Section 1: Unit 1: Preliminary Work & Taxpayer Data Flashcards

Question

# **** Assessment Statute - __ years to get a refund - __ years for the IRS to audit you - __ years for the IRS to collect - __ years for the IRS to audit you IF it is believed your gross income was understated by __+% OR if a taxpayer never files a return OR if the return was fraudulent - __ years if you fail to file a return (EVEN if you don't have a filing requirement).

Answer 1

- 3 years to get a refund (current year and past two years) - 3 years for the IRS to audit you - 10 years for the IRS to collect - 6 years for the IRS to audit you IF it is believed your gross income was understated by 25+% OR if a taxpayer never files a return OR if the return was fraudulent - FOREVER if you fail to file a return. Recc'd to file a return even if there's no requirement, to help prevent ID theft and start the clock for the assessment statute

Answer 2

For a child (dependent) with unearned income First $1,250 is not taxes Next $1,250 is taxes at the child's rate Anything above $2,500 is taxed at the parent's rate Example: Javier is a 17-year-old high school student who is claimed as a dependent on his parents’ tax return. He worked as a pizza delivery driver 10 hours a week and earned $6,200 of wages in 2023. He also had $2,850 of interest income from a certificate of deposit that his grandmother gave him last Christmas. Javier is required to file a tax return because his unearned income exceeded the filing threshold, and he is subject to the kiddie tax. If Javier did not have any interest income, he would not be required to file a return; his investment income is what triggers his filing requirement.

Answer 3

$13,850 + of earned income requires a return to be filed. Barrett is a 17-year-old high school student living with his parents. He earned $5,650 from a part-time job and received $200 of dividends from stocks gifted by his grandmother. Barrett’s parents claim him as a qualifying child. Barrett’s total income is below the gross income filing threshold for dependents. His investment income is also below the filing requirement for the kiddie tax. Barrett is not required to file a tax return in 2023, and his parents can claim him as a qualifying child on their tax return. Even if Barrett is not required to file a tax return, he may still choose to file to receive a refund of any taxes he had withheld from his wages.

Answer 4

$400 or more in Self-Employment income.

Answer 5

C. The preparer should enter Penny's IP PIN on the tax return next to her signature block. The preparer should enter Penny's IP PIN on the tax return next to her signature block. An Identity Protection PIN is a six-digit number assigned to eligible taxpayers to help prevent their Social Security number from being used to file fraudulent federal income tax returns. This number helps the IRS verify a taxpayer's identity and accept their tax return. An IP Pin can be entered on a paper filed return or an efiled return. A return that does not include an IP PIN (but where one is required, because the taxpayer was a victim of ID theft) will still be processed, but it must be mailed, and it will have an increased processing time.

Answer 6

D. Penalty of perjury

Answer 7

A. June 15. (Part of automatic 2 month extension)

Answer 8

C. A taxpayer must estimate his tax liability when requesting an automatic six-month extension. If a taxpayer cannot file his tax return by the due date, he can request an extension by filing Form 4868, Application for Automatic Extension of Time to File, which may be filed electronically. An extension grants a taxpayer an additional six months to file his individual tax return, but does not extend the time to pay any tax due. A taxpayer should estimate his yearly tax liability, as he will owe interest on any amount that is not paid by the filing deadline plus a late payment penalty if he has not paid at least 90% of his total tax due by that date.

Answer 9

D. Both are required to file tax returns. Both Jose and Greer are required to file, because they are filing separate tax returns (MFS). Taxpayers of any age who use the Married Filing Separately status must file a return if they had gross income of $5 or more.

Answer 10

B. Janet will not be subject to the estimated tax penalty because she paid at least 100% of the tax shown on her return for the prior year. Janet will not be subject to the estimated tax penalty because she paid at least 100% of the tax shown on her return for the prior year. Most taxpayers will avoid the penalty for underpayment of estimated tax, if they owe less than $1,000 in tax after subtracting their withholdings and credits, or if they paid at least 90% of the tax for the current year, or 100% of the tax shown on the return for the prior year, whichever is smaller. In addition, taxpayers who had $0 tax liability in a prior year are not required to make estimated tax payments in the current year. See the IRS Information page on estimated tax payments.

Answer 11

A. $1,300 per month. If Melanie and Harry decide to file separate tax returns, and they live in a community property state, then one-half of the income would be treated as earned by Melanie. So $1,300 a month would be her portion of the community income (one-half the pension income and one-half of the rental income). Note: Community property rules are complex and can vary from state to state. This question is based directly on an example in Publication 555, Community Property. According to Publication 555, in Idaho, Louisiana, Texas, and Wisconsin, income from most separate property is treated as community income. Couples can also choose to have a legal agreement that provides that no community property will be created during the marriage (such as a Prenuptial Agreement between the spouses).

Answer 12

C. Form 8379; Injured Spouse Allocation

Answer 13

D. Community property laws state that each spouse is entitled to 50% of total community income and expenses, so they must divide their income equally on their separate returns. Community property laws state that each spouse is entitled to 50% of total community income and expenses, so they must divide their income equally on their separate returns. If a taxpayer in a community property state files a Married Filing Separate (MFS) return, they must fill out the MFS allocation for Community Property states using Form 8958.

Answer 14

D. Since Texas is a common-law state, they are likely considered married under state law, and must file either MFJ or MFS. Since Texas is a common-law state, they are likely considered married under state law, and must file either MFJ or MFS. A common law marriage is a legally recognized marriage between two people who have not purchased a marriage license, or had a formal ceremony. Taxpayers who live together in a common-law state may have a marriage recognized by the state, even without a formal license. Currently, the common-law states are: Alabama, Colorado, District of Columbia, Iowa, Kansas, Montana, Oklahoma, Pennsylvania, Rhode Island, South Carolina, and Texas.

Answer 15

C. The spouses can elect to file as a Qualified Joint Venture. The spouses can elect to file as a Qualified Joint Venture. A qualified joint venture (QJV) conducted by married spouses who file a joint return for a tax year is not treated as a partnership for Federal tax purposes. A qualified joint venture is a joint venture that conducts a trade or business where: The only members of the joint venture are a married couple who file a joint return, Both spouses materially participate in the trade or business, and Both spouses elect not to be treated as a partnership. Spouses make the “qualified joint venture” (QJV) election on a jointly filed Form 1040 by dividing all items of income, gain, loss, deduction, and credit between them in accordance with each spouse's respective interest in the joint venture, and each spouse filing with the Form 1040 a separate Schedule C, (or Schedule F). Only businesses that are owned and operated by spouses as co-owners (and not in the name of a state law entity, such as an LLC or LLP) qualify for the QJV election (there is a narrow exception for couples who reside in community property states, who can still elect QJV treatment if they operate a MMLLC together as sole owners).

Answer 16

B. A non-deductible property settlement. This is classified as a non-deductible property settlement. Property transfers “incident to divorce” are not taxable income to the recipient and, therefore, are not tax-deductible to the payor. For more information, see Publication 504, Divorced or Separated Individuals.

Answer 17

The answer is B. Isabella does not need to pay estimated tax because she expects her income tax withholding in the current year ($10,250) to be greater than both—90% of the tax to be shown on her current year return ($11,270 × 90% = $10,143) and 100% of her prior-year tax liability ($9,224). Therefore, Isabella qualifies for the safe harbor rule and is not required to make estimated tax payments. A taxpayer is not required to pay estimated tax if: * The taxpayer was a U.S. citizen or resident alien and had no tax liability in the prior year, and * The prior tax year covered a twelve-month period. A taxpayer also does not have to pay estimated tax if she pays enough through withholding so that the tax due on the return is less than $1,000. In most cases, a taxpayer must pay estimated tax if she expects withholding (plus any refundable credits) to be less than the smaller of: * 90% of the tax to be shown on the current year tax return, or * 100% of the tax shown on the prior-year tax return.

Answer 18

The answer is A. Leonardo is required to file a tax return. Milla is not required to file a return. Leonardo will be required to file MFS (married filing separately) because Milla will not file jointly with him. Milla does not have any taxable income and therefore does not have to file a return.

Section 1: Unit 1: Preliminary Work & Taxpayer Data Flashcards

(43 cards)