ACCT 108 (W7-W15)

A Refund Anticipation Loan (RAL) is money borrowed by a taxpayer from a lender based on the taxpayer’s anticipated income tax refund. The IRS is not involved or responsible for the refund anticipation loan.

True

An electronic filer, who is also the return preparer, and the financial institution or other lender that makes a refund anticipation loan may not be related taxpayers within the meaning of Sec. 267 or Sec. 707.

True

E-file providers are required to advise their clients that once an electronically filed return is accepted a direct deposit option cannot be rescinded.

True

Employers are required to keep records on employment taxes, income tax withholding, Social Security, Medicare, and federal unemployment tax for at least 4 years after the date the tax becomes due or is paid, whichever is later.

True

If a taxpayer uses a computerized system for recordkeeping, they must be able to produce legible records of the information needed to determine their correct tax liability. In addition to the computerized records, they must keep proof of payment, receipts, and other documents to prove the amounts shown on their tax return.

True

If an electronic filer charges a fee for the electronic transmission of a tax return, (s)he may not charge a separate fee for direct deposit of the refund in the taxpayer’s bank account.

True

According to Circular 230, an attorney, a CPA, or an enrolled agent must in all circumstances promptly provide copies of records or other information when requested by an Examination Division group manager or higher official.

False

Advertising for a cooperative electronic return project does not have to list the names of all cooperating parties.

False

An ERO may not charge one fee for clients who select RALs and a different fee for those who select direct deposits into their own accounts.

False

An amended tax return can be electronically filed.

False

An electronic return originator is not required to enter the “non-standard form†code for Forms W-2 that are altered, handwritten, or typewritten, provided the totals agree with a cumulative earnings statement.

False

Books and records for a business are required to be retained for the later of 6Â years after the return is due or filed, or 2Â years after the date the tax was paid.

False

Electronic return originators may charge a separate fee for direct deposit.

False

For assisting a taxpayer in applying for a refund anticipation loan (RAL), an electronic filer may charge a sliding scale fee based upon the amount of the RAL.

False

Regarding entities that are required to file tax returns electronically, which of the following is not true?

Partnerships with greater than 150 partners must file Form 1065 electronically.

Which of the following is a situation in which records must be maintained indefinitely?

Failure of the taxpayer to file a return.

A taxpayer filing electronically must attach the appropriate copy of the W-2 to the Form 8453, U.S. Individual Income Tax Transmittal for an IRS e-file Return.

False

How long should copies of actual tax returns be kept by a taxpayer?

Permanently

Which of the following e-file provider options originates the electronic submission of certain returns for its clients and/or transmits the returns to the IRS and must submit Form 8655?

Reporting agent.

According to Circular 230, how long must an electronic filer retain a copy of a prerecorded advertisement?

36 months from the date of the last transmission or use.

Which of the following statements is true regarding electronically filed returns?

A return for a deceased taxpayer may be electronically filed.

With regard to effective recordkeeping, which of the following statements is false?

A canceled check always proves payment and establishes a tax deduction.

Which of the following items represents sufficient documentary evidence to substantiate expenditures for travel, entertainment, or gift expenses?

A canceled check written to pay a motel bill on a business trip.

Which situation requires a new submission of Form 8633?

A change of a principal or responsible official.

Which e-file provider option is a secondary activity to the other five options?

Online provider.

With regard to expenses, the taxpayer should keep all of the following records except

Original copies of all records.

When an electronic return originator (ERO) advises a taxpayer that the taxpayer’s return has been rejected, the ERO must provide all of the following except

A copy of the IRS acknowledgment file showing the rejection.

A 2014 Form W-2 for a calendar-year taxpayer will first be available from the IRS as part of a transcript in which of the following years?

2016

Richard Baker filed his 2014 individual income tax return on April 15, 2015. This return reflected that 100 shares of stock that he owned had become worthless in 2014. How long must he maintain records of this stock transaction?

2022

If a taxpayer’s return is rejected by the IRS and the ERO cannot fix the problem and retransmit the return in the time prescribed, the ERO must make reasonable attempts to notify the taxpayer of the reject. How long from the time the return is rejected does the ERO have to try to contact the taxpayer?

24 hours.

Until the IRS files a Notice of Federal Tax Lien, the lien is ineffective against certain parties. Which of the following is not one of these parties?

A holder of an artisan’s lien.

Which of the following statements applies to refund anticipation loans?

A refund anticipation loan indicator must be included in the electronic return data that is transmitted to the IRS.

Harold Thompson, a self-employed individual, had income transactions for 2010 (duly reported on his return filed in April 2011) as follows: Gross receipts $400,000 Less cost of goods sold and deductions $(320,000) Net business income $80,000 Capital gains $36,000 Gross income $116,000 In March 2014, Thompson discovers that he had inadvertently omitted some income on his 2010 return. He retains Mann, EA, to determine his position under the statute of limitations. Mann should advise Thompson that the 6-year statute of limitations would apply to his 2010 return only if he omitted from gross income an amount in excess of

29,000

A Form 1065, U.S. Partnership Return, must be filed electronically or on magnetic media if the number of partners exceeds

100

Authorized electronic filing providers must notify the Internal Revenue Service of all changes to the information they originally submitted on Form 8633, Application to Participate in the IRS e-file Program. All revisions may be made using Form 8633, but you may update certain information by letter, using the firm’s official letterhead. Which of the following revisions listed below may be submitted by letter and does not require a Form 8633?

Adding federal/state electronic filing to your list of services.

How long should you keep your records?

All of the answers are correct.

A Refund Anticipation Loan (RAL) is money borrowed by a taxpayer from a lender based on the taxpayer’s anticipated income tax refund. Which of the statements below is true?

All parties to Refund Anticipation Loan agreements, including Electronic Return Originators (EROs), must ensure that taxpayers understand that Refund Anticipation Loans are interest bearing loans and not substitutes for a faster way of receiving a refund.

Which of the following returns may not be electronically filed?

Amended tax returns.

Select the true statement about advertising standards for electronic return originators (EROs).

An ERO must comply with the advertising and solicitation provisions of Circular 230.

Identify the false statement regarding refund anticipation loans (RALs).

An electronic return originator (ERO) may not assist a taxpayer in applying for a RAL.

Which of the following records is not listed by the IRS as a recommended item for taxpayers to keep?

Applications

A calendar-year taxpayer filed an individual tax return for Year 6 on March 20, Year 7. The taxpayer neither committed fraud nor omitted amounts in excess of 25% of gross income on the tax return. What is the latest date that the taxpayer must keep records available?

April 15, Year 10.

Keen, a calendar-year taxpayer, reported gross income of $100,000 on his Year 6 income tax return. Inadvertently omitted from gross income was a $20,000 commission that should have been included in Year 6. Keen filed his Year 6 return on March 17, Year 7. To collect the tax on the $20,000 omission, the Internal Revenue Service can review the records no later than

April 15, Year 10.

On April 15, Year 7, a married couple filed their joint Year 6 calendar-year return showing gross income of $120,000. Their return had been prepared by a professional tax preparer who mistakenly omitted $45,000 of income, which the preparer, in good faith, considered to be nontaxable. No information with regard to this omitted income was disclosed on the return or attached statements. Until what date must the couple maintain their tax records?

April 15, Year 13.

Employers are required to keep records on employment taxes (income tax withholding, Social Security, Medicare, and federal unemployment tax) for

At least 4 years after the date the tax becomes due or is paid, whichever is later.

The collection process begins

At the IRS service center where notices are generated requesting payment.

Samantha Sharp, an enrolled agent, prepares and electronically files Form 1040 tax returns. Samantha prepared the 2014 tax return for Tom, her client. Tom uses Form 8453 and attaches a Form 8332. On March 1, 2015, Samantha electronically filed Tom’s tax return, which was a refund return. On March 3, Samantha received acknowledgment from the Internal Revenue Service that Tom’s return had been accepted. On March 10, Tom received his refund. By what date must Samantha mail the executed Form 8453 to the IRS?

By March 6, 2015 (within 3 business days after the return is acknowledged as accepted by the IRS).

What is the name given to the last date the IRS can collect unpaid tax from the taxpayer?

Collection Statute Expiration Date (CSED).

Identify the true statement regarding charitable cash contributions.

Contributions of $250 or more require acknowledgment from the donee.

Which of the following is not a specific record required to be kept for income tax withholding?

Each employee’s date of birth.

Which e-file provider option originates the electronic submission of a return after the taxpayer authorizes the filing of the return via IRS e-file?

Electronic return originator (ERO).

In 2014, Stephanie contributed $2,600 to her church ($50 each week). Stephanie has a canceled check for each week’s contribution but does not have a statement from her church documenting the contribution. Stephanie may not claim a deduction for her church contributions because she does not have adequate records.

False

Individual tax returns with fiscal-year tax periods may be filed electronically.

False

Jack, to prove his business expense of entertaining clients, keeps all of the receipts for business meals. Each receipt contains the name of the restaurant, date, and amount of the meal. This information is considered to be adequate substantiation, sufficient to prove the expense of a business meal.

False

Jubilee, Inc., is a small manufacturer that employed 172 workers in 2014. Jubilee issued Forms W-2 to all of those workers. Jubilee must keep copies of those Forms W-2, the associated Form W-3, and all other employment tax records for at least five years from the due date for filing Form W-2.

False

Ms. Erp is an electronic return preparer. Ms. Erp accepts any direct deposit election designated by taxpayers. In addition to the fee that Ms. Erp charges for the electronic transmission of a tax return, she also charges $5.00 for providing the direct deposit service. Ms. Erp can charge the separate fee up to $10 to recover her costs for providing the additional service for direct deposit.

False

Which of the following is an acceptable method of computation for an Electronic Return Originator (ERO) fee?

Flat fee identical for all customers.

Which of the following may be filed electronically?

Form 1040 returns.

Return transcripts are available for all of the following except

Form 1099.

Form 8453 must be used to send additional documentation to the IRS when a tax return is filed electronically. All of the following forms must be sent with Form 8453 except

Form 8379, Injured Spouse Allocation.

Which level of infractions have an adverse impact upon the quality of electronically filed returns or on IRS e-file?

Level two.

Michael Young, an Authorized Internal Revenue Service e-file Provider, prepared and electronically transmitted the Form 1040 return of Vivian Blue to the Internal Revenue Service. The Internal Revenue Service notified Michael that the electronic portion of Vivian’s return was rejected for processing. Which statement listed below best explains what Michael must do?

If Michael cannot correct the error with the information in his possession, he must take reasonable steps to inform the taxpayer of the rejection within 24 hours and provide the taxpayer with the reject code(s) accompanied by an explanation.

You must keep your records as long as they may be needed for the administration of any provision of the Internal Revenue Code. Generally, this means you must keep records that support items shown on your return until the period of limitations for that return runs out. The period of limitations is the period of time in which you can amend your return to claim a credit or refund, or the Internal Revenue Service can assess additional tax. Which statement listed below is incorrect?

If a fraudulent return is filed, the statute of limitations is 7 years.

Regarding taxpayers’ recordkeeping requirements, which of the following is true?

If a taxpayer is missing documents due to events beyond their control, they can claim a deduction by reconstructing the records.

Mr. Smith’s 2012 income tax return, which he filed on May 3, 2013, was examined by the IRS. Smith did not have an extension of time to file. On October 20, 2014, he signed a report agreeing to a deficiency of $10,000. He received a notice and demand showing additional tax, interest, and penalties. The notice was dated November 7, 2014. If Mr. Smith paid the bill on November 12, 2014, which of the following reflects the date interest started accruing and the date it stopped?

Interest Started 5/3/13 Interest Ended 11/07/14

What is the type of collection that allows the IRS to waive the 10-day period of Notice and Demand for Tax?

Jeopardy levy.

All of the following are responsibilities of an electronic return originator (ERO) except

Keeping the taxpayer’s original documentation, such as a canceled check.

Jackson Corp., a calendar-year corporation, mailed its Year 6 tax return to the Internal Revenue Service by certified mail on Friday, March 7, Year 7. The return, postmarked March 7, Year 7, was delivered to the Internal Revenue Service on March 19, Year 7. The required length of time to maintain sufficient records ends on

March 16, Year 10.

Nancy, a calendar-year taxpayer, filed her federal income tax return for tax year 2012, which was due on April 15, 2013, on May 1, 2013. Nancy did not request and therefore did not receive an extension of time to file her 2012 federal income tax return. Nancy paid the amount due as shown on the 2012 return on June 30, 2013. Based on these facts, the last day for the IRS to assess additional tax with respect to Nancy’s 2012 return is

May 1, 2016.

According to Publication 1915, which of the following documents is only acceptable for foreign status requests of dependents under the age of 14?

Medical record.

John Jones, an enrolled agent, prepared the tax return for Mr. William Smith. The return of Mr. Smith contained a Schedule C, wages (Form W-2), and retirement income (Form 1099-R). Mr. Smith signed a Form 8879, IRS e-file Signature Authorization. Based upon the information in the tax return of Mr. Smith, which statement below describes the documents that Mr. Jones is required to maintain for Mr. Smith’s electronically filed tax return?

Mr. Jones must retain a copy of the signed Form 8879 and paper copies of Forms W-2 and 1099-R, as well as any supporting documents that are not included in the electronic return data.

Books of account or records sufficient to establish the amount of gross income, deductions, credit, or other matters required to be shown in any tax or information return

Must be maintained as long as the contents may be material in administration of any internal revenue law.

George knew that he had a substantial refund for the current tax year because he had worked at a high salary early in the year with extra withholding. He was unemployed the rest of the year. He wanted to file the return electronically with direct deposit to expedite the refund. The Fix Tax Co. stated that its fee would be 10% of the refund for preparation and filing, with no additional charge for direct deposit. The No Tax Co. stated that its fee would be $35 regardless of the refund amount but that it charged a $10 fee for direct deposit request. Which of the following is true?

Neither the Fix Tax Co. nor the No Tax Co. is in compliance with electronic filing fee restrictions.

Specific records required to be kept for income tax withholding by an employee include

None of the answers are correct.

Which fee arrangement described below is permissible for an electronic return originator (ERO)?

None of the answers are correct.

Which e-file provider option allows taxpayers to self-prepare returns by entering return data directly on software downloaded from an Internet site?

Online provider.

In the process of preparing Purple Corporation’s 2014 return, John, an enrolled agent, provided to Purple Corporation calculations he had prepared computing basis of property that was sold and reported on the Form 4797 filed with Form 1120. Later, when Purple Corporation’s 2014 return was examined by the Internal Revenue Service, Purple Corporation refused to provide the Internal Revenue Service with the calculations, claiming that this was a privileged communication between Purple and its federally authorized practitioner. Which of the following statements is true?

Purple Corporation must provide the calculations to the Internal Revenue Service because privilege does not apply to a determination with respect to an item that will be presented to the government on an original return.

Which of the following statements with respect to effective recordkeeping is false?

Records that support the basis of property should be kept until the statute of limitations expires for the year that the property was acquired.

All of the following e-file providers must clearly display the firm’s “doing business as†name except

Reporting agent.

Which of the following is not a taxpayer’s responsibility when using the Electronic Federal Tax Payment System (EFTPS)?

Scheduling the transfer at least 3 days in advance of the tax due date.

Bethany timely filed her 2011 1040 tax return and paid the $2,000 tax as shown on the return at the time of filing. The return was subsequently examined and Bethany signed an agreement form for the proposed changes on August 20, 2013. She paid the additional tax due of $5,000 on September 30, 2013. In 2014, Bethany located missing records, which she believes would make $3,000 of the additional assessment erroneous. Which of the following statements accurately states the date by which Bethany must file a claim for refund to get the $3,000 back?

September 30, 2015, 2 years from when the additional tax was paid.

Which of the following e-file provider options may not be subject to a suitability check?

Software developers.

Which of the following statements is false regarding IRS transcripts used by tax practitioners?

Tax practitioners can make an online request of a client’s transcript and receive it within a few days.

After assessment, as a general rule, the Internal Revenue Service has the authority to collect outstanding federal taxes for which of the following?

Ten years.

All of the following statements about the e-file provider option of transmitter are true except

Testing to ensure the compatibility of the provider’s system with that of the IRS is not required.

Taxpayers often elect the direct deposit option because it is the fastest way of receiving refunds. Electronic Return Originator should advise the taxpayer of the option to receive his or her refund by direct deposit or paper check. Select the statement below that is true with respect to direct deposit.

The Electronic Return Originator should caution taxpayers that some financial institutions do not permit the deposit of joint refunds into individual accounts.

Which of the following statements about the Freedom of Information Act (FOIA) is false?

The FOIA requires the IRS to release all documents that are subject to FOIA requests.

A taxpayer’s business real property may not be seized and sold by the IRS unless the collection of the tax is in jeopardy or approval has been secured from

The IRS area director or assistant area director.

Which of the following agencies must provide certain records upon request per the Freedom of Information Act?

The IRS.

The Internal Revenue Service monitors and performs annual suitability checks on authorized Internal Revenue Service electronic filing providers for compliance with the revenue procedure and program requirements. Violations may result in a variety of sanctions. Which statement is true with respect to sanctions the Internal Revenue Service may impose on an electronic filing provider?

The Internal Revenue Service may suspend or expel an authorized Internal Revenue Service electronic return originator prior to administrative review for a level three infraction in the electronic filing program.

Which of the following statements is true regarding Form 8879?

The form is completed when the Practitioner PIN method is used.

What is an EFIN?

The number used by the IRS to identify all preparers that are accepted into the e-file program.

If the Internal Revenue Service rejects the electronic portion of a taxpayer’s return for processing and the reason for the rejection cannot be rectified with the information already provided to the ERO, the ERO must take reasonable steps to inform the taxpayer of the rejection within 24 hours, and provide the taxpayer with the reject code(s) accompanied by an explanation.

True

Individual taxpayers can schedule a year’s worth of payments in advance using EFTPS.

True

Mr. Jones is filing his Year 1 return in Year 3. Mr. Jones can file his return electronically with the IRS.

True

Rejected electronic return data can generally be corrected and retransmitted without new signatures or authorization if changes are not more than $50 to total income or AGI.

True

Sandy is an Electronic Return Originator. Sandy is required to keep a copy of any signed Forms 8453, U.S. Individual Income Tax Transmittal for an IRS e-file Return, until the end of the calendar year in which a return was filed.

True

Taxpayers in a foreign country can electronically file their returns.

True

Taxpayers using EFTPS receive an immediate EFTPS acknowledgment number.

True

While EFTPS-Direct and EFTPS-Through a Financial Institution are the primary payment methods for EFTPS, taxpayers may use the Same Day Payment method.

True