period. In 2009, 2010, and 2011, Leo's most advantageous filing status is, respectively




A) single for all three years.
B) head of household for all three years.
C) surviving spouse, surviving spouse, head of household
D) surviving spouse, surviving spouse, single.




Answer: C

When a spouse dies, the surviving spouse for the year of death

When a spouse dies, the surviving spouse for the year of death




A) may file a married filing jointly return.
B) must file a tax return using the single filing status.
C) must file a tax return using the head of household filing status.
D) may file a married filing jointly return only if the death occurred in the last half of the year.



Answer: A

You may choose married filing jointly as your filing status if you are married and both you and your spouse agree to file a joint return. Which of the following facts would prevent you from being considered married for filing purposes?

You may choose married filing jointly as your filing status if you are married and both you and your spouse agree to file a joint return. Which of the following facts would prevent you from being considered married for filing purposes?




A) You were married for several years, but your divorce became final in December.
B) You are married but living apart until some problems can be solved.
C) Your spouse died during the year but the executor of the estate has agreed to the filing of a joint return.
D) None of the above.




Answer: A

Paul and Sally file a joint return for 2011 showing $87,000 of AGI (with no exclusions under Secs. 911, 931, and 933). They have three dependent children ages 6, 8, and 13. What is the amount of their child credit?

Paul and Sally file a joint return for 2011 showing $87,000 of AGI (with no exclusions under Secs. 911, 931, and 933). They have three dependent children ages 6, 8, and 13. What is the amount of their child credit?




A) $0
B) $1,000
C) $2,000
D) $3,000




Answer: D

Ryan and Edith file a joint return for 2011 showing $130,000 of AGI (with no exclusions under Secs. 911, 931, and 933). They have three dependent children ages 7, 9, and 13. What is the amount of their child credit?

Ryan and Edith file a joint return for 2011 showing $130,000 of AGI (with no exclusions under Secs. 911, 931, and 933). They have three dependent children ages 7, 9, and 13. What is the amount of their child credit?



A) $0
B) $1,000
C) $2,000
D) $3,000




Answer: C

Assuming a multiple support declaration exists, which of the individuals may claim Blaine as a dependent?

Blaine Greer lives alone. His support comes from the following sources:

Buddy (his son) $2,600
Ken (his brother) 4,200
Martha (his daughter) 2,300
Natalie (a friend) 1,000
Total support $10,100

Assuming a multiple support declaration exists, which of the individuals may claim Blaine as a dependent?




A) Ken or Martha
B) Buddy, Ken, or Martha
C) Ken, Martha, or Natalie
D) None of them




Answer: B

Juanita's mother lives with her. Juanita purchased clothing for her mother costing $1,000 and provided her with a room that Juanita estimates she could have rented for $4,000. Juanita spent $5,000 on groceries she shared with her mother. Juanita also paid $700 for her mother's life insurance coverage. How much of these costs is considered support?

Juanita's mother lives with her. Juanita purchased clothing for her mother costing $1,000 and provided her with a room that Juanita estimates she could have rented for $4,000. Juanita spent $5,000 on groceries she shared with her mother. Juanita also paid $700 for her mother's life insurance coverage. How much of these costs is considered support?




A) $5,000
B) $7,500
C) $10,000
D) $10,700




Answer: B

David's father is retired and receives $14,000 per year in social security benefits. David's father saves $4,000 of the benefits and spends the remaining $10,000 for his support. How much support must David provide for his father to meet the dependent support requirement?

David's father is retired and receives $14,000 per year in social security benefits. David's father saves $4,000 of the benefits and spends the remaining $10,000 for his support. How much support must David provide for his father to meet the dependent support requirement?




A) $10,000
B) $10,001
C) $14,000
D) $14,001



Answer: B

Tony supports the following individuals during the current year: Miranda, his former mother-in-law who lives in her own home and has no gross income; his cousin, Jeff, age 23, who is a full-time student, earns $7,000 during the year, and lives with Tony all year long; and Matt, age 22, who is Tony's brother, is a full-time student living on campus and earns $8,000 during the year. How many dependency exemptions may Tony claim?

Tony supports the following individuals during the current year: Miranda, his former mother-in-law who lives in her own home and has no gross income; his cousin, Jeff, age 23, who is a full-time student, earns $7,000 during the year, and lives with Tony all year long; and Matt, age 22, who is Tony's brother, is a full-time student living on campus and earns $8,000 during the year. How many dependency exemptions may Tony claim?




A) 0
B) 1
C) 2
D) 3



Answer: C

Julia provides more than 50 percent of the support for three individuals: Theresa, an unrelated child who lives with Julia all year long; Margaret, Julia's cousin, who lives in another city; and Emma, Julia's daughter who lives in her own home. How many dependency exemptions can Julia claim on her 2011 tax return?

Julia provides more than 50 percent of the support for three individuals: Theresa, an unrelated child who lives with Julia all year long; Margaret, Julia's cousin, who lives in another city; and Emma, Julia's daughter who lives in her own home. How many dependency exemptions can Julia claim on her 2011 tax return?




A) 0
B) 1
C) 2
D) 3



Answer: C

Amber supports four individuals: Erin, her stepdaughter, who lives with her; Amy, her cousin, who lives in another state; Britney, her friend, who lives legally in Amber's home all year long; and Charlie, her father, who lives in another state. Assume that the dependency requirements other than residence are all met. How many personal and dependency exemptions may Amber claim?

Amber supports four individuals: Erin, her stepdaughter, who lives with her; Amy, her cousin, who lives in another state; Britney, her friend, who lives legally in Amber's home all year long; and Charlie, her father, who lives in another state. Assume that the dependency requirements other than residence are all met. How many personal and dependency exemptions may Amber claim?






A) 2
B) 3
C) 4
D) 5



Answer: C

Anita, who is divorced, maintains a home in which she and her 16 year old daughter live. Anita provides the majority of the support for her daughter and for a son, age 23, who is enrolled part-time at the university and lives in the dorm. The son also works in the campus bookstore and earns spending money of $4,000. How many personal and dependency exemptions may Anita claim?

Anita, who is divorced, maintains a home in which she and her 16 year old daughter live. Anita provides the majority of the support for her daughter and for a son, age 23, who is enrolled part-time at the university and lives in the dorm. The son also works in the campus bookstore and earns spending money of $4,000. How many personal and dependency exemptions may Anita claim?




A) 1
B) 2
C) 3
D) 4




Answer: B

Sarah, who is single, maintains a home in which she, her 15-year old brother, and her 21-year-old niece live. Sarah provides the majority of the support for her brother, her niece, and her cousin, age 18, who is enrolled full-time at the university and lives in an apartment. While the niece and cousin have no income, her brother has a part-time job and earns $4,000 per year. How many personal and dependency exemptions may Sarah claim?

Sarah, who is single, maintains a home in which she, her 15-year old brother, and her 21-year-old niece live. Sarah provides the majority of the support for her brother, her niece, and her cousin, age 18, who is enrolled full-time at the university and lives in an apartment. While the niece and cousin have no income, her brother has a part-time job and earns $4,000 per year. How many personal and dependency exemptions may Sarah claim?




A) 1
B) 2
C) 3
D) 4



Answer: C

Ben, age 67, and Karla, age 58, have two children who live with them and for whom they provide total support. Their daughter is 21 years old, blind, is not a full-time student and has no income. Her twin brother is 21 years old, has good sight, is a full-time student and has income of $3,900. Ben and Karla can claim how many personal and dependency exemptions on their tax return?

Ben, age 67, and Karla, age 58, have two children who live with them and for whom they provide total support. Their daughter is 21 years old, blind, is not a full-time student and has no income. Her twin brother is 21 years old, has good sight, is a full-time student and has income of $3,900. Ben and Karla can claim how many personal and dependency exemptions on their tax return?




A) 2
B) 3
C) 4
D) 5




Answer: C

A married person who files a separate return can claim a personal exemption for his spouse if the spouse is not the dependent of another and has

A married person who files a separate return can claim a personal exemption for his spouse if the spouse is not the dependent of another and has




A) gross income that is less than the personal exemption.
B) adjusted gross income that is less than the personal exemption.
C) no gross income.
D) no taxable income.



Answer: C

Deborah, who is single, is claimed as a dependent on her parents' tax return. She had a part-time job during 2011 and earned $850 during the year, which was her only income. What is her standard deduction?

Deborah, who is single, is claimed as a dependent on her parents' tax return. She had a part-time job during 2011 and earned $850 during the year, which was her only income. What is her standard deduction?




A) $850
B) $950
C) $1,150
D) $5,800




Answer: C

Husband and wife, who live in a common law state, are eligible to file a joint return for 2011, but elect to file separately. They do not have dependents. Wife has adjusted gross income of $25,000 and has $2,200 of expenditures which qualify as itemized deductions. She is entitled to one exemption. Husband deducts itemized deductions of $11,200. What is the taxable income for the wife?

Husband and wife, who live in a common law state, are eligible to file a joint return for 2011, but elect to file separately. They do not have dependents. Wife has adjusted gross income of $25,000 and has $2,200 of expenditures which qualify as itemized deductions. She is entitled to one exemption. Husband deducts itemized deductions of $11,200. What is the taxable income for the wife?




A) $19,200
B) $19,100
C) $21,300
D) $22,800




Answer: B

The regular standard deduction is available to which one of the following taxpayers?

The regular standard deduction is available to which one of the following taxpayers?



A) married taxpayer filing a separate return where the other spouse itemizes
B) a person who has only unearned income and is a dependent of another
C) an individual filing a return for a period of less than 12 months because of a change in accounting period
D) an abandoned spouse



Answer: D

Which of the following types of itemized deductions are included in the category of miscellaneous expenses that are deductible only if the aggregate amount of such expenses exceeds 2% of the taxpayer's adjusted gross income?

Which of the following types of itemized deductions are included in the category of miscellaneous expenses that are deductible only if the aggregate amount of such expenses exceeds 2% of the taxpayer's adjusted gross income?




A) unreimbursed employee business expenses
B) charitable contributions
C) medical expenses
D) home mortgage interest expense



Answer: A

All of the following items are generally excluded from income except

All of the following items are generally excluded from income except




A) child support payments.
B) interest on corporate bonds.
C) interest on state and local government bonds.
D) life insurance proceeds paid by reason of death.



Answer: B

Taxable income for an individual is defined as

Taxable income for an individual is defined as



A) AGI reduced by itemized deductions.
B) AGI reduced by personal and dependency exemptions.
C) total income reduced by the standard deduction.
D) AGI reduced by deductions from AGI and personal and dependency exemptions.



Answer: D

When two or more people qualify to claim the same person as a dependent, a taxpayer who is entitled to the exemption through the qualified child rules has priority over a taxpayer who meets the requirements for other relatives.

When two or more people qualify to claim the same person as a dependent, a taxpayer who is entitled to the exemption through the qualified child rules has priority over a taxpayer who meets the requirements for other relatives.



Answer: TRUE

Roberta Warner and Sally Roger formed the Acme Corporation on October 1, 2015. On the same date Warner paid $75,000 cash to Acme for 750 shares of its common stock. Simultaneously, Roger received 100 shares of Acme's common stock for services rendered. How much should Roger include as taxable income for 2015, and what will be the basis of her stock? Taxable Income Basis of Stock

Roberta Warner and Sally Roger formed the Acme Corporation on October 1, 2015. On the same date Warner paid $75,000 cash to Acme for 750 shares of its common stock. Simultaneously, Roger received 100 shares of Acme's common stock for services rendered. How much should Roger include as taxable income for 2015, and what will be the basis of her stock?
Taxable Income Basis of Stock


A. 10,000 0
B. 0 0
C. 10,000 10,000
D. 0 10,000




Answer: C

Jose started renting a house to Bill for $600 per month beginning February 1, 2015. Bill paid $1,200 on January 15, 2015, which included one month's rent and one month's security deposit. The rent is due by the 5th of the month. The lease specifies that the security deposit will also be used as the final month's rent. Bill pays the rent on the 2nd of each month. Bill also paid $150 for repairs to the air-conditioning system in July and $80 for a roof repair in September. He deducted the amounts from the rent paid to Jose for those months. Bill was unable to pay December's rent until January of the next year. How much should Jose report as rental income for 2015?

Jose started renting a house to Bill for $600 per month beginning February 1, 2015. Bill paid $1,200 on January 15, 2015, which included one month's rent and one month's security deposit. The rent is due by the 5th of the month. The lease specifies that the security deposit will also be used as the final month's rent. Bill pays the rent on the 2nd of each month. Bill also paid $150 for repairs to the air-conditioning system in July and $80 for a roof repair in September. He deducted the amounts from the rent paid to Jose for those months. Bill was unable to pay December's rent until January of the next year. How much should Jose report as rental income for 2015?





A. 6900
B. 7200
C. 6600
D. 6000



Answer: C

All of the following statements are true except

All of the following statements are true except 




A. A son, age 21, was a full-time student who earned $4,000 from his part-time job. The money was used to buy a car. Even though he earned $4,000, his parents can claim him as a dependent if the other exemption tests were met.
B. For each person claimed as a dependent, the Social Security number, adoption taxpayer identification number, or individual taxpayer identification number must be listed.
C. If a married person files a separate return, (s)he can take an exemption for his or her spouse if the spouse had no gross income and was not the dependent of another taxpayer.
D. A brother-in-law must live with the taxpayer the entire year to be claimed as a dependent even if the other tests are met.

In which of the following situations will a controlled foreign corporation located in Ireland be deemed to have Subpart F income?

In which of the following situations will a controlled foreign corporation located in Ireland be deemed to have Subpart F income?



A. In which of the following situations will a controlled foreign corporation located in Ireland be deemed to have Subpart F income?
B. In which of the following situations will a controlled foreign corporation located in Ireland be deemed to have Subpart F income?
C. B. In which of the following situations will a controlled foreign corporation located in Ireland be deemed to have Subpart F income?
D. B. In which of the following situations will a controlled foreign corporation located in Ireland be deemed to have Subpart F income?





Answer: B

Parker, whose spouse died during the preceding year, has not remarried. Parker maintains a home for a dependent child. What is Parker's most advantageous filing status?

Parker, whose spouse died during the preceding year, has not remarried. Parker maintains a home for a dependent child. What is Parker's most advantageous filing status?



A. Married filing separately.
B. Head of household.
C. Single.
D. Qualifying widow(er) with dependent child.





Answer: D

On February 1, Year 5, Hall learned that he was bequeathed 500 shares of common stock under his father's will. Hall's father had paid $2,500 for the stock in Year 1. Fair market value of the stock on February 1, Year 5, the date of his father's death, was $4,000 and had increased to $5,500 6 months later. The executor of the estate elected the alternate valuation date for estate tax purposes. Hall sold the stock for $4,500 on June 1, Year 5, the date that the executor distributed the stock to him. How much income should Hall include in his Year 5 individual income tax return for the inheritance of the 500 shares of stock that he received from his father's estate?

On February 1, Year 5, Hall learned that he was bequeathed 500 shares of common stock under his father's will. Hall's father had paid $2,500 for the stock in Year 1. Fair market value of the stock on February 1, Year 5, the date of his father's death, was $4,000 and had increased to $5,500 6 months later. The executor of the estate elected the alternate valuation date for estate tax purposes. Hall sold the stock for $4,500 on June 1, Year 5, the date that the executor distributed the stock to him. How much income should Hall include in his Year 5 individual income tax return for the inheritance of the 500 shares of stock that he received from his father's estate?




A. 2500
B. 5500
C. 4000
D. 0




Answer: D

John Budd is single, with no dependents. During 2015, John received wages of $11,000 and state unemployment compensation benefits of $2,000. He had no other source of income. The amount of state unemployment compensation benefits that should be included in John's 2015 adjusted gross income is

John Budd is single, with no dependents. During 2015, John received wages of $11,000 and state unemployment compensation benefits of $2,000. He had no other source of income. The amount of state unemployment compensation benefits that should be included in John's 2015 adjusted gross income is



A. 500
B. 1000
C. 2000
D. 0




Answer: C

During an all-employee awards ceremony, Pedals Company gave Mollie a new bicycle for her outstanding safety record. This award was presented to Mollie for her services to the company and in accordance with Pedals's qualified employee achievement awards program. The bicycle cost Pedals $1,200 and has a fair market value of $1,700. What amount must Mollie include in income?

During an all-employee awards ceremony, Pedals Company gave Mollie a new bicycle for her outstanding safety record. This award was presented to Mollie for her services to the company and in accordance with Pedals's qualified employee achievement awards program. The bicycle cost Pedals $1,200 and has a fair market value of $1,700. What amount must Mollie include in income?



A. 500
B. 1200
C. 0
D. 1700




Answer: C

In February 2015, Paul and Jean, a married couple, cashed a qualified Series EE savings bond they bought in November 2004. They received proceeds of $7,132, representing principal of $5,000 and interest of $2,132. In 2015, they helped pay their daughter's college tuition. The qualified education expenses they paid in 2015 totaled $4,000. They are not claiming an education credit for the expenses, and they do not have an education IRA. How much interest income can Paul and Jean exclude?

In February 2015, Paul and Jean, a married couple, cashed a qualified Series EE savings bond they bought in November 2004. They received proceeds of $7,132, representing principal of $5,000 and interest of $2,132. In 2015, they helped pay their daughter's college tuition. The qualified education expenses they paid in 2015 totaled $4,000. They are not claiming an education credit for the expenses, and they do not have an education IRA. How much interest income can Paul and Jean exclude?



A. 2132
B. 4000
C. 1196
D. 1000




Answer: C

Clark bought Series EE U.S. Savings Bonds after 1989. Redemption proceeds will be used for payment of college tuition for Clark's dependent child. One of the conditions that must be met for tax exemption of accumulated interest on these bonds is that the

Clark bought Series EE U.S. Savings Bonds after 1989. Redemption proceeds will be used for payment of college tuition for Clark's dependent child. One of the conditions that must be met for tax exemption of accumulated interest on these bonds is that the




A. Bonds must be bought by the owner of the bonds before the owner reaches the age of 24.
B. Purchaser of the bonds must be the sole owner of the bonds (or joint owner with his or her spouse).
C. Bonds must be transferred to the college for redemption by the college rather than by the owner of the bonds.
D. Bonds must be bought by a parent (or both parents) and put in the name of the dependent child.




Answer: B

Starr, CPA, prepared and signed Cox's current-year federal income tax return. Cox informed Starr that Cox had paid doctors' bills of $20,000 although Cox actually had paid only $7,000 in doctors' bills during the year. Based on Cox's representations, Starr computed the medical expense deduction that resulted in an understatement of tax liability. Starr had no reason to doubt the accuracy of Cox's figures and did not ask Cox to submit documentation of the expenses claimed. Cox orally assured Starr that sufficient evidence of the expenses existed. In connection with the preparation of Cox's tax return, Starr is

Starr, CPA, prepared and signed Cox's current-year federal income tax return. Cox informed Starr that Cox had paid doctors' bills of $20,000 although Cox actually had paid only $7,000 in doctors' bills during the year. Based on Cox's representations, Starr computed the medical expense deduction that resulted in an understatement of tax liability. Starr had no reason to doubt the accuracy of Cox's figures and did not ask Cox to submit documentation of the expenses claimed. Cox orally assured Starr that sufficient evidence of the expenses existed. In connection with the preparation of Cox's tax return, Starr is



A. Not liable to the IRS for any penalty or interest.
B. Liable to Cox for interest on the underpayment of tax.
C. Not liable to the IRS for any penalty but is liable to the IRS for interest on the underpayment of tax.
D. Liable to the IRS for negligently preparing the return.




Answer: A

The Secretary of the Treasury can censure, suspend, or disbar a practitioner from practice before the Internal Revenue Service for incompetence and/or disreputable conduct. Which one of the following is considered disreputable conduct?

The Secretary of the Treasury can censure, suspend, or disbar a practitioner from practice before the Internal Revenue Service for incompetence and/or disreputable conduct. Which one of the following is considered disreputable conduct?



A. Giving false or misleading information or participating in any way in the giving of false or misleading information to the Department of the Treasury or any officer or employee thereof.
B. Conviction of any criminal offense under the revenue laws of the United States.
C. Conviction of any criminal offense involving dishonesty or breach of trust.
D. All of the answers are correct.




Answer: D

Which of the following is considered a tax return preparer?

Which of the following is considered a tax return preparer?



A. A neighbor who assists with preparation of depreciation schedule.
B. A volunteer at a local church who prepares tax returns but accepts no payment.
C. A woman who prepares tax returns in her home during filing season and accepts payment for her services.
D. A son who enters tax return information into a computer program and prints a return.


Answer: C

Under Treasury Circular 230, which of the following correctly represents the requirements related to the communication of fee information from a tax practitioner to a taxpayer?

Under Treasury Circular 230, which of the following correctly represents the requirements related to the communication of fee information from a tax practitioner to a taxpayer?




A. It must be communicated as an estimate before the engagement begins, with the understanding that the actual amount of the fee will not be determined until the engagement ends.
B. It may be communicated only through the confidential engagement letter between the tax practitioner and the taxpayer.
C. It may not be communicated by television, radio, or hand-delivered flyers.
D. It may be communicated in a number of ways, including in professional lists, telephone directories, mailings, and electronic mail.




Answer: D

Which of the following is not a tax return preparer?

Which of the following is not a tax return preparer?



A. Someone who prepares a substantial portion of a return or claim for refund under Title 26 of the Code.
B. Someone who employs one or more persons to prepare for compensation, other than for the employer, all or a substantial portion of any tax return under Title 26 of the Code.
C. The preparer of another return with entries directly related to a substantial portion of this second return.
D. Someone who prepares, as a fiduciary, a return or claim for refund for any person.




Answer: D

According to the accounting profession's standards, which of the following statements is true regarding the standards a member of the AICPA should follow when recommending tax return positions and preparing tax returns?

According to the accounting profession's standards, which of the following statements is true regarding the standards a member of the AICPA should follow when recommending tax return positions and preparing tax returns?



A. A member may recommend a position if (s)he has a good faith belief that the position has a realistic possibility of being sustained if challenged.
B. A. A member may recommend a position if (s)he has a good faith belief that the position has a realistic possibility of being sustained if challenged.
C. A member may recommend a position that (s)he concludes is frivolous if the position is adequately disclosed on the return.
D. A member may recommend a position that (s)he concludes is frivolous if the position is adequately disclosed on the return.




Answer: A

During an interview conducted by the tax return preparer, the client stated that he had paid $1,500 for deductible travel expenses and $3,000 for charitable contributions. The preparer asked if documentation existed in support of the deductions and was assured by the client that adequate documentation did exist. When the client's return was later examined by the IRS, a tax deficiency resulted due to the client's lack of supporting documentation for the travel expenses. Which of the following statements best describes this situation?

During an interview conducted by the tax return preparer, the client stated that he had paid $1,500 for deductible travel expenses and $3,000 for charitable contributions. The preparer asked if documentation existed in support of the deductions and was assured by the client that adequate documentation did exist. When the client's return was later examined by the IRS, a tax deficiency resulted due to the client's lack of supporting documentation for the travel expenses. Which of the following statements best describes this situation?



A. The preparer is subject to a penalty under Sec. 6694 because she did not verify the existence of the documentation and a tax deficiency resulted from the examination.
B. The preparer is not subject to a penalty under Sec. 6694 because the understatement was not substantial.
C. The preparer is not subject to a penalty under Sec. 6694 because she is not required to examine or review the client's books and records in order to verify the client's information.
D. The preparer is subject to a penalty under Sec. 6694 because she did not verify that her client had supporting documentation.





Answer: C

A tax return preparer may disclose or use tax return information without the taxpayer's consent to

A tax return preparer may disclose or use tax return information without the taxpayer's consent to



A. Be evaluated by a quality or peer review organization.
B. Facilitate a supplier's or lender's credit evaluation of the taxpayer.
C. Solicit additional non tax business.
D. Accommodate the request of a financial institution that needs to determine the amount of taxpayer's debt to it to be forgiven.


Answer: A

Under Treasury Circular 230, in which of the following situations is a CPA prohibited from giving written advice concerning one or more federal tax issues?

Under Treasury Circular 230, in which of the following situations is a CPA prohibited from giving written advice concerning one or more federal tax issues?



A. The CPA takes into account the possibility that a tax return will not be audited.
B. The CPA takes into consideration assumptions about future events related to the relevant facts.
C. The CPA reasonably relies upon representations of the client.
D. The CPA considers all relevant facts that are known.



Answer: A

Under the Statements on Standards for Tax Services, what is a CPA's responsibility for verifying information furnished by the taxpayer or third parties?

Under the Statements on Standards for Tax Services, what is a CPA's responsibility for verifying information furnished by the taxpayer or third parties?




A. Under the Statements on Standards for Tax Services, what is a CPA's responsibility for verifying information furnished by the taxpayer or third parties
B. Under the Statements on Standards for Tax Services, what is a CPA's responsibility for verifying information furnished by the taxpayer or third parties?
C.Under the Statements on Standards for Tax Services, what is a CPA's responsibility for verifying information furnished by the taxpayer or third parties?
D. A CPA need not make additional inquiries if the information furnished appears to be incorrect, incomplete, or inconsistent with other facts known to the CPA.



Answer: C

Sam, a CPA, is representing Fred before the Examination Division of the Internal Revenue Service. The Internal Revenue Service is questioning Fred on his Schedule C gross income that is listed on the 2014 tax return. While reviewing the documentation Fred provided, Sam discovers income that was omitted from the tax return. What is the appropriate action for Sam to take?

Sam, a CPA, is representing Fred before the Examination Division of the Internal Revenue Service. The Internal Revenue Service is questioning Fred on his Schedule C gross income that is listed on the 2014 tax return. While reviewing the documentation Fred provided, Sam discovers income that was omitted from the tax return. What is the appropriate action for Sam to take?




A. Sam must immediately advise the Internal Revenue Service examiner of the omitted income.
B. Sam must advise Fred promptly of the omission and the consequences provided by the Internal Revenue Code and regulations for such omission.
C. Sam must notify the Internal Revenue Service that he is no longer representing Fred by withdrawing his Form 2848.
D. Sam must advise Fred on how to keep the omission from being discovered by the Internal Revenue Service.




Answer: B

Which of the following is false regarding the filing of information returns concerning employees who prepare tax returns?

Which of the following is false regarding the filing of information returns concerning employees who prepare tax returns?



A. The period for which the information return is required is a 12-month period beginning July 1 of each year.
B. Information returns of income tax return preparers must be maintained by the preparer for 2 years.
C. Annual listings of preparers, identification numbers, and place of work are required for preparers who employ others to prepare returns.
D. No information return is actually required to be submitted; a list is made and kept by the employing preparer.






Answer: B

A CPA prepares income tax returns for a client. After the client signs and mails the returns, the CPA discovers an error. According to Treasury Circular 230, the CPA must

A CPA prepares income tax returns for a client. After the client signs and mails the returns, the CPA discovers an error. According to Treasury Circular 230, the CPA must




A. Promptly resign from the engagement and cooperate with the successor accountant.
B. Prepare an amended return within 30 days of the discovery of the error.
C. Promptly advise the client of the error.
D. Document the error in the work papers.



Answer: C

Which of the following situations describes a disclosure of tax information by an income tax preparer that would subject the preparer to a penalty?

Which of the following situations describes a disclosure of tax information by an income tax preparer that would subject the preparer to a penalty?




A. Les, a return preparer, obtained information from Tom while selling Tom life insurance. The information was identical to tax return information that had been furnished to him previously. Les discussed this information with Mary, his wife, who was not an employee of any of his businesses.
B. In the course of preparing a return for Duck Company, Jan obtained information indicating the existence of illegal kickbacks. Jan gave the information to Bill, an auditor in her firm, who was performing a financial audit of the company. Bill confirmed illegal kickbacks were occurring and brought the information to the attention of Duck Company officers.
C. Ron died after furnishing tax return information to his tax return preparer. Ron's tax return preparer disclosed the information to Jerry, Ron's nephew, who is not the fiduciary of Ron's estate.
D. Glade informed the proper federal officials of actions he mistakenly believed to be illegal.




Answer: C

Penalties may be imposed on a tax return preparer for an understatement of tax liability because of a position for which there is not a reasonable belief that there is substantial authority that the position will be sustained on its merits. But the penalties may be excused if

Penalties may be imposed on a tax return preparer for an understatement of tax liability because of a position for which there is not a reasonable belief that there is substantial authority that the position will be sustained on its merits. But the penalties may be excused if




A. The preparer knew or should have known of the position.
B. The understatement was unintentional.
C. The position was disclosed.
D. There is reasonable cause and good faith.




Answer: D

A CPA assists a taxpayer in tax planning regarding a transaction that meets the definition of a tax shelter as defined in the Internal Revenue Code. Under the AICPA Statements on Standards for Tax Services, the CPA should inform the taxpayer of the penalty risks unless the transaction, at the minimum, meets which of the following standards for being sustained if challenged?

A CPA assists a taxpayer in tax planning regarding a transaction that meets the definition of a tax shelter as defined in the Internal Revenue Code. Under the AICPA Statements on Standards for Tax Services, the CPA should inform the taxpayer of the penalty risks unless the transaction, at the minimum, meets which of the following standards for being sustained if challenged?



A. Substantial authority.
B. Not frivolous.
C. Realistic possibility.
D. More likely than not.




Answer: C

Statements on Standards for Tax Services (SSTSs) have been issued by the Tax Executive Committee of the AICPA. The SSTSs

Statements on Standards for Tax Services (SSTSs) have been issued by the Tax Executive Committee of the AICPA. The SSTSs



A. Apply only to federal income tax engagements
B. Are enforceable under the AICPA Code of Professional Conduct
C. Also have been approved by the Council of the AICPA.
D. Are applicable to all CPAs, not just members of the AICPA.



Answer: B

A tax preparer has advised a company to take a position on its tax return. The tax preparer believes that there is a 75% possibility that the position will be sustained if audited by the IRS. If the position is not sustained, an accuracy-related penalty and a late-payment penalty would apply. What is the tax preparer's responsibility regarding disclosure of the penalty to the company?

A tax preparer has advised a company to take a position on its tax return. The tax preparer believes that there is a 75% possibility that the position will be sustained if audited by the IRS. If the position is not sustained, an accuracy-related penalty and a late-payment penalty would apply. What is the tax preparer's responsibility regarding disclosure of the penalty to the company?




A. The tax preparer has no responsibility for disclosing any potential penalties to the company because the position will probably be sustained on audit.
B. The tax preparer is responsible for disclosing only the accuracy-related penalty to the company.
C. The tax preparer is responsible for disclosing both penalties to the company.
D. The tax preparer is responsible for disclosing only the late-payment penalty to the company.





Answer: C
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