A taxpayer is likely to have a refundable minimum tax credit if she has: a. Incorrect. While having a large number of dependents can create or trigger AMT, it does not impact the refundable minimum tax credit. b. Correct. A taxpayer who had a large AMT liability in the past from the exercise of ISOs may qualify for a refundable minimum tax credit. c. Incorrect. […]

For violating e-file procedures, which level of infraction usually results in only a reprimand? a. Correct. Level One infractions, which do not have an adverse impact on the quality of an e-filed return, typically result in only a written reprimand. b. Incorrect. Level Two infractions typically result in suspension from the e-file program for one year. c. Incorrect. Level Three infractions usually result in suspension […]

Which of the following persons is not a child who may be subject to the kiddie tax? a. Incorrect. A child who is 15 years old with investment income is subject to the kiddie tax. b. Incorrect. The kiddie tax applies to a child who is 17 years old; the exception for children who have earned income that is more than half of his or […]

A tax return preparer who is unenrolled may be authorized by Form 2848 to: a. Incorrect. A tax return preparer who is unenrolled cannot execute waivers on behalf of a taxpayer. b. Incorrect. A tax return preparer who is unenrolled is not permitted to extend the statutory period for tax assessments. c. Correct. A tax return preparer who is unenrolled can represent the taxpayer before […]

Which itemized deductions of a child can reduce the amount of investment income subject to the kiddie tax? a. Incorrect. While a child subject to the kiddie tax can claim charitable contributions, they do not offset investment income subject to the kiddie tax. b. Incorrect. While unreimbursed employee business expenses are part of miscellaneous itemized deductions, they do not offset investment income subject to the […]

A penalty of $5,000 or 50% of the income derived by the tax return preparer with respect to the return or claim applies to which action? a. Incorrect. The penalty for an understatement of tax liability due to an unreasonable position that has not been disclosed on the return is $1,000 or 50% of the income derived. b. Correct. The penalty for an understatement of […]

The parents of a child subject to the kiddie tax are divorced. The father is unmarried. The mother is remarried. The child lives with the mother, who is the custodial parent, and her new spouse. Which parent can make an election on Form 8814? a. Incorrect. The father cannot make the election because he is not the custodial parent. b. Correct. The mother who files […]

Because the preparation of a tax return is covered by privilege, you need not turn over records to the IRS related to return preparation to the IRS. True or false? True. Incorrect. The preparation of a tax return is not covered by privilege. False. Correct. As a tax return preparer you do not create privilege by completing a tax return. Privilege may be created in […]

Making the election to report a child”s interest and dividends on the parent”s return (using Form 8814) can be favorable to the parent with respect to: a. Incorrect. The election increases the parent”s AGI, which can limit the deduction for student loan interest. b. Correct. The election increases the parent”s AGI, which can mean taxpayers who make large charitable contributions that were limited by the […]

Prior to the distribution of cash to the partners, the accounts in the VUP Company are: Cash $24,000; Vogel, Capital (Cr.) $17,000; Utech, Capital (Cr.) $15,000; and Pena, Capital (Dr.) $8,000. The income ratios are 5:3:2, respectively. Instructions (a)Prepare the entry to record (1) Pena”s payment of $8,000 in cash to the partnership and (2) the distribution of cash to the partners with credit balances. […]