Question

2. Federal law requires paid tax return preparers to electronically file Federal income tax returns if they file how many combined 1040, 1040A, 1040EZ and 1041 returns during the year? A. 5 or more B. 7 or more C. 9 or more D. 11 or more 3. All of the following are true regarding the Preparer Tax Identification Number (PTIN) except: A. New regulations require all paid tax return preparers and enrolled agents to obtain a Preparer Tax Identification Number (PTIN) before preparing any Federal tax returns B. A tax preparer must renew his or her PTIN every year during the renewal season C. Failure to have a current PTIN could result in the imposition of Internal Revenue Code section 6695 penalties, injunction, and/or disciplinary action by the IRS Office of Professional Responsibility D. The PTIN is not required for CPAs if they prepare for compensation all or substantially all of a Federal tax return or claim for refund 4. As a tax preparer you work with a client named Mary on her 2017 tax return and there are no issues. However, during that process you realize Mary was due a refund in 2016 but did not file a return. Which of the following statements applies to Mary with respect to her 2016 refund? A. Mary cannot apply for a refund for the year 2016 as it is too late B. Mary has up to three years from the date the tax return was due to file a 2016 return to obtain her refund C. Mary has up to four years from the date the tax return was due to file a 2016 return to obtain her refund D. Mary has up to five years from the date the tax return was due to file a 2016 return to obtain her refund 5. In working with a client named Fred, you realize that he did not report income that he should have on a return. Fred reported $10,000 of income on the return but should have reported $13,500. What is Fred’s obligation going forward regarding this incident? A. Fred must maintain records for 5 years from the year the return was filed B. Fred must maintain records for 6 years from the year the return was filed C. Fred must maintain records for 8 years from the year the return was filed D. Fred must maintain records for 10 years from the year the return was filed 6. Under the cash method, a taxpayer includes in his or her gross income all items of income actually or constructively received during the tax year. If he or she receives property and services, the taxpayer must include what amount in income? A. Fair market value (FMV) B. Purchase price C. Cost D. Adjusted basis

Answer 1

2. D. 11 or more.

As per IRS, Section 6011(e)(3) of the Internal Revenue Code requires specified tax return preparers to electronically file certain federal income tax returns that they prepare and file for individuals, trusts, or estates after December 31, 2010. A specified tax return preparer is a preparer of covered returns (see below) who reasonably expects to file 11 or more covered returns in a calendar year. The requirement applies to any return of income tax imposed by subtitle A of the Internal Revenue Code on individuals, trusts, or estates, such as Forms 1040, 1040A, 1040EZ, and 1041. (Write up taken from IRS website)

3. D.The PTIN is not required for CPAs if they prepare for compensation all or substantially all of a Federal tax return or claim for refund.

As per IRS, A PTIN must be obtained by all enrolled agents, as well as all tax return preparers who are compensated for preparing, or assisting in the preparation of, all or substantially all of any U.S. federal tax return, claim for refund, or other tax form submitted to the IRS

4. B. Mary has up to three years from the date the tax return was due to file a 2016 return to obtain her refund.

As per IRS, Sec. 6511(a) and Regs. Sec. 301.6511(a)-1(a) provide three years from the date of filing the tax return to claim a credit or refund, or two years from the date the tax was paid, whichever is later.

5. B. Fred must maintain records for 6 years from the year the return was filed.

As per IRS, The length of time you should keep a document depends on the action, expense, or event which the document records. Generally, you must keep your records that support an item of income, deduction or credit shown on your tax return until the period of limitations for that tax return runs out.

However, Keep records for 6 years if you do not report income that you should report, and it is more than 25% of the gross income shown on your return.

Since, here Fred has not shown 35% of his income (13500-10000)/10000 * 100, he has to keep the records for 6 years.

6. A. Fair market value (FMV)

As per IRS, all items of income that are actually or constructively received during the tax year are included in the taxpayer’s gross income. If the taxpayer receives property and services, s/he must include the fair market value (FMV) in income. According to the Internal Revenue Service (IRS), income is constructively received when an amount is credited to the taxpayer’s account or made available to him or her without restriction, regardless of whether s/he has possession of the funds.