Unit 1: Preliminary Work and Taxpayer Data

ten, assessment

COLLECTION STATUTE EXPIRATION DATE (CSED) The IRS assigns a collection statute expiration date, or "CSED," to every delinquent taxpayer account. The statute of limitations for IRS collection is ___ years from the date tax is assessed. This is also called the Collection Statute Expiration Date (CSED). This ten-year period begins to run on the date of the tax assessment, not on the date of filing. So, for example, if the taxpayer owes when they file their tax return, the IRS will send a bill. The bill date is the ___ date.The IRS can attempt to collect unpaid taxes for up to ten years from the date the taxes are assessed.

two, 4491

CONFIRMING IDENTITIES To prevent filing returns with stolen identities, a tax preparer should ask taxpayers to provide ___ forms of identification (picture IDs are preferable) that include the taxpayer's name and current address. Also, seeing Social Security cards, ITIN letters, and other documents avoids including incorrect TINs for taxpayers, spouses, and dependents on returns. Tax preparers should take care to ensure that they transcribe all TINs correctly. These are guidelines from Publication ___, VITA/TCE Training Guide.

24

BACKUP WITHHOLDING EXAMPLE Example: Randy is a U.S. citizen. He owns several investments through ABC Financial Advisors, Inc. In 2019, the IRS notifies ABC Financial Advisors that Randy's Social Security number is incorrect. ABC Financial Advisors informs Randy by mail that the company needs his correct Social Security number, or it will have to start backup withholding on his investment income. Randy ignores the notice and never bothers to update his SSN. ABC Financial Advisors must begin backup withholding at ___% on Randy's investment income.

1040-ES, April, June, September, January

ESTIMATED TAX DUE DATES The year is divided into four payment periods for estimated taxes, each with a specific payment due date. If the due date falls on a Saturday, Sunday, or legal holiday, the due date is the next business day. A taxpayer must complete Form ___ , Estimated Tax for Individuals, to pay his estimated tax. If a payment is mailed, the date of the U.S. postmark is considered the date of payment. First Payment Due: ___ 15 Second Payment Due: ___ 15 Third Payment Due: ___ 15 Fourth Payment Due: ___ 15 (of the following year)

quarterly estimated tax, 1000, 100, 90

ESTIMATED TAXES The federal income tax is a "pay-as-you-go" tax, meaning a taxpayer must pay taxes as he earns or receives income throughout the year. If a taxpayer earns income that is not subject to withholding, such as self-employment income, rents, and alimony; or if his taxes withheld are insufficient to cover his tax liability, he may be required to make ___ ___ ___ payments. Estimated tax is used to pay income tax as well as self-employment tax and alternative minimum tax. Safe Harbor Rule: Taxpayers can avoid making estimated tax payments by ensuring they have enough tax withheld from their income. A taxpayer must generally make estimated tax payments if: •He expects to owe at least $___ in tax (after subtracting withholding and tax credits) •He expects the total amount of withholding and tax credits to be less than the smaller of: -o ___% of the tax liability on his prior year return -o ___% of the tax liability on his current year return

first, third

ESTIMATED TAXES FOR FARMERS AND FISHERMEN A qualified farmer does not have to pay estimated tax if he files his return and pays all tax owed by the ___ day of the ___ month after the end of his tax year (usually March 1). If the farmer must pay estimated tax, he is required to make only one estimated tax payment (called the "required annual payment") by the fifteenth day after the end of his tax year (for individuals, this is usually January 15). Note: If a qualified farmer (or fisherman) files their return Form 1040 by March 1, and pays all the tax they owe at that time, they do not need to make any estimated tax payments during the year. This rule does not apply to any other type of business activity—it only applies to farmers and fishermen.

17, 21, 21, 14, 12

EXAM QUESTIONS For the current exam cycle, Part 1 of the exam is broken down into the following sections and corresponding percentages of questions: 1. Preliminary Work with Taxpayer Data - ___ questions 2. Income and Assets - ___ questions 3. Deductions and Credits - ___ questions 4. Taxation and Advice - ___ questions 5. Specialized Returns for Individuals - ___ questions

honored, sound, fire, inability, death, lack of funds

EXTENDED STATUTE FOR FILING LATE AND CLAIMING REFUNDS In some cases, a request for a late tax return and claiming a tax refund beyond the deadline will be ___. The IRS will consider any ___ reason for failing to file a tax return, make a deposit, or pay tax when due. Sound reasons, if established, include: •___, casualty, natural disaster or other disturbances •___ to obtain records •___, serious illness, incapacitation or unavoidable absence of the taxpayer or a member of the taxpayer's immediate family Note: A ___ ___ ___, in and of itself, is not considered "reasonable cause" for failure to file or pay taxes on time.

.5, interest, 3, cannot

FAILURE-TO-PAY PENALTY Failure-to-Pay Penalty: If a taxpayer does not pay his taxes by the original due date (determined without regards to any extension), he could be subject to a failure-to-pay penalty of ½ of 1% (___%) of unpaid taxes for each month or part of a month after the due date that the taxes are not paid. Interest on the Amount Due: In addition to filing penalties, the taxpayer will also be charged ___ on the amount due. Generally, interest accrues on any unpaid tax from the due date of the return until the date of payment in full. The interest rate is determined quarterly and is the federal short-term rate plus ___%. Interest compounds daily. Unlike late penalties, interest ___ be reduced or abated for reasonable cause.

F, subject

FARMER ESTIMATED TAXES EXAMPLE Example: Naomi earns 100% of her income from growing organic strawberries. She is a qualified farmer and reports all her business income on Schedule ___. She is not required to pay quarterly estimated taxes. Naomi filed her 2019 tax return on February 20, 2020, and enclosed a check for her entire balance of $4,900. Since she filed before the March 1, 2020 deadline, she will not be ___ to any estimated tax penalties.

april 15, next business day, 60, individuals, businesses, tax records, relief workers

FILING DEADLINE EXCEPTIONS The normal due date for individual tax returns is ___ ___. If April 15 falls on a Saturday, Sunday, or legal holiday, the due date is extended until the ___ ___ ___. Federal Disaster Areas: The Further Consolidated Appropriations Act, passed on December 20, 2019, provides for a mandatory ___-day extension in federally declared disaster areas with respect to disasters declared after the date of enactment. The IRS may also abate interest and any late filing or late payment penalties that apply to taxpayers in these disaster areas. This type of tax relief generally includes: ● ___ and ___ located in a disaster area, ● Those whose ___ ___ are located in a disaster area, and ● ___ ___ who are working in the disaster area.

April 15, next business day, postmark, 4868

FILING DEADLINES The normal due date for individual tax returns is ___ ___. If April 15 falls on a Saturday, Sunday, or legal holiday, the due date is extended until the ___ ___ ___. The IRS will accept a ___ as proof of a timely-filed return. If a taxpayer cannot file his tax return by the due date, he may also request an extension by filing Form ___, Application for Automatic Extension of Time to File, which may be filed electronically. An extension grants an additional six months to file a tax return.

injured spouse, joint, federal, 8379

INJURED SPOUSE CLAIMS An "___ ___" claim and "innocent spouse" relief have similar-sounding names but they are completely different. To be considered an injured spouse, a taxpayer must meet all of the following criteria: Have filed a ___ return Have paid ___ income tax or claimed a refundable tax credit All or part of the taxpayer's refund was, or is expected to be, applied to his or her spouse's past financial obligations, and Not be responsible for the debt A spouse who believes that he is entitled to a portion of the refund on a joint return can file Form ___, Injured Spouse Allocation.

8379

INJURED SPOUSE EXAMPLE Example: Gerard filed a joint return with his wife, Kimberly, who has delinquent student loan debt. Kimberly incurred the student loan debt before she was married. Gerard files Form ___ to request his portion of their tax refund as an injured spouse. The IRS will retain Kimberly's share of the couple's tax refund to offset her debt but will allow Gerard to obtain his portion of the refund.

ineligible, foreign, W-7, certified acceptance agent, taxpayer assistance center

ITIN APPLICATION PROCESS Taxpayers who are ___ for a Social Security number must request an ITIN. Nonresident aliens with a U.S. tax liability generally have ITINs, although not always. For example, an ITIN would be required when a soldier marries a ___ spouse and wishes to file jointly. In order to file a joint return, the couple would need to request an ITIN for the foreign spouse. People who do not have a lawful status in the United States may obtain an ITIN for tax reporting purposes only. There are three ways to apply for an ITIN. Using Form ___ Using an IRS-authorized ___ ___ ___ (CAA) or In-person at a designated IRS ___ ___ ___

extension, three, aliens, outside, military

JUNE 15 DEADLINES June 15 Deadlines (Automatic Two-Month ___) ___ groups of taxpayers are granted an automatic two-month extension to file and pay any tax due: Nonresident ___ who have income that is not subject to U.S. withholding. U.S. citizens or legal U.S. residents who are living ___ the United States or Puerto Rico and their main place of business is outside the U.S. or Puerto Rico Taxpayers on active ___ service duty outside the U.S.

ITIN, 1040-NR

NRA FORM 1040NR EXAMPLE Example: Reynaldo is a worldwide boxing champion and a legal citizen of the Philippines. Reynaldo receives a nonimmigrant visa to fight in a boxing match in the U.S., where he earns $500,000 for the fight. He only remains in the U.S. for six days. After his boxing appearance, he returns to the Philippines. Reynaldo is not eligible for an SSN and must request an ___ to report his U.S. income. Without the ITIN, he would be subject to automatic backup withholding on his U.S. earnings. Reynaldo's tax accountant correctly reports his income and tax on Form ___. Reynaldo does not have to report his worldwide income on his Form 1040-NR, only the income he earned in the United States.

greater, 5, 25, 5, 435

PENALTIES AND INTEREST The IRS can assess a penalty on individual taxpayers who fail to file, fail to pay, or both. The failure-to-file penalty is generally ___ than the failure-to-pay penalty. Failure-to-File Penalty: The penalty for filing late is usually __% of the unpaid taxes for each month or part of a month that a return is late. The penalty is based on the tax that is not paid by the due date, without regard to extensions. The penalty will not exceed ___% of a taxpayer's unpaid taxes. If both the failure-to-file penalty and the failure-to-pay penalty apply in any month, the ___% failure-to-file penalty is reduced by the failure-to-pay penalty. If a taxpayer is owed a tax refund, he will not be assessed a failure-to file penalty. For the tax year 2019, the failure-to-file penalty has increased to $___ or 100% of the unpaid tax (whichever is less) for a taxpayer who files his return more than 60 days late.

reasonable cause, fire, natural disaster

PENALTY ABATEMENT A taxpayer may request penalty abatement due to "___ ___." Acceptable reasons for abatement include: ___, casualty, ___ ___ or other disturbances, inability to obtain records due to a casualty or a disaster, death, serious illness, incapacitation or unavoidable absence of the taxpayer or a member of the taxpayer's immediate family.

keeping copies, three

RECORDKEEPING REQUIREMENTS Whether a paid tax return preparer is involved or not, a taxpayer is responsible for ___ ___ of tax returns and maintaining other records, for as long as they may be needed for the administration of any provision of the Internal Revenue Code. Generally, a taxpayer should keep copies of tax returns and supporting documentation for at least ___ years from the date the returns were filed or the date they were due, whichever is later.

1040x, three, electronically

REFUND CLAIMS AND AMENDED RETURNS To claim a refund, a taxpayer must generally file an amended tax return (Form ___) within ___ years from the date the return was originally due, or two years from the date the tax was paid, whichever is later. If a claim is not filed within the applicable period, a taxpayer generally will not be entitled to a refund. However, if the taxpayer files an extension and files his original return prior to the October 15 extension deadline, the three-year period begins on the date that the taxpayer originally filed his return. Amended returns (Form 1040X) cannot be filed ___. They must be filed on paper. If a taxpayer is entitled to a refund, he cannot request a direct deposit on Form 1040X.

joint return, innocent, separation, equitable

RELIEF FROM JOINT TAX LIABILITY In certain cases, a spouse can be relieved of the tax, interest, and penalties on a ___ ___. When spouses file a joint return, they are both legally responsible for the entire tax liability. However, a taxpayer can file a claim for spousal relief under three different grounds: ___ Spouse Relief ___ of Liability Relief ___ Relief

150000, 75000, 90, 110

SAFE HARBOR RULE FOR HIGHER-INCOME TAXPAYERS If the taxpayer's adjusted gross income was more than $___ ($___ if MFS), the taxpayer must pay the smaller of ___% of their expected tax for the current year or ___% (instead of the normal 100%) of the tax shown on their prior year return to avoid an estimated tax penalty.

dependent, DIED

SPECIAL RULE FOR A DECEASED CHILD If a child is born and dies within the same tax year and is not granted an SSN, the taxpayer may still claim that child as a ___. The tax return must be filed on paper with a copy of the birth certificate or a hospital medical record attached. The birth certificate must show that the child was born alive; a stillborn infant does not qualify. The taxpayer would enter "___" in the space for the dependent's Social Security number on the tax return.

normal deadline, bad debt, foreign, loss, tax, military, disaster, terroristic, financially disabled

SPECIAL SCENARIOS There are also special scenarios which allow a taxpayer to request a refund beyond the ___ ___. These special scenarios involve: A ___ ___ from a worthless security (up to seven years prior) A payment or accrual of ___ tax A net operating ___ carryback A carryback of certain ___ credits Exceptions for ___ personnel Taxpayers in federally declared ___ areas Taxpayers who have been affected by a ___ or military action Time periods for claiming a refund are also extended when a taxpayer is "___ ___." This usually requires that the taxpayer be mentally or physically disabled to the point that he is unable to manage his financial affairs.

building block, alimony, virtual currency, additional, credits and payments, 65, nonresident aliens, correct errors

TAX FORMS FOR INDIVIDUALS Form 1040: The redesigned Form 1040 still uses a "___ ___" approach, but the IRS eliminated three of the numbered schedules from the previous year's design. The three numbered schedules that remain are the following: Schedule 1: Additional Income and Adjustments to Gross Income: This schedule includes new lines for ___ payments, as well as a question regarding ___ ___ transactions during the tax year. Schedule 2, ___ Taxes: This new schedule combines the previous year's Schedules 2 and 4. Schedule 3, Additional ___ ___ ___: This redesigned schedule includes all the same information from Schedule 3 in the prior year, but also includes the information from Schedule 5. Schedules 4, 5, and 6 have been permanently eliminated. Form 1040-SR: This new form is specifically for use by seniors who are age __ or older. Form 1040-NR: Form 1040NR is used by ___ ___ to report their U.S. source income. The 1040NR is never used by U.S. citizens or U.S. residents. Form 1040X, Amended U.S. Individual Income Tax Return: This form is used to ___ ___ in a previously filed Form 1040, Form 1040SR, or 1040NR. Form 1040X cannot be filed electronically.

legal, residency, dependents, ssn, itin, atin

TAXPAYER BIOGRAPHICAL INFORMATION When filing tax returns, certain biographical information of the client is required. A tax professional must collect this information from each taxpayer to prepare an accurate tax return: ___ name, date of birth, and marital status ___ status and/or citizenship ___ Taxpayer identification number (___, ___, or ___)

preliminary, biographical

TAXPAYER DATA AND BIOGRAPHICAL INFORMATION We will cover ___ work with taxpayer data, as well as the importance of a taxpayer's ___ information in this unit.

Individual taxpayer identification number, adoption taxpayer identification number

TAXPAYER IDENTIFICATION NUMBERS The three types of TINs are: Social Security number (SSN) ___ ___ ___ ___ (ITIN) ___ ___ ___ ___(ATIN)

October 15, 2350, file

TAXPAYERS WHO LIVE ABROAD A taxpayer who is out of the country can request an additional discretionary two-month extension of time to file his tax return, beyond the regular six-month extension of ___ ___. A special form exists to request an extension in this circumstance. Form ___, Application for Extension of Time to File U.S. Income Tax Return, is used for taxpayers who live abroad and qualify for the foreign earned income exclusion or the foreign housing exclusion or deduction. Form 2350 does not extend the time to pay taxes, it only extends the time to ___. For calendar-year taxpayers, the "additional" extension date would be December 15.

items, affect, current, carryovers, net operating, 8801, depreciation

USE OF PRIOR YEAR RETURNS -In reviewing prior year tax returns, a preparer needs to determine whether there are ___ that ___ the ___ year's return, including the following: -___ -___ ___ losses -Credit for prior year minimum tax (Form ___, Credit for Prior Year Minimum Tax - Individuals, Estates, and Trusts) -Prior-year ___