Paul, James, Ryan, and Amy pay 80% of the support for their mother. Paul pays 40%, James and Ryan pay 15% each, and Amy pays 10%. Who is eligible to claim their mother as a dependent?.
Test – CA Midterm 2 (ITC 2019)
Section 1
Question 1 of 60.
Paul, James, Ryan, and Amy pay 80% of the support for their mother. Paul pays 40%, James and Ryan pay 15% each, and Amy pays 10%. Who is eligible to claim their mother as a dependent?
Since no one person pays over 50% of the support, none of the children may claim her as a dependent.
Since together they pay more than 50% of their mother’s support, any one of them may claim their mother under a multiple support agreement.
Since together they pay more than 50% of their mother’s support, Paul, James, or Ryan may claim their mother under a multiple support agreement.
Since together they pay more than 50% of their mother’s support, they may share the dependency exemption based on the percentage each one pays.
Mark for follow up
Question 2 of 60.
Employer-provided dependent care assistance:
May be used for the child and dependent care credit.
Is subtracted from the total expenses for child or dependent care on Form 2441.
Is included in wages on Form W-2.
Is not reported to the IRS.
Mark for follow up
Question 3 of 60.
Which of these statements is TRUE concerning a partially taxable distribution of pension income?
Taxpayers are required to use the simplified method for any pensions with a starting date after July 1, 1986.
If box 2a of the Form 1099-R is blank, the pension is not taxable.
For a distribution for a pension with a starting date after November 18, 1996, the simplified method should be used when box 2a of Form 1099-R is blank and “taxable amount not determined” is checked.
For the simplified method, the age of the taxpayer is the age they turned during the year the pension began.
Mark for follow up
Question 4 of 60.
What is the most an employee would pay in social security tax in 2018?
$2,175.00
$4,350.00
$7,960.80
$15,921.60
Mark for follow up
Question 5 of 60.
When a tax preparer has knowledge that a client has not complied with any tax law, they must:
Advise the client that the IRS may contact them about their tax return.
Notify their manager of the noncompliance and let them handle it.
Advise the client promptly of the fact and the consequences of the noncompliance, error, or omission.
Notify the IRS of the noncompliance.
Mark for follow up
Question 6 of 60.
When dependent care benefits are withheld from taxpayers’ income, where does the employer report them?
Form 2441.
Form 1040.
Box 10 of Form W-2.
The employer is not required to report them.
Mark for follow up
Question 7 of 60.
Health insurance purchased through the Marketplace would be reported to the taxpayer on which form(s)?
Form 1095-A.
Form 1095-B.
Form 1095-C.
Forms 1095-B and 1095-C.
Mark for follow up
Question 8 of 60.
An employer who has a SIMPLE IRA retirement plan for employees:
Is required to make a nonelective contribution paid to all employees.
Must make matching contributions to employees‘ contributions.
Must give employees a contribution adjustment.
Receives a deduction on their business return for the contribution they made to their employee’s accounts.
Mark for follow up
Question 9 of 60.
During the year, Fred and Dolores received $10,000 in wages; $5,000 in social security benefits; a $500 gift from their daughter; and $325 interest from a U.S. Treasury Savings Bond. If they file MFJ, what will their federal AGI be for the year?
$10,000
$10,325
$15,325
$15,825
Mark for follow up
Question 10 of 60.
Carol’s divorce was final on July 3, 2018. Carol’s 24-year-old daughter (a full-time student and nondependent) lives with her. What is Carol’s correct filing status?
Single.
Married filing jointly.
Married filing separately.
Head of household.
Mark for follow up
Question 11 of 60.
Which of the following is a valid tie-breaker rule?
If neither claimant is a parent, the taxpayer who lived with the qualifying child longer will be allowed to claim the tax benefits.
The parent who provided more support for the qualifying child, regardless of residency and AGI, will be allowed to claim the tax benefits.
The parent with the higher AGI, regardless of residency, will be allowed to claim the tax benefits.
The parent who lived with the qualifying child longer, regardless of AGI, will be allowed to claim the tax benefits.
Mark for follow up
Question 12 of 60.
In order to qualify for the federal Child Tax Credit, a qualifying child must be under the age of:
13
17
18
21
Mark for follow up
Question 13 of 60.
A tax preparer is required to complete Form 8867, Paid Preparer’s Due Diligence Checklist, to ensure they:
Compute the amounts of all credits correctly.
Reviewed the taxpayer’s records completely.
Considered all the due diligence requirements for each credit claimed on the return.
All of the above.
Mark for follow up
Question 14 of 60.
Which of these would be an exception to the early retirement distribution penalty?
A 45-year-old taxpayer lost his job and cashed in his 401(k).
A 401(k) distribution was part of a property settlement in a divorce.
An unemployed taxpayer withdrew money from her 401(k) to pay health insurance premiums.
A 401(k) distribution used to pay higher education costs.
Mark for follow up
Question 15 of 60.
Which of these is incorrect regarding a Roth IRA conversion?
The taxpayer can receive a distribution from their traditional IRA and personally contribute the money into their Roth IRA within 60 days of the distribution.
The taxpayer is not required to pay income tax on the transferred amounts in the year of conversion. Income tax will be paid when the taxpayer receives distributions from the converted funds.
The taxpayer can request the traditional IRA trustee to transfer the funds directly into their Roth IRA.
The taxpayer can reclassify their traditional IRA account as a Roth IRA, if the account is maintained by the same trustee.
Mark for follow up
Question 16 of 60.
Which of the following items is NOT considered when determining the cost of maintenance of a home for the head of household filing status?
Utilities.
Insurance on the home.
Food consumed in the home.
Mortgage principal payment.
Mark for follow up
Question 17 of 60.
Which statement is incorrect concerning alimony?
Alimony payments executed under orders after December 31, 2018, will no longer be taxable income for the recipient or deductible by the payer.
Taxpayers who make taxable alimony payments may be eligible to deduct these payments as an adjustment to income.
Alimony payments may not include child support.
To claim an adjustment for alimony paid, all that is necessary is the recipient’s name and the amount of alimony paid.
Mark for follow up
Question 18 of 60.
Jasmine, age 48, contributed $5,000 to her traditional IRA. She is an active participant in a retirement plan at work. Her IRA MAGI is $75,000. What is her IRA adjustment to income?
$0
$5,000
$5,500
$6,500
Mark for follow up
Question 19 of 60.
Noncompliance for a tax preparer includes:
Refusing to provide records and information lawfully requested by the IRS.
Reporting inaccurate income.
Claiming deductions or credits for which the taxpayer does not qualify.
All of the above are considered noncompliance issues.
Mark for follow up
Question 20 of 60.
For a taxpayer to claim a dependent, that person must be:
A U.S. citizen.
A resident of Mexico.
A resident of the United States.
Any of the above.
Mark for follow up
Question 21 of 60.
Jerry (52) and Diana (50) are married and lived with their qualifying relative, Rachel (25), for all of 2018. In October 2018, Rachel married Mike (27), and both lived with Jerry and Diana for the rest of the year. Rachel earned $2,400, and Mike earned $24,500 in 2018. Which of these is correct?
Jerry and Diana may claim Rachel, even if she chooses to file a joint return with Mike.
Jerry and Diana may claim Rachel if Mike chooses to file married filing separately.
Jerry and Diana may not claim Rachel because she is now Mike’s dependent.
Jerry and Diana may claim Rachel for the nine months she was single, but not for the time after she was married.
Mark for follow up
Question 22 of 60.
Jamie is a degree candidate at her local state college. She received a scholarship for $4,000 which covered half of her tuition costs. How much, if any, of the scholarship is taxable income?
$0
$1,000
$2,000
$4,000
Mark for follow up
Question 23 of 60.
Sheila is the daughter of your neighbor, Mary. She and her 6 year-old son moved in with Mary in August. Mary would like you to prepare a return claiming the grandson as her qualifying child. What do you do?
File the return since you know that Mary has done them a favor by allowing them to move in.
Explain the residency requirement and file the return showing the grandson lived with Mary for more than half the year.
File the return, but only after Mary assures you that Sheila will not be claiming her son.
Explain to Mary that she is not eligible to claim her grandson, and that you cannot knowingly file an incorrect tax return.
Mark for follow up
Question 24 of 60.
What is the age requirement (if any) to contribute to a Roth IRA?
The taxpayer must be at least age 18 and less than age 70?.
The taxpayer must be at least age 18, but there is no maximum age.
The taxpayer must be at least 19 if not a full-time student, or age 24 if they are a full-time student, but there is no maximum age.
There is no age requirement if the taxpayer meets the compensation requirements.
Mark for follow up
Question 25 of 60.
Assuming they meet all other requirements, which of these taxpayer’s could claim the American Opportunity Tax Credit?
Mary is claimed by her parents, but would like to claim her own education credit.
John would like to claim the AOTC for his son, who is attending a private secondary school.
Julie is a full-time student working toward her MA and would like to claim the AOTC.
Jerry would like to claim the AOTC for his son who is a sophomore at a state university.
Mark for follow up
Question 26 of 60.
What happens if an education credit is received and later the school refunds part of the fees?
There is no tax consequence.
Part of the credit may have to be recaptured (paid back).
The credit will be reduced in future years.
Any additional education credits will be disallowed.
Mark for follow up
Question 27 of 60.
Which of these is true regarding a U.S. national?
A U.S. national is the same as a resident of the United States.
A U.S. national is a resident who owes their allegiance to American Samoa.
A U.S. national is a U.S. citizen residing in Mexico or Canada.
A U.S. national meets the citizenship or residence test for a dependent.
Mark for follow up
Question 28 of 60.
Which of these is correct regarding a spousal IRA?
A spouse may be eligible to contribute to an IRA even if they have no income of their own.
A spousal IRA is allowed for any filing status.
The limitation on the amount that can be contributed to a spousal IRA is always the same as that of the working spouse.
The taxpayer’s income is not taken into consideration when establishing a spousal IRA.
Mark for follow up
Question 29 of 60.
Lisa is a full-time undergraduate student who wants to claim AOTC. She brings in her school billing statement, as well as receipts for books she purchased for her college courses. Lisa informs her Tax Professional that she did not receive a Form 1098-T. The tax preparer should do which of the following to meet the due diligence record keeping requirement?
A. Require Lisa to obtain a Form 1098-T before she can claim AOTC. Then make a photocopy of the Form 1098-T to include in the H&R Block client file.
B. Determine if Lisa’s college is an eligible educational institution and document the conversation about verifying Lisa’s college attendance during the year.
C. Take a photocopy of Lisa’s billing statement and book receipts to keep in the H&R Block client file, as well as document the questions asked and answers provided to determine Lisa’s AOTC eligibility.
D. Both B and C are correct.
Mark for follow up
Question 30 of 60.
Which of these are ordinary dividends?
Dividends paid on a credit union savings account and reported on a Form 1099-INT.
Exempt-interest dividends paid by a mutual fund.
Capital gain distributions reported in box 3a of a Form 1099-DIV.
Dividends from stock reported in box 1a of a Form 1099-DIV.
Mark for follow up
Question 31 of 60.
Lloyd, a 50-year-old single taxpayer, earned $40,000 in wages. He is covered by an employer-sponsored retirement plan. What is his maximum allowable contribution to a traditional IRA for 2018?
$0
$5,500
$6,500
$18,000
Mark for follow up
Question 32 of 60.
The lifetime learning credit has a maximum credit of:
$2,000 per return.
$2,500 per return.
$4,000 per return.
$10,000 per return.
Mark for follow up
Question 33 of 60.
Harry (65) retired this year and began taking distributions from his 401(k). Contributions to his 401(k) were made over the course of his career through a combination of before-tax contributions, after-tax contributions, and employer matching. How should Harry determine the taxable amount of his distribution?
All of Harry’s distributions will be taxable because a 401(k) is a qualified plan.
Harry should use the Simplified Method to determine how much of his distribution is attributable to return of cost basis.
Harry should use the General Rule to determine how much of his distribution is attributable to cost basis.
Distributions from a 401(k) plan are always tax free.
Mark for follow up
Question 34 of 60.
Jeff comes to you to file his tax return. He tells you that he has received all his compensation in cash for several years, but this year he received a Form W-2 so he will be filing his taxes. What do you do?
File his current year return with a note to the IRS explaining that you believe he has not filed previous years because he received his wages in cash.
Refuse to file the current year return until you have filed all his previous returns.
File the current year return, but explain to Jeff the law regarding filing requirements and encourage him to file previous returns.
Refuse to file the current year return explaining that you don’t want to be put in jeopardy because of his failure to file in the past.
Mark for follow up
Question 35 of 60.
Which of these is not required to receive a waiver of the penalty for not taking a required minimum distribution from a retirement account.
File Form 5329.
Prove it was due to a reasonable error.
Withdraw double the required minimum distribution (RMD) the following year.
Establish they are taking steps to remedy the failure.
Mark for follow up
Question 36 of 60.
Jennifer Searcy, a single mother, has three children, Sydney (7), Patrick (11), and Joanna (17). Jennifer’s AGI is $62,000, and her tax liability is $4,816. How much is Jennifer’s Child Tax Credit and Other Dependent Credit?
$3,000
$4,500
$6,000
Jennifer is not eligible for the Child Tax Credit
Mark for follow up
Question 37 of 60.
Which of these certificates qualifies for the mortgage interest credit?
Federal Housing Administration Certificate.
Farmers Home Administration Certificate.
Homestead Staff Exemption Certificate.
Mortgage Credit Certificate.
Mark for follow up
Question 38 of 60.
Tax preparer’s should always document every question and answer:
Only for returns with EITC.
Any time they think the IRS might question something on the return.
On every tax return.
Only when they believe a taxpayer has lied to them.
Mark for follow up
Question 39 of 60.
Section 7525 privileged communication applies to:
State tax law.
Corporate tax matters.
Tax advice.
Criminal tax matters.
Mark for follow up
Question 40 of 60.
John and Sarah have three children (ages 5, 6, and 14). John earned $36,000 in 2018. Sarah worked part-time and earned $5,000. They had no other income. They paid a total of $4,600 in qualifying childcare expenses for their two youngest children ($2,300 for each child). The 14-year-old is John’s son from a prior marriage. He lives with John’s first wife, but John will be claiming the exemption this year. What is the correct amount of the federal Child and Dependent Care Credit?
$495
$945
$990
$1,012
Mark for follow up
Question 41 of 60.
Joe (55) and Gail (49) are filing jointly for 2018. Joe earned $40,000, and Gail earned $2,500. Joe may contribute up to $6,500 to his IRA for 2018. If Joe contributes $4,500 to his IRA, how much may they contribute to Gail’s IRA for 2018?
$2,000
$2,500
$5,500
$6,500
Mark for follow up
Question 42 of 60.
Which of these is TRUE regarding the adoption credit?
The adoption credit is a refundable credit.
The maximum credit is $13,810 per return.
The maximum credit is $13,810 per child.
Employer assistance payments qualify for the credit.
Mark for follow up
Question 43 of 60.
Which of these is incorrect in regards to child support payments?
Child support is not taxable income.
Child support is not included as an alimony payment adjustment.
Child support payments are not included when calculating the Earned Income Credit.
Alimony payments can never be treated as child support payments.
Mark for follow up
Question 44 of 60.
Which of these is a risk for a taxpayer when they are not compliant with the tax laws?
The IRS will interview both them and their employer.
Includes an examination to check their compliance with all four EITC due diligence requirements.
Their returns will automatically be audited for the next 2-10 years.
Civil penalties with the possibility of incarceration for criminal penalties.
Mark for follow up
Question 45 of 60.
Which of the following is not subject to federal tax?
Interest on U.S. Treasury bills, notes, and bonds.
Interest on a federal income tax refund.
Interest on New York state bonds.
Dividends paid by a credit union.
Mark for follow up
Question 46 of 60.
Education assistance from an employer:
Qualifies for the American Opportunity Tax Credit, but not the lifetime learning credit.
Can only be used for the lifetime learning credit.
Can be used for any education credit.
Is tax free and cannot be used for any credit or deduction.
Mark for follow up
Question 47 of 60.
Documents used to substantiate eligibility to claim either EITC, AOTC, and/or CTC/ACTC must be:
Photocopied and retained in the H&R Block client file (attached to Form 8879).
Shredded when the taxpayer receives their refund.
Submitted with the tax return. This means paper documents attached to the paper filed return or digital copies submitted with the e-filed return.
Verified for accuracy and authenticity prior to filing the return.
Mark for follow up
Question 48 of 60.
When may a noncustodial parent claim a child on their tax return?
When the noncustodial parent has the higher AGI.
Every other year.
When the custodial parent releases the exemption on Form 8332.
When they pay over 50% of the support for the child.
Mark for follow up
Question 49 of 60.
Josh, one of your clients, gives you information that seems inconsistent. What do you do?
File the return only after you have asked Josh questions to clarify what he has said and you believe you now have a full understanding.
Refuse to file the return and refer them to someone else in your office.
Refuse to file the return until you have time to investigate what Josh has told you.
File his return because you don’t want to lose a client.
Mark for follow up
Question 50 of 60.
John and Lois are filing a joint return. Their 26-year-old daughter, June, and her daughter, Jessica, live with them the entire year. John and Lois explain that Jessica plans to claim June, but they think they should be the ones to claim her since she lives in their home. They would like you to prepare the tax return. What do you do?
Prepare and file the tax return. Explain to John and Lois that once their return is accepted, the IRS will reject their daughter’s return if she claims Jessica.
Go through the tie-breaker rules with John and Lois. Explain to them that that June has the higher claim. Explain that the only way you can file the return with them claiming Jessica is if June decides that she will not claim her.
File the return with a preparer’s note that you don’t believe they should be claiming Jessica.
Encourage them to go to a different preparer and not them know that Jessica’s mother plans to claim her.
Mark for follow up
Question 51 of 60.
William and Jackie Colby are filing a joint federal return. They have the following investment income: Wells Fargo Bank CD, $720 Series HH bond interest, $521 Port of San Francisco, California, bond interest, $375 City of Bend, Oregon, bond interest, $64 Oak Farms dividends, $826 Craft Inc. dividends, $597 Frankfort Mutual Fund dividends, $283 Credit Union dividends, $232 Blake Harrison, private contract interest, $1,263 What is the amount of total taxable dividends reported on Schedule B?
$1,455
$1,655
$1,706
$11,058
Mark for follow up
Question 52 of 60.
There’s is a dependent who is a qualifying child and has not reached their 13th birthday when the care was provided. What determines when the dependent is considered to be 13 years old?
The day of their birthday.
The day before their birthday.
The last day of the year.
The first day of the following year.
Mark for follow up
Question 53 of 60.
Which of these is not among the most common reasons an e-filed tax return is rejected?
Use of an incorrect TIN on a tax return.
The preparer relied on nonstandard tax documents.
Mismatches between name and TIN.
The same TIN on more than one return.
Mark for follow up
Question 54 of 60.
Which of these is an exception to the penalty for early distribution of retirement funds?
The distribution was made from an IRA to pay qualified higher education expenses for the taxpayer’s grandchild.
The distribution (up to $10,000 lifetime limit) was made from a 401(k) to pay qualified first-time homebuyer expenses.
The distribution was made from a qualified plan in a year (and to the extent that) an unemployed taxpayer paid health insurance premiums.
The distribution was made from an IRA to a taxpayer who separated from service during or after the year in which they reached age 55.
Mark for follow up
Question 55 of 60.
How can you determine if a taxpayer’s medical insurance premiums were paid by their employer?
They will receive a Form 1095-A from the employer.
They will receive a Form 1099-C from the employer.
There will be an entry coded “DD” in box 12 of the taxpayer’s Form W-2.
The taxpayer will need to inform you if this is the case.
Mark for follow up
Question 56 of 60.
Brian, a 48-year-old single taxpayer, earned $98,000 in wages. He is not covered by an employer-sponsored retirement plan. What is his maximum allowable contribution to a traditional IRA for 2018?
$0
$5,500
$6,500
$18,000
Mark for follow up
Question 57 of 60.
For 2018, the maximum rate of tax on capital gain distributions is:
0%
15%
20%
37%
Mark for follow up
Question 58 of 60.
Which of these is not reported on Form 1099-DIV?
Nondividend distributions.
Capital gain distributions.
Credit union dividends.
Qualified dividends.
Mark for follow up
Question 59 of 60.
All of the following are due diligence requirements a tax preparer must meet for EITC, AOTC, and CTC/ACTC, EXCEPT:
Investigate and verify the accuracy of information the taxpayer provides to show eligibility for EITC, AOTC, or CTC/ACTC.
Complete all worksheets used to compute the credit. If the worksheet is completed by hand, keep a copy in the taxpayer’s client file.
Maintain a copy of documents provided by the taxpayer that the tax preparer relied on when determining credit eligibility. Then record the date the information was obtained and the name of who provided the information.
When information provided by the taxpayer appears to be incorrect, inconsistent, or incomplete, the tax preparer must make additional inquiries to determine if the taxpayer is eligible for the credit. Then document both the questions asked and responses provided.
Mark for follow up
Question 60 of 60.
A qualifying widow(er) receives the same standard deduction as which other filing status?
Single.
Married filing jointly.
Married filing separately.
Head of household
Mark for follow up
