Week 14
A Form 1065, U.S. Partnership Return, must be filed electronically or on magnetic media if the number of partners exceeds
100
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).
Which of the following is a situation in which records must be maintained indefinitely?
Failure of the taxpayer to file a return.
Which of the following is an acceptable method of computation for an Electronic Return Originator (ERO) fee?
Flat fee identical for all customers.
Which level of infractions have an adverse impact upon the quality of electronically filed returns or on IRS e-file?
Level two
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.
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 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.
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 situation requires a new submission of Form 8633?
A change of a principal or responsible official.
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.
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. -No limit if you do not file a return. -7 years if you file a claim for a loss from worthless securities. -3 years if you owe additional tax.
With regard to effective recordkeeping, which of the following statements is false?
Answer: A canceled check always proves payment and establishes a tax deduction. These statements are true: -Records should show how much of an individual's earnings are subject to self-employment tax. -Records should identify the source of income in order to determine if an income item is taxable or nontaxable. -The invoice, paid receipt, or canceled check that supports an item of expense should be retained.
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
Answer: A copy of the IRS acknowledgment file showing the rejection. Must provide: -The sequence number of each reject code. -An explanation of the reject code(s). -The reject code(s).
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?
Answer: 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. These statements are false: -The Electronic Return Originator should advise the taxpayer that if a direct deposit is not received within the expected time frame, the Internal Revenue Service may be liable to the lender for additional interest on the Refund Anticipation Loan. -The Internal Revenue Service has minimal involvement and responsibility for Refund Anticipation Loans. -The Internal Revenue Service is responsible for ensuring that Refund Anticipation Loan indicators are included in the electronic return data that is transmitted to the Internal Revenue Service.
Select the true statement about advertising standards for electronic return originators (EROs).
Answer: An ERO must comply with the advertising and solicitation provisions of Circular 230. These statements are false: -Advertising for a cooperative electronic return filing project needs to state only one party's name. -An ERO may use "IRS" within the firm's name. -No claims can be made regarding faster refunds by virtue of electronic filing.
Identify the false statement regarding refund anticipation loans (RALs).
Answer: An electronic return originator (ERO) may not assist a taxpayer in applying for a RAL. These statements are true: -A RAL indicator must be included in the electronic return data transmitted to the IRS. -The taxpayer must understand that a RAL is not a substitute for a faster return. -A RAL is a contract between the taxpayer and the lender.
Identify the true statement regarding charitable cash contributions.
Answer: Contributions of $250 or more require acknowledgment from the donee. These statements are false: -A taxpayer may deduct charitable cash contributions without supporting documentation. -Separate contributions are combined to determine whether a contribution is $250 or more. -A canceled check is not sufficient documentation for a cash contribution of less than $250.
Which of the following is not a specific record required to be kept for income tax withholding?
Answer: Each employee's date of birth. These are required: -The fair market value and date of each payment of noncash compensation made to a retail commission salesperson if no income tax was withheld. -For accident or health plans, information about the amount of each payment. -The total amount and date of each wage payment and the period of time the payment covers.
Which of the following may be filed electronically?
Answer: Form 1040 returns. May not be filed electronically: -Tax returns dated 3 years prior. -Amended tax returns. -Fiscal year tax period returns.
Return transcripts are available for all of the following except
Answer: Form 1099. Return transcripts are available for: -Form 1040. -Form 1120S. -Form 1065.
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
Answer: Form 8379, Injured Spouse Allocation. These forms must be sent with Form 8453: -Form 8283, Non-cash Charitable Contributions, Section A or B, and any related attachments. -Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes (or equivalent contemporaneous written acknowledgment). -Form 2848, Power of Attorney and Declaration of Representative (or POA that states the agent is granted authority to sign the return).
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?
Answer: If a fraudulent return is filed, the statute of limitations is 7 years. These statements are correct: -If more than 25% of gross income has been omitted from the tax return, the statute of limitations is 6 years after the return was filed, unless the omitted amount was disclosed in the return or in a statement attached to the return, in a manner adequate to apprise the Internal Revenue Service of the nature and amount of the omission. -If no other provisions apply, the statute of limitations is 3 years after the return was filed. -If a tax return is not filed at all, there is no statute of limitations.
Regarding taxpayers recordkeeping requirements, which of the following is true?
Answer: If a taxpayer is missing documents due to events beyond their control, they can claim a deduction by reconstructing the records. These statements are false: -If a taxpayer does not have complete records, then deductions are not allowed. -Taxpayers must keep original documents in addition to electronic documents. -Taxpayers who store their documents electronically require written IRS approval in order to destroy original documents.
All of the following are responsibilities of an electronic return originator (ERO) except
Answer: Keeping the taxpayer's original documentation, such as a canceled check. These are the responsibilities of an ERO: -Providing copies to taxpayers. -Making records available to the IRS. -Timely originating the electronic submission of returns.
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?
Answer: Neither the Fix Tax Co. nor the No Tax Co. is in compliance with electronic filing fee restrictions. These statements are false: -George cannot electronically file because he is not employed at the end of the year. -The No Tax Co. may charge the $10 direct deposit fee because its $35 filing and preparation fee is a flat fee. -The Fix Tax Co. may charge a percentage of the refund because it does not charge for direct deposit.
Specific records required to be kept for income tax withholding by an employee include
Answer: None of the answers are correct. -The amount of tax collected with respect to a remuneration payment. -The amount of remuneration that constitutes wages subject to withholding. -Health and accident plan payments.
Which e-file provider option is a secondary activity to the other five options?
Answer: Online provider. First activities: -ERO -Reporting agent. -Transmitter
With regard to expenses, the taxpayer should keep all of the following records except
Answer: Original copies of all records. Keep these: -Canceled checks. -Invoices. -Cash register receipts.
Regarding entities that are required to file tax returns electronically, which of the following is not true?
Answer: Partnerships with greater than 150 partners must file Form 1065 electronically. These are true: -Corporations are required to file Form 1120, 1120S, and 1120-F electronically if they own more than $10 million in assets and file at least 250 returns annually. -Charitable trusts and private foundations must file Form 990-PF electronically if they file at least 250 returns annually, regardless of their assets. -Tax-exempt organizations are required to file Form 990 electronically if they own more than $10 million in assets and file at least 250 returns annually.
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.
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?
Answer: 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. These statements are false: -Purple Corporation does not have to provide the calculations to the Internal Revenue Service because it is privileged under the Federal Tax Practitioner privilege rules. -Purple Corporation must provide the calculations to the Internal Revenue Service because the Federal Tax Practitioner privilege does not apply to documents written by John as he is not a CPA. -Purple Corporation does not have to provide the calculations to the Internal Revenue Service if they believe this transaction might be construed as a tax shelter.
Which of the following statements with respect to effective recordkeeping is false?
Answer: Records that support the basis of property should be kept until the statute of limitations expires for the year that the property was acquired. These statements are true: -Records should identify the source of income in order to determine if an income item is taxable or nontaxable. -If an individual cannot provide a canceled check to prove payment of an expense item, (s)he may be able to prove it with certain financial account statements. -Records should show how much of an individual's earnings is subject to self-employment tax.
All of the following e-file providers must clearly display the firm's "doing business" name except
Answer: Reporting agent. These e-file providers must clearly display the firm's doing business name: -Electronic return originator (ERO). -Online-provider. -Intermediate service provider.
Which of the following is not a taxpayer's responsibility when using the Electronic Federal Tax Payment System (EFTPS)?
Answer: Scheduling the transfer at least 3 days in advance of the tax due date. The following is taxpayer's responsibility: -Making sure that the taxpayer's account contains sufficient funds to cover the payment. -Recording the EFTPS Acknowledgment Number. -Ensuring that the tax payment is timely made.
Which of the following e-file provider options may not be subject to a suitability check?
Answer: Software developers. These options may be subject to a suitability check: -Electronic return originators. -Reporting agents. -Transmitters.
Which of the following statements is false regarding IRS transcripts used by tax practitioners?
Answer: Tax practitioners can make an online request of a client's transcript and receive it within a few days. These statements are true: -In many cases, transcripts are used instead of making copies of tax returns. -Transcripts are printouts of a taxpayer's account that show actions taken by the IRS. -Tax practitioners use transcripts when representing their clients before the IRS.
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.
Answer: The Electronic Return Originator should caution taxpayers that some financial institutions do not permit the deposit of joint refunds into individual accounts. These statements are false: -Refunds may be direct deposited to credit card accounts. -The Electronic Return Originator may make a separate charge of only $15 or less as a processing fee if the taxpayer elects direct deposit. -The Electronic Return Originator does not have to accept a direct deposit election to a financial institution designated by the taxpayer.
Which of the following statements about the Freedom of Information Act (FOIA) is false?
Answer: The FOIA requires the IRS to release all documents that are subject to FOIA requests. These statements are true: -All IRS records are subject to FOIA requests. -Documents must be made available electronically by the IRS. -The IRS may withhold information pursuant to nine exemptions and three exclusions contained in the FOIA statute.
Which of the following agencies must provide certain records upon request per the Freedom of Information Act?
Answer: The IRS. These agencies do not need to provide certain records upon request per the Freedom of Information Act: -The U.S. Supreme Court. -Congress. -Any state agencies.
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?
Answer: 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. These statements are false: -The Internal Revenue Service may issue a letter of reprimand or a 1-year suspension as a sanction for a level one infraction in the electronic filing program. -The Internal Revenue Service may impose a period of suspension that includes the remainder of the calendar year in which the suspension occurs, plus the next 2 calendar years, for a level two infraction in the electronic filing program. -The Internal Revenue Service may not impose a sanction that is greater than a 1-year suspension from the electronic filing program.
Which of the following statements is true regarding Form 8879?
Answer: The form is completed when the Practitioner PIN method is used. These statements are false: -This form must accompany specific documentation mailed to the IRS. -Taxpayers may not sign the form using an electronic signature pad. -A copy of the form must be sent to the IRS.
Which of the following records is not listed by the IRS as a recommended item for taxpayers to keep?
Applications.
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.
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).
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.
Leslie Oak, an enrolled agent, prepared the 2014 tax return for Ms. Barbara Smith. The Form 1040 tax return of Ms. Smith contained capital gains and losses (Schedule D), wages (Form W-2), and rental income (Schedule E). Ms. Smith signed a Form 8879, IRS e-file Signature Authorization, which allowed Leslie to electronically file Ms. Smith's tax return. Based upon the information in the 2014 tax return of Ms. Smith, which statement below best describes the documents that Leslie Oak is required to maintain for Ms. Smith's 2014 electronically filed tax return?
Leslie Oak must retain a copy of the signed Form 8879, paper copies of all Forms W-2, and supporting documents not included in the electronic records submitted to the IRS.
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.
Which fee arrangement described below is permissible for an electronic return originator (ERO)?
None of the answers are correct. -Fees based on AGI from the tax return. -Fees based on percent of refund. -Separate fees for direct deposits.
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.
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.
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.
According to Circular 230, which of the following applies to radio or television broadcasting regarding advertisement of electronic filing?
The broadcast must be prerecorded, and the broadcast advertisement must be kept for a period of 36 months from the date of the last transmission or use.
What is an EFIN?
The number used by the IRS to identify all preparers that are accepted into the e-file program.
