Terminology KEY for SEE Sample Test Questions
|IRC or Code Section||Internal Revenue Code|
|Instructions||IRS Form Instructions|
|Form||IRS Tax Form|
|Pub or Publication||IRS Publication|
|IRB||Internal Revenue Bulletin|
|31 U.S.C.||Title 31 of United States Code|
|C.F.R.||Code of Federal Regulations|
|Treas. Reg. or Regulations||Treasury Regulations|
|DOL||Department of Labor|
|Cir. 230||Treasury Department Circular 230|
|IRM||Internal Revenue Manual|
|T.C. Memo||Tax Court Memo|
|§||Symbol for Code Section|
Numbers and/or letters following the code section symbol are used to guide the user to the appropriate area in the Code for that reference.
1. Two taxpayers married on November 30. That same year, the husband enrolled in an accredited college to further his career and subsequently received a Form 1098-T, Tuition Statement. The wife was employed with an income of $45,000 and paid for the husband's education expenses. Based on their circumstances, what is the correct method to report the education credit?
(A) Taxpayers must file a joint return to claim an education credit
(B) Based on the wife’s AGI, they do not qualify to claim an education credit
(C) Husband is ineligible to claim an education credit because the wife paid his education expenses
(D) Wife should report nonqualified education expenses on Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits)
References: IRC § 25A(g)(6); Instructions for Form 8863; page 2
2. The taxpayer has a child under the age of 24 who is a full-time student in their 2nd year of college. The student will be claimed as a dependent on the taxpayer’s return.
The student’s educational expenses included $8,000 for tuition and $4,000 for room and board.
The student received a $5,000 scholarship for tuition use only, as well as an additional $2,500 scholarship to pay any of the student’s college expenses. The taxpayer paid the remaining $4,500.
Which of the following statements is correct, based on the information above?
(A) The student can claim the American Opportunity credit on their return for tuition expenses of $3,000 and should report the additional $2,500 scholarship as income
(B) The taxpayer can claim the American Opportunity credit on their return for tuition expenses of $3,000, and the student should report the additional $2,500 scholarship as income
(C) The taxpayer can claim the American Opportunity credit on their return for tuition expenses of $3,000, and neither the taxpayer nor the student should report any of the additional $2,500 scholarship as income
(D) The taxpayer can claim the American Opportunity credit on their return for tuition expenses of $3,000 and should report the additional $2,500 scholarship as income
References: IRC § 25A(i); IRC § 117; Publication 970, pp. 5, 7, 16-17
3. Which of the following statements is correct regarding Form 1095A, Health Insurance Marketplace Statement?
(A) Taxpayers do not need Form 1095A to complete Form 8962, Premium Tax Credit, to reconcile advance payments of the premium tax credit or claim the premium tax credit on their tax return
(B) Taxpayers will receive Form 1095A to complete Form 8962, Premium Tax Credit, if they have been covered by an employer insurance plan for the entire year
(C) Taxpayers will use Form 1095A to complete Form 8962, Premium Tax Credit, to reconcile advance payments of the premium tax credit or claim the premium tax credit on their tax return
(D) Taxpayers will attach a Form 1095A to their tax return to reconcile advance payments of the premium tax credit or claim the premium tax credit on their return
References: Form 8962 Instructions, p. 2
4. For years beginning before January 1, 2019, to avoid the individual shared responsibility payment for not having insurance, taxpayers must be enrolled in qualifying health coverage, also called minimum essential coverage, or qualify for a coverage exemption. All of the following are examples of minimum essential coverage EXCEPT:
(A) Certain insurance coverage that may provide limited benefits. That includes, but is not limited to, the following types of plans: stand-alone dental and vision, accident or disability income or workers’ compensation
(B) Employer-sponsored coverage. That includes, but is not limited to, the following types of plans: a self-insured group health plan for employees, retiree and COBRA coverage
(C) Individual market health coverage. That includes, but is not limited to, the following types of plans: health insurance purchased directly from an insurance company, or Health Insurance Marketplace
(D) Coverage under government-sponsored programs. That includes, but is not limited to, the following types of plans: Medicare Part A coverage, Medicare Advantage Plans and most Medicaid coverage
References: Publication 974, p. 8
5. Which of the following situations will disqualify a single individual from claiming the premium tax credit?
(A) Marriage to an individual enrolled in a qualified health plan
(B) Increase in household income to 390% of the federal poverty line
(C) Inheritance of $1,100,000 non-income producing vacation home
(D) Becoming eligible as a dependent on their parent's joint tax return
References: IRC § 36B(c)(1)(D); Publication Title: 17, Chapter 36, Premium Tax Credit, Pgs. 235-236; Pub 974; Instructions for Form 8962, p. 5
6. All of the following income types are reported on Form 1099-MISC EXCEPT:
(A) Non-employee compensation over $600
(B) Payments made to a physician or supplier or provider of medical or healthcare services of $600 or more made in the course of your trade of business
(C) Canceled debt of $600 of more
(D) Crop insurance proceeds of $600 or more
References: 2018 Instructions for Form 1099-MISC, pp. 6-9; Treas. Reg. 1.6041-1
7. What is the total amount a sole proprietor is obligated to report on Forms 1099-MISC based on the following expenses claimed on schedule C?
Attorneys’ fees to incorporated law firm: $600
Sign printer: $800 ($600 labor and $200 materials)
Web page designer: $500
Incorporated janitorial company: $800
Consultant A: $1,000 ($400 paid in cash and $600 paid by check)
Consultant B: $500 paid in cash
Consultant C: $400 paid by check
References: 2019 Instructions for Form 1099-MISC, page 1 states that attorneys’ fees of $600 or more are reportable in 1099-MISC and that services by nonemployee includes parts and materials. Pub 15-A, pp. 8-10 covers whether someone is an employee or a nonemployee independent contractor. (Key is computed as $600 to law firm+$800 to sign painter+$1,000 to Consultant A= $2,400)
8. The standard deduction is increased for individuals who are age 65 and older and/or:
(A) Receiving unemployment compensation
(B) Retired from the military
(C) A beneficiary of a trust
References: IRC 63(f)
9. A 62-year-old, married taxpayer files Married Filing Separately, and lives apart from the spouse for an entire taxable year. What is the taxpayer’s base amount for computing taxable Social Security benefits?
References: § 86(c)(1); IRS, Publication 915; page 3; Publication 17, Pg.82
10. To find out if a taxpayer's Social Security benefits may be taxable, all of the following are taken into account EXCEPT:
(A) Interest that is tax-exempt
(B) The exclusion for foreign earned income
(C) Notary fees received
(D) Unemployment benefits
References: § 86(b)(2); IRS, Publication 915; page 3; Publication 17, Pg.82
11. If you have a dependent that you cannot claim for the child tax credit, the dependent may still qualify you for which $500 credit?
(A) The Alternative Minimum Tax Credit
(B) The State and Local Income Tax Credit
(C) The Credit for Other Dependents
(D) The Credit for Foreign Dependents
References: Publication 17, Chapter 33, Child Tax Credit/Credit for Other Dependents, pgs. 214-215
12. The Affordable Care Act, for years beginning before January 1, 2019, requires individuals to have qualifying health coverage, qualify for a coverage exemption, or make an individual shared responsibility payment when they file their tax return. All of the following are exempt from the individual shared responsibility payment EXCEPT:
(A) A US citizen physically present in a foreign country for at least 330 full days during a period of 12 consecutive months
(B) A US citizen who owns a home valued at $1,500,000 but has gross income below the return filing threshold
(C) A US citizen who is currently incarcerated
(D) A US citizen, single parent, filing Head of Household with two children and gross income of $125,000
References: IRC § 5000A(d); Instructions for Form 8965
13. In order to deduct a personal casualty and theft loss, the loss must be:
(A) Related to a federally-declared disaster area
(B) Reduced by the amount of your standard deduction
(C) Less than 10% of your adjusted gross income
(D) Deducted over a three-year consecutive period
References: Publication 17, pg. 184-189
14. The Net Investment Income Tax may apply to which of the following?
(B) Taxable mutual fund distribution
(C) Tax exempt municipal bond interest
(D) Traditional IRA distribution
References: IRC § 1411(c)(1) and (5); Instructions for Form 8960 Net Investment Income Tax--Individuals, Estates, and Trusts, pages 1, 5 and 6
15. A couple filed their 2008 return as Married Filing Jointly and claimed $7,500 for the first-time homebuyer credit. The couple used this home as a primary residence. In the current year, they converted the home into rental property. What, if any, is the tax obligation of the taxpayers regarding the first-time homebuyer credit?
(A) They must pay the unpaid balance of the credit
(B) They must pro-rate the credit received over 15 years and repay 50% of the original credit
(C) They must reduce their depreciable basis in the property by 50% of the unpaid balance of the credit
(D) Since they used this home as a primary residence for 5 years, there is no requirement to repay
References: IRC § 36(f)(2), Form 5405 Instructions, p. 3
16. Upon reviewing a new client's prior year tax return, the preparer sees taxes paid for the first-time homebuyer credit. The preparer should ask the taxpayer all of the following EXCEPT:
(A) What was the total amount of the original credit received?
(B) How much of the original credit was repaid on prior years returns?
(C) Was the entire credit used towards the purchase of their main home?
(D) Are the taxpayers still using the home that generated the credit as their main home?
References: IRC § 36, 2016 Instructions for Form 5405: To properly complete Form 5405, all questions should be asked except for the use of the proceeds of the credit. There was no stipulation as to how the credit would be used when the first-time homebuyer received it.
17. Tax preparation fees are generally deductible as:
(A) A miscellaneous itemized deduction subject to the 2% limit
(B) An investment expense on Schedule A
(C) A tax credit on Schedule 1
(D) They are not deductible
References: IRS Pub 17, Pg. 193
18. Which of the following is true regarding the Report of Foreign Bank and Financial Accounts (FBAR) requirements
(A) The FinCEN Form 114 (FBAR) must be filed by anyone with a financial interest in or signature authority over a foreign bank account
(B) The due date for the FBAR filing is generally July 15 of the current tax year for individuals
(C) The FinCEN Form 114 (FBAR) is filed with the current tax year individual income tax return
(D) The FinCEN Form 114 (FBAR) is filed online with the Financial Crimes Enforcement Network
References: 31 C.F.R. §§ 1010.350(b); 1010.306(c); Publication 54, pg. 8 (2017).
19. The interest on qualified U.S. savings bonds may not be taxable if you pay:
(A) A reduced rent that is government subsidized
(B) Qualified higher educational expenses in the same year
(C) Household employee wages in excess of $1,000
(D) Mortgage interest for a rental property
References: Pub 17 pg. 58
20. The requirement to file the FinCEN Form 114 applies to U.S. Persons with a financial interest in or signature authority over any foreign financial account(s), if the aggregate value of these accounts, at any time during the calendar year, exceeds:
References: IRS, Bank Secrecy Act, (31 U.S.C. § 5314); 31 C.F.R. §§ 1010.350(a); 1010.306(c); Publication 4261, pg. 1 (2016).