Unit 1: Preliminary Work with Taxpayer Data Flashcards
Gather and verify taxpayer identity, filing requirements, and key intake information necessary to begin tax preparation. (83 cards)
1
Q
What is the primary focus of Part 1 of the enrolled agent exam?
A
Preparing tax returns for individual taxpayers, covering filing status, income, deductions, and more.
2
Q
How many questions are in the ‘Preliminary Work with Taxpayer Data’ section of the exam?
A
14
3
Q
What must tax preparers do with prior-year tax returns?
A
Review for accuracy, completeness, and compliance with tax laws.
4
Q
What are the required pieces of biographical information from taxpayers?
A
- Legal name
- Date of birth
- Marital status
- Residency status
- Dependent information
- Taxpayer identification number (SSN, ITIN, or ATIN)
5
Q
What is an Identity Protection PIN (IP PIN)?
A
A six-digit number that helps protect a taxpayer’s SSN or ITIN from unauthorized use.
6
Q
What types of Taxpayer Identification Numbers (TINs) are recognized by the IRS?
A
- Social Security number (SSN)
- Individual taxpayer identification number (ITIN)
- Adoption taxpayer identification number (ATIN)
7
Q
What is the purpose of an ITIN?
A
To enable individuals who cannot obtain an SSN to file a U.S. tax return.
8
Q
Which form do taxpayers use to apply for an ITIN?
A
Form W-7
9
Q
What is the maximum validity period for an Adoption Taxpayer Identification Number (ATIN)?
A
Two years from the date it is issued.
10
Q
What documentation is required to request an ITIN?
A
Proof of foreign status and identity.
11
Q
What should be done if a child born in the same tax year dies without an SSN?
A
The taxpayer can still claim the child as a dependent.
12
Q
How long should taxpayers retain copies of their tax returns?
A
At least three years from the date filed or the original due date.
13
Q
What happens if a taxpayer omits more than 25% of their gross income?
A
They must retain records for at least six years.
14
Q
What types of records should all taxpayers keep?
A
- Income records (W-2, 1099, bank statements)
- Expense records (invoices, receipts)
- Home purchase and sale records (closing statements)
- Investment records (brokerage statements)
- Business records (income and expenses)
15
Q
What is the primary tax form used by U.S. taxpayers to file their annual income tax returns?
A
Form 1040
16
Q
What are the three numbered schedules included in Form 1040?
A
- Schedule 1: Additional Income and Adjustments to Income
- Schedule 2: Additional Taxes
- Schedule 3: Additional Credits and Payments
17
Q
What is Form 1040-SR designed for?
A
Specifically for use by seniors age 65 or older.
18
Q
Who uses Form 1040-NR?
A
Nonresident aliens to report their U.S. source income.
19
Q
What is the definition of a nonresident alien according to the IRS?
A
An individual who has not passed the green card test or the substantial presence test.
20
Q
What is the maximum tax rate for federal income tax for individuals in 2024?
A
37%
21
Q
What are the seven federal income tax brackets for individuals in 2024?
A
- 10%
- 12%
- 22%
- 24%
- 32%
- 35%
- 37%
22
Q
What is the due date for individual tax returns?
A
April 15
23
Q
What is Form 4868 used for?
A
To request an automatic extension of time to file a tax return.
24
Q
What is the statutory mailbox rule?
A
If a tax return is postmarked by the due date, it is considered timely filed, even if received later.
25
What is the tax treatment for **gambling winnings** for nonresident aliens?
Generally subject to a flat rate of **30%** in taxes.
26
What **type of taxpayers** receive an automatic two-month extension to file?
* Nonresident aliens without wage income subject to U.S. withholding
* U.S. citizens or legal residents living abroad
* Taxpayers on active military duty outside the U.S.
27
What happens if a taxpayer cannot pay any tax due by the **original filing deadline**?
Taxpayers must estimate and pay taxes by the original filing deadline, even if an extension is granted.
28
What is the **penalty** for failing to file a tax return?
The IRS can assess a penalty on individual taxpayers who fail to file, fail to pay, or both.
29
What is the total **extension period** for a service member in a combat zone?
226 days
## Footnote
This includes 180 days plus 46 days from the date of entry into the combat zone.
30
What are the **penalties** for failing to file a tax return?
* Failure-to-file penalty
* Failure-to-pay penalty
* Failure to pay properly estimated tax
* Interest on the amount due
31
What is the **failure-to-file penalty percentage** per month?
5% of the unpaid balance per month, up to 25% maximum
## Footnote
If the return is more than 60 days late, the minimum penalty is the lesser of $510 or 100% of the unpaid tax.
32
What is the failure-to-pay penalty rate?
0.5% of unpaid taxes per month, increasing to 1% after a demand for immediate payment
## Footnote
The failure-to-pay penalty can accumulate to a maximum of 25%.
33
What are the **conditions** for penalty abatement?
* Fire
* Casualty
* Natural disaster
* Death or serious illness
* Inability to obtain records
34
What is the interest rate on **unpaid taxes** for individuals in 2024?
8%
## Footnote
This rate is set by the federal funds rate and may change quarterly.
35
What is the '**90% Rule**' for estimated tax payments?
Pay at least 90% of the tax owed for the current year to avoid underpayment penalties.
36
What is the '**100% Rule**' for estimated tax payments?
Pay 100% of the tax owed in the previous year to avoid underpayment penalties.
37
Who is **exempt** from making estimated tax payments based on **prior-year tax liability**?
Taxpayers who had **zero tax liability** in the previous year.
38
What is the maximum penalty for **failure-to-file** if the return is over **60 days late**?
The lesser of $510 or 100% of the unpaid tax.
39
What happens if a taxpayer files on time but **does not pay on time**?
Only the 0.5% failure-to-pay penalty will be assessed.
40
What is the **Safe Harbor Rule** for higher-income taxpayers?
If the taxpayer’s adjusted gross income exceeds $150,000 ($75,000 if MFS), they must pay the smaller of:
* 90% of their expected tax liability for the current year
* 110% of the tax shown on their prior-year return
## Footnote
This rule helps avoid underpayment penalties.
41
When are the estimated **tax due dates** for most individuals?
* First Payment Due: April 15
* Second Payment Due: June 15
* Third Payment Due: September 15
* Fourth Payment Due: January 15 (of the following year)
## Footnote
Adjustments are made if due dates fall on weekends or holidays.
42
What form do taxpayers use to calculate an **estimated tax penalty**?
Form 2210, Underpayment of Estimated Tax by Individuals, Estates and Trusts.
## Footnote
This form is also used to request a waiver of the penalty.
43
What is the **March 1 deadline** for estimated tax payments for farmers and fishermen?
Taxpayers do not have to pay estimated tax if they file their return and pay all tax owed by March 1 of the following year.
## Footnote
This applies if at least two-thirds of their gross income comes from farming or fishing.
44
What is the **backup withholding rate** for 2024?
24% for all U.S. citizens and legal U.S. residents.
## Footnote
Nonresident aliens may be subject to a 30% withholding rate.
45
What constitutes '**gross income**' according to the IRS?
'Gross income' includes all forms of taxable income received by a taxpayer, including:
* Money
* Goods
* Property
* Services that are not exempt from taxes.
## Footnote
This definition is crucial for determining filing requirements.
46
What are the 2024 filing threshold amounts for **single filers under 65**?
$14,600
## Footnote
This threshold is adjusted for inflation each year.
47
Under what circumstances must **dependents** file their own tax returns?
A dependent child must file a tax return if their earned income exceeds the standard deduction for their age and filing status.
## Footnote
Different thresholds apply for earned vs. unearned income.
48
What is considered '**earned income**'?
It encompasses:
* Wages
* Salaries
* Tips
* Self-employment earnings from business or farm ownership.
## Footnote
This is distinct from 'unearned income' like interest or dividends.
49
What must a dependent child file if their earned income **exceeds the standard deduction** for their age and filing status?
A tax return.
## Footnote
The standard deduction for most dependents in 2024 is $14,600.
50
What is the **kiddie tax threshold** for a child with only unearned income in 2024?
The first $1,300 is not taxed, the next $1,300 is taxed at the child's rate, and anything above $2,600 is taxed at the parents' rate.
51
What is the filing requirement for a dependent child with **more than $14,600** of earned income in 2024?
They must file a tax return.
52
What is the threshold for **self-employed taxpayers** to file a tax return?
Net self-employment earnings of $400 or more.
53
What form do most self-employed taxpayers use to report their **business income**?
Schedule C, Profit or Loss from Business.
54
What are some **additional filing requirements** that may necessitate filing a tax return?
* Owing Social Security or Medicare tax on unreported tips
* Owing alternative minimum tax
* Owing additional tax on retirement plans
* Receiving distributions from MSAs or HSAs
* Owing household employment taxes
* Recapturing an education or investment credit
* Receiving advance payments of the Premium Tax Credit.
55
What is Innocent Spouse Relief?
It relieves a spouse from tax liability due to **erroneous items attributable to the other spouse**, provided they were unaware of the understatement.
56
What are the three types of **spousal relief** available for joint filers?
* Innocent Spouse Relief
* Separation of Liability Relief
* Equitable Relief
57
What is Separation of Liability Relief?
It allocates unpaid taxes to each spouse based on their **individual responsibility** after separation or divorce.
58
What does **Equitable Relief** consider in its determination?
It assesses whether holding the taxpayer liable for understated tax would be unfair based on the facts and circumstances.
59
What is **equitable relief** in the context of tax?
It may be granted for an underpaid tax, meaning it was properly reported on a tax return but not paid.
60
What are the criteria for an **injured spouse claim**?
* Have filed a joint return
* Have paid federal income tax or claimed a refundable tax credit
* All or part of the taxpayer’s refund was, or is expected to be, applied to the other spouse’s past financial obligations
* Not be responsible for the debt
61
What is the refund statute expiration date (RSED)?
The last day a taxpayer can **request a refund**, generally three years from the date the return was filed or two years from the date the tax was paid, whichever is later.
62
What is the time limit for requesting equitable relief if the tax was paid?
The taxpayer has until the **expiration of the refund statute** of limitations to request equitable relief.
63
# Fill in the blank:
To claim a refund, a taxpayer must generally file an amended tax return (Form 1040-X) within \_\_\_\_\_\_ years from the date the return was filed.
three
64
What happens if a taxpayer files an amended return **after the refund statute expiration date**?
The taxpayer generally forfeits the right to receive the refund unless an exception applies.
65
What is the statute of limitations for IRS assessment of tax?
The IRS must assess tax within three years after the return is filed or, if filed early, by the due date of the return.
66
What is the collection statute expiration date (CSED) for **unpaid taxes**?
Ten years from the date tax is assessed.
67
# True or False:
The IRS can assess additional tax indefinitely if a taxpayer never files a return.
True
68
What must a taxpayer do to claim **financial disability**?
Complete the appropriate income tax return or amended return and submit a statement of proof of the financial disability.
69
What is required for a **tax return** to be considered **valid**?
It must be signed by the taxpayer, affirming that the information provided is accurate and truthful.
70
What must both the **taxpayer** and the **preparer** do when filing a tax return?
Both must sign the tax return, declaring that all information provided is accurate and complete.
71
What does **Internal Revenue Code Section 7206** make a federal crime?
It makes it a federal crime to knowingly and willingly file a false tax return or to assist someone in doing so.
72
What are the **potential penalties** for knowingly inflating tax deductions or omitting income?
* Fines up to $100,000
* Imprisonment for up to three years
73
What should Roksana file to request her portion of a joint refund applied toward her husband's **unpaid child support**?
She should file as an **injured spouse**.
74
How long should taxpayers **keep supporting documentation** for their tax returns?
At least **three years** from the date the return was filed or due, whichever is later.
75
What is the required action for a nonresident alien who must file a tax return but is **not eligible for a Social Security number**?
They must request an individual taxpayer identification number (ITIN).
76
What is the percentage Cristiano must pay to avoid an underpayment penalty under the **estimated tax safe harbor rules**?
110% of his prior-year tax liability
77
What is the **normal assessment statute** of limitations on a tax return from which more than 25% of a taxpayer’s gross income was omitted?
**Six years** from the date the return was filed.
78
What is the backup withholding rate for Samuel, who has **not updated his SSN** with the IRS?
24%
79
When does the **10-year collection statute of limitations period** for the IRS begin to run?
On the date the **tax is assessed**.
80
# Yes or No:
Is Catalina required to file a tax return if she earned **$14,990 in wages** and is claimed as a **dependent**?
Yes
81
What happens if Alice **does not pay her tax due** by the regular due date despite filing an extension?
She may owe interest on the amount owed and a late payment penalty.
82
What is the required filing status for Leonardo if Milla **refuses to file a joint return**?
Leonardo must file **Married Filing Separately** (MFS).
83
What is the condition under which Isabella is not required to make **estimated tax payments**?
If her withholding is greater than both 90% of her current year tax and 100% of her prior-year tax liability.
