Terminology KEY for SEE Sample Test Questions Abbreviation/Term/Symbol Refers to: 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) Key: A 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 Key: B 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 1095-A 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 1095-A 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 1095-A 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 1095-A to their tax return to reconcile advance payments of the premium tax credit or claim the premium tax credit on their return Key: C References: Form 8962 Instructions, p. 2 4. Which of the following statements is correct regarding Form 8995 Qualified Business Income (QBI) Deduction Simplified Computation? (A) C corporations should complete the Form 8995 in order to claim the Qualified Business Income Deduction on their corporate returns (B) Taxpayers will receive the Form 8995 from the IRS, if they are determined to be eligible for the deduction (C) A single individual with QBI whose taxable income before the QBI deduction is less than or equal to $160,700 should generally use the form (D) A partnership is required to attach Form 8995 to their partnership tax return in order to claim the deduction Key: C References: Form 8995 Instructions, p. 1 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 Key: D References: IRC § 36B(c)(1)(D); Pub. 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) Payment of non-employee compensation of $600 or more (B) Payments made to a physician or other 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) Payments of crop insurance proceeds of $600 or more Key: C References: 2019 Instructions for Form 1099-MISC, pp. 2, 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 (A) $1,400 (B) $1,600 (C) $2,000 (D) $2,400 Key: D 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. Page 2 states that payments to a corporation generally do not have to be reported on 1099-MISC. 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 (D) Blind Key: D References: IRC 63(f); IRS, Publication 501, page 22 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? (A) Zero (B) $25,000 (C) $32,000 (D) $9,000 Key: B References: § 86(c)(1); IRS, Publication 915; page 3; Publication 17, Pg.81 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 Key: B References: § 86(b)(2); IRS, Publication 915; page 3; Publication 17, Pg.81 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 Key: C References: Publication 17, Chapter 33, Child Tax Credit/Credit for Other Dependents, pgs. 214-215 12. A child is subject to kiddie tax in the current year if: (A) The child is required to file a tax return and he or she files a joint return for the year (B) The child is under age 18 at the end of the tax year (C) The child has only nontaxable income of more than $2,200 (D) Neither parent of the child is alive at the end of the year Key: B References: Publication 17 pg.201 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 Key: A References: § 165(h)(5); Publication 17, pg. 183-191 14. The Net Investment Income Tax may apply to which of the following? (A) Alimony (B) Taxable mutual fund distribution (C) Tax exempt municipal bond interest (D) Traditional IRA distribution Key: B 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 Key: A References: IRC § 36(f)(2), Form 5405 Instructions, p. 3 16. In order for a medical expense to be deductible as an itemized deduction in the current year, the expense must exceed what percentage of adjusted gross income? (A) 10% (B) 7.5% (C) 2.0% (D) Medical expenses are no longer deductible Key: B References: IRC § 213(f) 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 Key: D 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 Key: D References: 31 C.F.R. §§ 1010.350(b); 1010.306(c); Publication 54, pg. 8 (2019). 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 Key: B 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: (A) $1,000 (B) $5,000 (C) $7,500 (D) $10,000 Key: D 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).