EA:Part 3 EX3

1. The Annual Filing Season Program is _______ A. Mandatory program. B. Voluntary program. C. Volunteer program. D. Charitable program.

1. The answer is B. The Annual Filing Season Program is a voluntary program. Return preparers who complete the requirements for the Annual Filing Season Program will be issued a Record of Completion that they can display and use to differentiate themselves in the marketplace if desired. The IRS encourages non-credentialed tax return preparers to participate.

10. All of the following are types of relief from "joint and several liability" except: A. Separation of liability relief. B. Equitable relief. C. Equivalent relief. D. Innocent spouse relief.

10. The answer is C. "Equivalent" relief does not exist. There are three types of relief from joint and several liability: (1) innocent spouse relief, (2) separation of liability relief, and (3) equitable relief. This is not the same as an "injured spouse" claim. An "injured spouse" claim is for allocation of a refund of a joint refund when the other spouse has a separate past-due federal tax, state tax, child or spousal support, or federal non-tax debt (such as a student loan).

100. Which of the following is NOT exempt from IRS levy? A. Undelivered mail. B. Unemployment benefits. C. Child support. D. Wages.

100. The answer is D. Wages are subject to IRS levy. So are Social Security payments and other federal payments. Financial accounts, retirement accounts, and brokerage accounts can also be levied. The following items are exempt from IRS levy: Wearing apparel and school books. Fuel, provisions (food), furniture, personal effects in the taxpayer's household, arms for personal use, or livestock. Books and tools necessary for the trade, business, or profession of the taxpayer. Undelivered mail. Unemployment benefits and amounts payable under the Job Training Partnership Act. Workers' compensation, including amounts payable to dependents. Certain annuity or pension payments, but only if payable by the Army, Navy, Air Force, Coast Guard, or under the Railroad Retirement Act or Railroad Unemployment Insurance Act. Traditional or Roth IRAs are not exempt from levy. Judgments for the support of minor children (child support).

11. Andrew's total tax for 2019 is $1,600. He had $400 in withholding on his Form W-2. Andrew owes $1,200 when he files his return. His prior year's tax was $2,000. Will Andrew be charged an estimated tax penalty? A. Yes. He will owe a penalty. B. No. He will not owe a penalty. C. Not enough information to make a determination. D. He will not be charged a penalty as long as he pays all the tax owed when he files his return.

11. The answer is A. Andrew will probably be charged an estimated tax penalty because the amount he owes is over $1,000 and his withholding and credits are less than 90% of his current year tax or 100% of his prior year tax.

12. Leonard was referred to the Office of Professional Responsibility for possible preparer misconduct. What type of sanction will not be imposed by the OPR? A. Disbarment. B. Suspension. C. Incarceration. D. Censure.

12. The answer is C. OPR sanctions include disbarment, suspension, and censure. Although a tax preparer may be subject to criminal prosecution and even incarceration in some cases, the Office of Professional Responsibility would not be responsible for applying any criminal penalties.

13. Which IRS office administers the preparer tax identification number (PTIN) program? A. The examination division. B. The Office of Professional Responsibility. C. The Taxpayer Advocate's Office. D. The Return Preparer Office.

13. The answer is D. The Return Preparer Office (RPO) administers the preparer tax identification number (PTIN) program; continuing education requirements; the Annual Filing Season Program; and the enrollment of Enrolled Agents.

14. A tax professional is required to determine a taxpayer's correct filing status. A taxpayer's filing status generally depends on whether the taxpayer is single or married. Whether a taxpayer is single or married is typically determined by A. The taxpayer's marital status at the beginning of the tax year. B. The taxpayer's marital status at the end of the tax year. C. The taxpayer's marital status in the middle of the year. D. The taxpayer's marital status as determined by the courts.

14. The answer is B. A taxpayer's filing status generally depends on whether the taxpayer is single or married at the end of the year.

19. Marika is trying to find tax law information about a specific tax issue for a deduction that she wants to take on her return. She's not sure if the deduction is valid. In order to avoid imposition of the accuracy-related penalty for a substantial understatement of income tax, which of the following is a type of authority may Marika rely on, in order to try to show substantial authority for her position on her tax return? A. Revenue rulings. B. IRS Form instructions. C. Official IRS Publications. D. Frequently asked questions (FAQ) on IRS website.

19. The answer is A. Only the revenue rulings would be considered authority for meeting the "substantial authority' standard a return position. "Authority" does not include IRS forms or accompanying instructions, IRS publications, or IRS answers to Frequently Asked Questions (this question is modified from a released EA exam question).

15. Which of the following is an offense that could lead to practitioner sanctions by the OPR, according to Circular 230? A. "Gross neglect€'. B. "Gross recklessness". C. "Gross incompetence". D. "Gross delinquency".

15. The answer is C. In determining sanctions, the IRS will consider a practitioner's pattern of conduct to assess whether it reflects "gross incompetence". Gross incompetence is defined as 'gross indifference, preparation which is grossly inadequate under the circumstances, and a consistent failure to perform obligations to the client".

16. The Office of Professional Responsibility has initiated a disciplinary proceeding against Travis, who is an enrolled agent. Travis contends that he has done nothing wrong. What is OPR's burden of proof in a disciplinary proceeding against a tax practitioner? A. OPR must prove by "clear and convincing evidence" that Travis willfully violated one or more provisions of Circular 230. B. OPR must prove that Travis unintentionally violated one or more provision of Circular 230. C. OPR must prove by "clear and convincing evidence" that Travis willfully promoted a tax shelter. D. OPR must prove that Travis negligently made inaccurate or unreasonable omissions on tax returns.

16. The answer is A. For OPR to prevail in a disciplinary proceeding, OPR must prove by "clear and convincing evidence" that Travis willfully violated one or more provision of Circular 230. Willful is defined as a voluntary, intentional violation of a known legal duty. Simple negligence is not the same as willful misconduct. Not all tax shelters are illegal, so simply promoting a tax shelter would not necessarily be classified as misconduct in a disciplinary proceeding.

17. The Office of Professional Responsibility specifies many instances in which a practitioner might be sanctioned for incompetence or disreputable conduct. All of the following are listed except: A. Promoting abusive tax shelters. B. Threatening an IRS officer. C. Aiding and abetting understatement of a tax liability. D. Hiring an employee who has been censured by the IRS.

17. is D. Although hiring a suspended or disbarred practitioner is grounds for discipline, hiring an individual who has been censured by the IRS is not a sanctionable offense.

18. Vladimir is a taxpayer who is assessed a penalty for substantial understatement of his income tax. An understatement is considered "substantial" if it is more than the larger of 10% of the correct tax or A. $1,000 B. $5,000 c. $10,000 D. $25,000

18. The answer is B. For individual taxpayers, an understatement is considered "substantial" if it is more than the larger of: e 10% of the correct tax, or $5,000. Under IRC 56662, the penalty for substantial understatement of income is calculated as a flat 20% of the net understatement of tax. Note: If a taxpayer's return claims a Section 199A deduction, then the 10% threshold above is reduced to 5%, for the determination of a penalty for substantial understatement,

2. Geena is expecting a tax refund of $5,400 this year. She chooses to direct deposit her refund. With regard to direct deposit, which of the following options is not permitted? A. She may split the refund between two savings accounts. B. She can purchase up to $5,000 in U.S. savings bonds. The remaining amount can be sent to her as a paper check. C. She can have her refund directly deposited to a foreign bank account. D. She can have her refund deposited onto a prepaid debit card.

2. The answer is C. Geena cannot have her refund directly deposited into a foreign bank account. Refunds can be deposited into a U.S. financial account or prepaid debit card. Taxpayers can also choose to split their refund into separate bank accounts (but no more than three).

20. Enrolled agents who do not comply with the requirements for renewal of enrollment will be contacted by the Return Preparer Office. How much time does the EA have to respond to the RPO? A. 30 days from the date of the notice. B. 60 days from the date of the notice. C. 60 days from the date of receipt. D. 90 days from the date of the notice.

20. The answer is B. Enrolled agents who fail to comply with the requirements for eligibility for renewal of enrollment will be notified by the Return Preparer Office by first class mail. The notice will explain the reason for noncompliance. The enrolled agent has 60 days from the date of the notice to respond.

21. When a taxpayer submits an offer in compromise based on "doubt as to liability," which of the following is not required? A. Application fee. B. A written statement explaining why the tax debt or a portion of the debt is incorrect. C. Form 656-L. D. Taxpayer attestation and signature.

21. The answer is A. In general, a taxpayer must submit an application fee for the amount stated on Form 656. However, there are two exceptions to this requirement. First, no application fee is required if the OIC is based on doubt as to liability. Doubt as to liability exists where there is a genuine dispute as to the existence or amount of the correct tax debt under the law. Second, the fee isn't required if the taxpayer is an individual who qualifies as low-income. The low-income guidelines are included on Form 656.

22. Maximus argued his case before the U.S. Tax Court but took a patently frivolous position. What is the maximum penalty Maximus could face? A. $1,000 B. $5,000 c. $10,000 D. $25,000

22. The answer is D. Under IRC section 6673, Maximus could face a penalty of up to $25,000 for making frivolous arguments before the United States Tax Court.

23. Which of the following is illegal under the Internal Revenue Code? A. Tax avoidance. B. Tax evasion. C. Offshore bank accounts. D. Foreign trusts.

23. The answer is B. Tax evasion is an illegal practice in which individuals or businesses intentionally avoid paying their true tax liabilities. Those caught evading taxes are subject to criminal charges and substantial penalties. Tax avoidance, though not specifically defined by the IRS, is commonly used to describe the legal reduction of taxable income, such as through deductions and credits. Taxpayers with offshore bank accounts and foreign trusts have additional reporting requirements, but the accounts themselves are not illegal, unless they are being used for tax evasion purposes.

24. An enrolled agent is a person who has earned the privilege of representing taxpayers before the Internal Revenue Service by either: passing a three-part examination, or A. Through experience as a former IRS employee. B. By going to an IRS-approved college. C. By earning an accounting degree. D. Through experience as a licensed auditor.

24. A. An enrolled agent is a person who has earned the privilege of representing taxpayers before the Internal Revenue Service by either: Passing a three-part comprehensive IRS test, or o Through experience as a former IRS employee. Enrolled agent status is the highest credential the IRS awards.

25. The IRS is auditing Wendy's chiropractic business. Wendy's business is an LLC that files a Schedule C. Of the following items, which in itself would not be adequate documentation to support her expenses on Schedule C? A. A calendar that shows the time, place, date, and purpose of business meetings. B. Copies of invoices and sales receipts provided to customers. C. Mileage logs that show where, when, why, and how far she drove for business purposes. D. Canceled checks.

25. The answer is D. A canceled check, together with a bill from the payee, is ordinarily used to establish the cost of an item. However, a canceled check by itself does not prove a business expense without other evidence to show that it was for a business purpose.

26. With regards to the IRS e file program, what is a "Responsible Official?" A. A Responsible Official is an individual with authority to prepare refund advance loans. B. A Responsible Official is an individual with authority to sign tax returns. C. A Responsible Official is an individual with primary authority over the Provider's IRS e-file operation at a location. D. A Responsible Official is an individual with primary authority to collect taxpayer information and transmit completed tax returns.

26. The answer is C. A "Responsible Official" is an individual with the primary authority over the Provider's IRS e-file operation at a location, is the first point of contact with the IRS, and has authority to sign revised IRS e-file applications (see IRS Publication 3112 for more information).

27. Which of the following designations is no longer recognized by the IRS? A. Enrolled Agent. B. Enrolled Retirement Plan Agent. C. Enrolled Actuary. D. Registered Tax Return Preparer.

27. The answer is D. IRS no longer recognizes the Registered Tax Return Preparer (RTRP) designation. All unenrolled return preparers must provide a valid PTIN to represent a taxpayer before the IRS. All the other designations listed are recognized by the IRS. Note: Although the IRS no longer recognizes the RTRP designation, people who passed the RTRP exam in the past are allowed to participate in the IRS' AFSP program automatically. Unenrolled preparers who have passed the RTRP exam qualify for an exemption from the annual AFTR course but still must obtain 15 hours of continuing education-

28. Tyga is employed by a tax preparation firm. He is directly supervised by an EA in the firm who signs the tax returns that Tyga has prepared. Tyga: A. Needs to obtain a PTIN. B. Is only required to obtain a PTIN if he prepares a "substantial portion" of a client's tax return. C. Is not required to obtain a PTIN because he does not sign the tax returns himself. D. Is not required to obtain a PTIN because he is not yet a practitioner.

28. The answer is A. Supervised preparers are required to have PTINs. These are individuals who do not sign tax returns as paid return preparers but are: o Employed by a law firm, EA office, or CPA practice, and o Are directly supervised by an attorney, CPA, EA, ERPA, or enrolled actuary who signs the returns prepared by the supervised preparer as the paid tax return preparer. When applying for or renewing a PTIN, a supervised preparer must provide the PTIN of his supervisor.

29. A fiduciary of a trust is treated by the IRS as A. The grantor of the trust. B. A limited partner. C. The taxpayer themselves. D. The beneficiary of the trust.

29. The answer is C. A fiduciary of an estate or trust is treated by the IRS as if he or she is actually the taxpayer themselves. A fiduciary automatically has both the right and the responsibility to undertake all actions the taxpayer is required to perform. For example, the fiduciary must file returns and pay any taxes due on behalf of the taxpayer (see Instructions for Form 56 for more information).

33. An enrolled agent is not eligible to practice before: A. An IRS revenue agent. B. An IRS revenue officer. C. A U.S. Tax Court judge. D. An IRS appeals officer.

33. The answer is C. An enrolled agent has unrestricted practice rights before all levels and all offices of the IRS. An enrolled agent is not eligible to practice before a U.S. district court judge or other judges in the U.S. court system. Only a licensed attorney has automatic practice rights before the U.S. courts, including the U.S. Tax Court.

3. Which of the following is NOT an acceptable method for a taxpayer to sign his completed tax return? A. Handwritten signature on a paper-filed return. B. Self-select PIN. C. Practitioner PIN. D. Identity Protection (IP) PIN.

3. The answer is D. The IP PIN is not used in place of a taxpayer's signature. The IP PIN is a 6digit number assigned to eligible taxpayers to help prevent the misuse of their Social Security number on fraudulent federal income tax returns. The IP PIN helps the IRS verify a taxpayer's identity and accept their electronic or paper tax return.

30. William is an enrolled agent who takes a continuing education class for credit. The class consists of two 90-minute segments at a conference. How many contact hours will be credited to William for the course? A. One. B. Two. C. Three. D. Four.

30. The answer is C. William will earn three CE credits. Continuing education credits are measured in contact hours. A contact hour is defined as 50 minutes of continuous participation in a program. Credit is granted only for a full contact hour. Individual segments at a continuous conference will be considered one total program. For example, two 90-minute segments (180 minutes) at a continuous conference will count as three contact hours.

31. A business entity may apply for an Employer Identification Number (EIN) online if their principal business activity is located in: A. The United States or in any foreign country. B. The United States, excluding U.S. Territories. C. The continental U.S. only. D. The United States or in any U.S. Territory or U.S. possession.

31. is D. A taxpayer may apply for an EIN online if their principal business is located in the United States or in any U.S. Territory. Foreign business entities that have a U.S. filing obligation can obtain an Employer Identification Number (EIN) by completing Form SS-4.

32. Which governmental organization administers and enforces the regulations governing practice before the IRS? A. The Office of Professional Responsibility. B. The Return Preparer Office. C. Treasury Inspector General for Tax Administration. D. The Taxpayer Advocate's Office.

32. The answer is A. The Office of Professional Responsibility (OPR) is in charge of administering and enforcing the regulations governing practice before the IRS.

34. Akasuki is a nonresident alien who is a citizen of Japan. She does not have to pay U.S. federal income tax. In 2019, she had a small amount of federal taxes withheld on income from a U.S. source investment. What can she do to receive a refund of her withheld taxes? A. She must write a formal protest. B. She must request a refund of incorrectly withheld amounts from the brokerage firm that holds the investment. C. She must report the appropriate income and withholding amounts on Form 1040NR. D. She must file a refund claim on Form 1040.

34. The answer is C. Akasuki must report the appropriate income and withholding amounts on Form 1040NR. To claim a refund of federal taxes withheld on income from a U.S. source, a nonresident alien must report the appropriate income and withholding amounts on Form 1040NR, U.S. Nonresident Alien Income Tax Return. The IRS will issue a refund, but it can take up to six months to process a Form 1040NR return.

35. The more commonly used name of a Statutory Notice of Deficiency is: A. 30-day letter. B. 90-day letter. C. A federal tax levy. D. CP-2000.

35. The answer is B. The Statutory Notice of Deficiency is often called the "90-day letter". It gives the taxpayer 90 days from the date of the notice to file a petition in the U.S. Tax Court challenging the proposed deficiency. A taxpayer has 150 days if his address is outside of the country on the day the notice of deficiency is mailed.

36. What is EFTPS? A. EFTPS is a banking application for IRS payments. B. A secure IRS system for contacting taxpayers via e-mail. C. The official name of the IRS's e-file system. D. EFTPS is an online federal tax payment system that allows taxpayers to pay individual and business taxes online.

36. The answer is D. EFTPS (Electronic Federal Tax Payment System), is an online federal tax payment system that allows taxpayers to pay individual and business taxes online. Individuals can pay their quarterly estimated taxes, and they can make payments weekly, monthly, or quarterly. Businesses can schedule payments up to 120 days in advance of their tax due date. Individuals can schedule payments up to 365 days in advance of their tax due date.

37. Booker filed his tax return on a timely basis. His refund was offset. He is not sure what type of debt was responsible for the offset, but he does owe delinquent student loans. What is the most likely scenario? A. Booker's IRS refund was offset to pay his overdue student loans. B. Booker's refund was transferred to Direct Pay. C. Booker's refund was sent to the wrong bank. D. Booker's refund was retained for future liability.

37. The answer is A. Booker's IRS refund was likely offset to pay his overdue student loans. The U.S. Department of the Treasury's Bureau of the Fiscal Service (BFS) is authorized to collect delinquent tax debts as well as debts on behalf of other federal agencies. Through the offset program, BFS may reduce a taxpayer's refund and offset it to pay: Past-due child support; Federal agency non-tax debts; State income tax obligations; or Certain unemployment compensation debts owed to a state (generally, these are debts for (1) compensation paid due to fraud, or (2) contributions owing to a state fund that weren't paid).

38. Kendra is an enrolled agent. Kendra prepares a tax return for Richard, her new client. Kendra learns that Richard does not have a bank account to receive a direct deposit of his refund. Richard is distraught when Kendra tells him a paper refund check will take three or four weeks longer than the refund being direct deposited. Richard asks Kendra if she can deposit his tax refund into her bank account and then turn the money over to him when she gets it. What should Kendra do? A. Kendra can offer to use her account to receive the direct deposit, and turn the money over to Richard once the refund is deposited. B. Kendra can explain that a taxpayer's federal or state refund cannot be deposited into a tax preparer's bank account and he will have to open an account in his own name to have the refund direct deposited. C. Kendra can suggest he borrow a bank account number from a friend because the taxpayer's name does not need to be on the bank account. D. Kendra can suggest he borrow a bank account number from a family member because the taxpayer's name does not need to be on the bank account if the bank account belongs to a related person.

38. Kendra should explain that a taxpayer's federal or state refund cannot be deposited into a tax preparer's bank account. The client will have to open an account in his name to have the refund direct deposited.

39. Which of the following is considered a primary authority of U.S. tax law? A. Supreme Court cases. B. A professional law review. C. International court cases. D. U.S. Tax Court cases.

39. The answer is A. Supreme Court cases are considered a primary authority of U.S. tax law. The IRS is always bound by law to follow U.S. Supreme Court decisions. However, the IRS is not required to follow the decisions of the other circuit courts or the Tax Court. Another primary tax authority is the actual Internal Revenue Code (IRC), which is enforced by the Internal Revenue Service (IRS) and decided by Congress. Examples of "secondary authority" include U.S. Tax Court cases and private letter rulings.

4. Married Filing Jointly means that the spouses A. Report their own incomes and deductions on separate returns. B. Combine their income and deductions on the same return. C. Combine their income, but not their deductions, on the same return. D. Report their respective income as a qualified joint venture.

4. The answer is B. "Married Filing Jointly/' means that both spouses complete and sign the same tax return, combining their income and deductions on a single return. Both spouses are responsible for any tax owed on the return.

40. Which of the following types of tax advice is specific advice provided by the IRS to a taxpayer for a fee? A. Revenue rulings. B. Technical advice memoranda. C. Private letter rulings. D. Chief Counsel advice.

40. The answer is C. Private letter rulings are written memoranda by the IRS in response to specific advice requests by taxpayers. Private letter rulings cost a minimum fee of $10,000. Technical advice memoranda (TAM) are written memoranda furnished by the IRS upon request of a district director or a chief appeals officer pursuant to annual review procedures. Revenue rulings are official IRS pronouncements. Chief counsel advice (CCA) materials are written advice or instructions prepared by the Office of Chief Counsel and issued to employees of IRS field or service center offices or the Office of Chief Counsel.

41. Which disciplinary action(s) by the IRS is not recorded in the Internal Revenue Bulletin? A. Reprimand. B. Reprimand and censure. C. Reprimand, censure, and suspension. D. All IRS disciplinary actions are recorded in the Internal Revenue Bulletin.

41. The answer is A. A reprimand is the least severe sanction issued by the IRS. It is a private letter from the director of the OPR, stating the practitioner has committed some kind of misconduct under Circular 230. The practitioner's name is not published in the Internal Revenue Bulletin. Although the issuance of a reprimand is kept private, it stays on a practitioner's record. Censure, on the other hand, is a public reprimand, with the practitioner's name published in the Internal Revenue Bulletin.

42. The IRS uses Collection Financial Standards to help determine a taxpayer's ability to pay a delinquent tax liability. National Standards have been established for five necessary expenses. Which of the following is not considered a "necessary expense" for IRS purposes? A. Food. B. Housekeeping supplies. C. Personal care products. D. Entertainment.

42. The answer is D. Entertainment would not be a necessary expense. Collection Financial Standards are used to help determine a taxpayer's ability to pay a delinquent tax liability. Allowable living expenses include those expenses that meet the "necessary expense" test. The necessary expense test is defined as expenses that are necessary to provide for a taxpayer's (and family's) health and welfare and/or production of income. National Standards for food, clothing and other items apply nationwide. National Standards have been established for five necessary expenses: food, housekeeping supplies, apparel and services, personal care products and services, and miscellaneous. Out-of-pocket health care standards have also been established for out-of-pocket health care expenses including medical services, prescription drugs, and medical supplies (e.g., eyeglasses, contact lenses, etc.).

43. Russell is a taxpayer who filed an appeal of an IRS examination. He signed IRS Form 8821, Tax Information Authorization, for his tax preparer, Emily. Which of the following is correct? A. Emily may represent Russell before IRS Appeals based on the Form 8821. B. Emily may represent Russell before IRS Appeals with the oral consent of the client. C. Emily may represent Russell before IRS Appeals with a note attached by the client. D. Emily may not represent the client before IRS Appeals.

43. The answer is D. Emily cannot represent Russell, because Form 8821, Tax Information Authorization, does not grant any type of representation rights. Emily would have to be an enrolled practitioner and obtain a signed Form 2848 from Russell in order to represent him before IRS appeals.

44. Julian's business records and computer were completely destroyed by house fire. He loses all his records, so he tries to recreate his records using estimates. Lily is an enrolled agent that prepares Julian's return using estimates. What should Lily do in this case? A. Lily cannot prepare a return using only estimates. B. Lily may prepare the return using reasonable estimates. C. Julian must request a Private Letter Ruling if he is using estimates. D. Lily should refer Julian to an attorney.

44. Lily may prepare the return using reasonable estimates. She should disclose the use of estimates to the IRS. IRC section 274 generally prohibits claiming the following deductions unless substantiation requirements are maintained: Meals and entertainment Travel Gift Expenses • Listed Property Expenses However, estimates for these expenses are allowed if the taxpayer lost records due to fire, flood or another catastrophe. Since Julian lost his records during a house fire, he is permitted to use reasonable estimates, even for the expenses listed above. Note; The IRS states that, "the goal of record reconstruction is to use available documentation to develop a sound and reasonable estimate of the taxpayer's business income and expenses 'to support the tax return prepared, Although the taxpayer may not have formal books and records with supporting documentation, they may have partial records that can be used as a basis for reconstruction."6

45. In preparing an Earned Income Credit Worksheet and Form 8867, how long should a tax preparer retain copies of both documents? A. One year from the filing of the return. B. Two years from the filing of the return. C. Three years from the filing of the return. D. Six years from the filing of the return.

45. The answer is C. A tax preparer must retain the Earned Income Credit Worksheet and Form 8867 for any refundable claims of the EITC, CTC, ACTC, or AOTC a minimum of three years from the date of filing the return.

46. Sabrina is an enrolled agent. She is in the process of representing Alexandra before the Internal Revenue Service for a tax matter. Alexandra's ex-husband, Paxton, also asked Sabrina to represent him for the same matter. Which of the following is NOT required for Sabrina to represent both? A. Sabrina must notify the Office of Professional Responsibility that she will be representing both taxpayers. B. Both taxpayers must waive the conflict of interest and give informed consent in writing to Sabrina. C. Sabrina must reasonably believe that she will be able to provide competent and diligent representation to both taxpayers. D. The representation is not prohibited by law.

46. The answer is A. Sabrina is not required to notify the Office of Professional Responsibility that she will be representing both taxpayers. When there is a conflict of interest, the taxpayers involved must waive the conflict of interest and give informed consent in writing. The practitioner must reasonably believe that she will be able to provide competent and diligent representation to both taxpayers, and the representation cannot be prohibited by law. Sabrina must retain copies of the written consents for at least 36 months from the date of the conclusion of the representation or the date that the engagement ends. Requires written waivers/consents must be made available to the IRS upon request, but do not have to be submitted to the IRS or the Office of Professional responsibility.

47. Ahmed, an enrolled agent, prepared an individual income tax return for Camille. Camille has a balance due of $25,597. Camille is not able to pay the entire amount upon filing and would like to set up an installment agreement. Which of the following statements are correct with regard to this agreement? A. Since Camille owed more than $25,000, she may not apply for an installment agreement. B. Camille will not be charged a user fee to set up this installment agreement. C. Camille must be in filing compliance. D. Camille will not be charged interest and penalties while making installment payments.

47. The answer is C. Camille must be in filing compliance, with all returns filed. If she is in filing compliance, she can apply for an installment agreement. In order for the IRS to grant a guaranteed installment agreement, a taxpayer must have not failed to file any income tax returns or pay any tax shown on such returns during any of the preceding 5 taxable years. There is a user fee to set up an installment agreement. (See Publication 594, the IRS Collection Process).6 Based on the IRS EITC training document: "Schedule C and Record Reconstruction Training," https://www.eitc.irs.gov/eitc/files/downloads/Schedule_C_Training.pdf

48. After assessment, the Internal Revenue Service generally has the authority to collect outstanding federal taxes for how many years? A. Five years. B. Ten years. C. Fifteen years. D. Twenty years.

48. Once an assessment is made, the IRS collection statute is typically ten years from the date of assessment. This is called the "collection statute expiration date" or "CSED." In certain situations, the CSED can be extended.

49. Etta is an enrolled agent, and she employs several tax return preparers in her firm. One of Etta's employees prepares a return for a client. The return is later selected for examination, and one of the larger deductions is disallowed. Etta will not be subject to a preparer penalty if: A. She does not sign the return and instead directs her employee to sign it. B. There was a reasonable basis for the position and it was adequately disclosed on the tax return. C. She warned the preparer that the deduction was an aggressive position to take. D. The preparer based the return on the information provided by the client.

49. The answer is B. An owner of a firm that employs preparers will not be subject to the preparer penalty if any of the following apply: There was substantial authority for the position taken on the return. e There was a reasonable basis for the position, and the position was adequately disclosed. • There was reasonable cause for the underpayment and the preparer acted in good faith. The determination of whether there was reasonable cause and/or a preparer acted in good faith is made on a case-by-case basis, taking into account all pertinent facts and circumstances. To meet the "reasonable basis" standard, a tax return preparer may rely in good faith, without verification, on information furnished by a taxpayer, advisor, another preparer, or other party.

5. Harmony is a tax preparer. She has a new client that does not have a Social Security card and is not eligible for a Social Security number. What type of documentation should she request from the taxpayer in this case? A. A driver's license. B. An ITIN card or letter. C. A passport. D. None of these documents are acceptable.

5. The answer is B. For individuals without a valid SSN; a tax professional should explain that they must have a taxpayer identification number. If the taxpayer has an existing IT IN, the tax professional should request a copy of the ITIN card or letter. If a taxpayer does not have an ITIN but needs to request one, an ITIN can be requested by filing Form W-7, Application for IRS Individual Taxpayer Identification Number (ITIN), with the taxpayer's federal income tax return.

50. A new client, Samir, visits Deana, an enrolled agent. Samir believes that the U.S. tax system is purely voluntary and filed a return showing no income tax, requesting all withholding be refunded. The IRS assessed a $5,000 frivolous return penalty. Samir has received a Notice of Intent to Levy and Right to Collection Due Process (CDP) Hearing concerning the $5,000 penalty. Samir wants Deana to present his previous arguments about the tax system. Which of the following is a correct statement regarding the CDP hearing request raising arguments previously deemed frivolous? A. If the appeal is deemed frivolous, Samir will be given 30 days to withdraw or amend the CDP appeal. B. The EA would not be subject to a frivolous return penalty by submitting the CDP hearing request. C. Since a $5,000 return penalty has been assessed, a second penalty cannot be assessed for the same tax period. D. In all circumstances, filing the CDP request will suspend any levies while Appeals considers the request.

50. The answer is A. If the taxpayer requests a CDP hearing and provides frivolous arguments, in whole or in part, those arguments will not be heard. If the appeal is deemed frivolous, Samir will be given 30 days to withdraw or amend the CDP appeal.

51. An enrolled agent can represent a taxpayer: A. Before IRS collections, examinations, and U.S. Tax Court. B. Only if the EA prepared the return. C. At all tax-related federal court proceedings. D. Before any administrative level of the IRS.

51. The answer is D. An enrolled agent can represent a taxpayer before any administrative level of the IRS.

52. Tiffany is provided a $300 per month mileage allowance for business travel from her employer. In order for this monthly allowance to be non-taxable to Tiffany, which of the following is true? A. Tiffany must return any excess reimbursement within 180 days after the expense was paid or incurred. B. Tiffany must adequately account for the expenses within 60 days after they were paid or incurred. C. Tiffany must receive the advance within 60 days of the time the taxpayer has the expense. D. Tiffany must adequately account for the expenses within 30 days after they were paid or incurred.

52. The answer is B. In order for this monthly allowance to be non-taxable to Tiffany, she must adequately account for the expenses within 60 days after they were paid or incurred. This is an example of an accountable plan.

53. Trey received a notice from the IRS saying a prior year's tax return had been examined, creating a tax assessment of $2,560. Trey disagrees with the amount of tax assessed. Trey could request audit reconsideration in all of the following situations EXCEPT: A. The full amount owed has already been paid. B. There is new documentation for the examination. C. Trey neither appeared for the examination nor sent information to the IRS. D. Trey moved and never received the examination notice.

53. The answer is A. Trey could request an audit reconsideration except when the full amount owed has already been paid (see IRS Publication 3598, The Audit Reconsideration Process).

54. Casimir, an enrolled agent, is representing a married couple, Griffith and Henrietta, in an ongoing IRS examination. One afternoon, Henrietta shows up early to a meeting at the EA's office. Off the record, Henrietta confides to Casimir that the examination is causing marital strife, and that Henrietta is not sure but now suspects that Griffith may have taken erroneous business deductions on his Schedule C. All of the following activities would address the conflict of interest EXCEPT (choose the best answer): A. Politely advising Henrietta that this meeting was not appropriate, and make sure that no further meetings occur unless both spouses are present. B. Informing both spouses of the potential ability to seek an innocent spouse determination as part of this examination as it moves forward. C. Advising both spouses that there could be a conflict of interest going forward in representing both of them, and they may wish to retain their own counsel in the matter. D. If Henrietta does not consent to Casimir sharing her concerns with her husband, Casimir cannot obtain informed consent from the husband to continue to represent both spouses without violating her confidences. To continue to represent Henrietta alone would also pit Casimir against Griffith, his former client. Thus, Casimir should withdraw from representation of either spouse.

54. The answer is A. The applicable reference is Circular 230, section 10.29. Circular 230 has several provisions related to conflicts of interest. A basic prohibition of the section is that: "a practitioner shall not represent a client before the Internal Revenue Service if the representation involves a conflict of interest." An exception to this rule applies ONLY when all of the following conditions are satisfied: The Practitioner must reasonably believe that he or she will be able to provide "competent and diligent representation" to each client represented; Representation of any of the clients is not prohibited by law; and Each affected client "waives the conflict of interest and gives informed consent, confirmed in-writing by the client(s). Note: This question is based on an actual EA exam question.

55. Isabelle is an enrolled agent. Her client, Frederick, is requesting her assistance with a proposed accuracy-related penalty in an examination. All of the following are methods of addressing the penalty, EXCEPT: A. Prior to a penalty being assessed, it may be appealed via deficiency procedures. B. After the penalty has been assessed, a written request for abatement can be submitted. C. After the penalty has been assessed and paid, Isabelle can prepare a claim for refund. D. Prior to assessment, Isabelle can request binding arbitration to reconsider the penalty.

55. D. Isabelle cannot request binding arbitration to reconsider the penalty. The IRS takes penalty abatement requests on a case by case basis. Prior to a penalty being assessed in an examination, it may be appealed via deficiency procedures. After the penalty has been assessed, a written request for abatement can be submitted, or the EA can prepare a claim for refund if the penalty has been assessed and paid.

56. Alaina, an enrolled agent, represented her client, Inigo, and his former business partner, Danny, before the Internal Revenue Service with regard to a partnership tax matter. Due to the potential conflict of interest, Alaina obtained written consent from each of the clients waiving the conflict of interest and giving informed consent. Alaina must keep those written consents for how long after the conclusion of representation? A. 24 Months. B. 36 Months. C. 48 Months. D. 72 Months.

56. The answer is B. If there is a potential conflict of interest between two clients, Alaina must disclose the conflict and be given the opportunity to disclose all material facts. The written consent must be retained by Alaina for at least 36 months from the date representation ends.

57. The U.S. Tax Court has generally held that taxpayers who rely on software to justify errors on self-prepared returns are: A. Not liable for the 6662 accuracy-related penalty. B. Liable for the 6662 accuracy-related penalty. C. Liable for 20% of the 6662 accuracy-related penalty. D. Liable for 40% of the 6662 accuracy-related penalty.

57. The answer is B. The Tax Court has generally held that taxpayers who rely on software to justify errors on self-prepared returns are liable for the 6662 accuracy-related penalty.

58. In 2018 and 2017, Janus did not have qualifying health insurance coverage. As a result, Janus owes a delinquent tax debt for the individual shared responsibility penalty for prior years. He does not owe any other taxes. Regarding this tax, which of the following is true? A. The amount owed is not subject to penalties, levies, or the filing of a Notice of Federal Tax Lien. However, interest will continue to accrue, and the IRS may offset federal tax refunds until the balance is paid in full. B. The amount owed is subject to penalties, levies, and the filing of a Notice of Federal Tax Lien. C. The amount owed is subject to penalties and interest will accrue, and the IRS may offset federal tax refunds until the balance is paid in full. D. The taxpayer does not have to pay the shared responsibility payment if he files a formal appeal.

58. The answer is A. The shared responsibility payment is not subject to additional penalties, levies, or the filing of a Notice of Federal Tax Lien. However, any interest on the amount owed will continue to accrue, and the IRS may offset federal tax refunds until the balance is paid in full. Note: Beginning in tax year 2019, the shared responsibility payment will no longer be assessed. However, if a taxpayer owes the penalty for prior tax years, the IRS will offset any federal refunds until the balance due is paid.

59. Francine plans to amend a prior year return due to a loss on worthless securities. How long does she have to amend her tax return with regards to worthless securities? A. 3 years. B. 5 years. C. 7 years. D. 10 years.

59. The answer is C. Francine has 7 years to amend in order to claim a loss for worthless securities. In general, a taxpayer should claim a loss on worthless stock in the year in which it becomes worthless. However, a taxpayer is allowed to amend a prior year return up to seven years from the date the original return for that year. This is an exception to the normal statute of limitations for amended returns. The taxpayer must use Form 1040X, Amended U.S. Individual Income Tax Return, to amend their return for the year the security became worthless. When the taxpayer amends a return to take a loss on worthless securities, the taxpayer must file within 7 years from the date the original return, or 2 years from the date the taxpayer paid the tax, whichever is later.

6. On May 6, 2019, Niecy discovered an error on her 2016 tax return, which had been filed on time on April 3, 2017. All tax payments were via wage withholding. She forgot to claim an education credit, and correction of this error would result in a refund. She mails an amended return on May 6, 2020. Is it too late for Brenda to claim a refund? A. Yes, it is too late for her to receive a refund. B. No, she can receive a refund. C. She can receive a credit against future tax. D. None of the answers are correct.

6. The answer is A. It is too late for Niecy to receive a refund. The postmark must be three years from the original due date of the return. The IRS will disallow Niecy's amended return requesting a refund because it was filed more than three years after the original due date of the return.

60. For the due diligence requirements regarding the Child Tax Credit and the Additional Child Tax Credit, the tax preparer must consider which of the following? A. The child's relationship to the taxpayer. B. The child's age. C. The child's residency. D. All of the above.

60. The answer is D. For the new due diligence requirements regarding the Child Tax Credit (CTC) and the Additional Child Tax Credit (ACTC), the tax preparer must consider: The child's relationship to the taxpayer. The child's age (must be under the age of 18). The child's residency (must be a U.S. citizen or U.S. resident). The child's support (must not have provided more than one-half of support). e The child's tax identification number (i.e., must be an SSN).

61. When a taxpayer is required to file an FBAR and does not file the report, the person is potentially subject to: A. Civil penalties only for non-filing. B. Civil and criminal penalties for non-filing. C. Criminal penalties only for non-filing. D. Censure for non-filing.

61. B. When a is required to file an FBAR and does not file the report, the person is potentially subject to civil and criminal penalties for non-filing. The penalties for non-filing of an FBAR are extremely severe. Civil penalties apply to both willful and non-willful violations.

62. In determining whether or not a person qualifies for Head of Household filing status, which of the following is NOT one of the tests? A. Marital status. B. Qualifying person. C. Cost of keeping up a home. D. Income.

62. The answer is D. A taxpayer's income level is irrelevant in the determination of Head of Household filing status. The client must pass the following three tests: Marital status (be unmarried or "considered unmarried"). o Have a qualifying person that lives in the home. Must pay over one-half of the cost of keeping up a home where a qualifying person resides.

63. In which of the following scenarios would a taxpayer qualify for the Child Tax Credit? A. Parent has an SSN, Child has an SSN. B. Parent has an SSN, Child has an ITIN. C. Parent has an ITIN, Child has an ITIN. D. All of the above.

63. The answer is A. The child must have a valid SSN to qualify for the $2,000 Child Tax Credit. The SSN must be issued before the due date for the filing of the return for the taxable year. However, children who would otherwise qualify for the CTC, except that they lack an SSN, are eligible for the non-refundable $500 "Other Dependent Credit" (or ODC).

64. Roxanne is an enrolled agent. She has a new client, Michael, who informs her that he has a foreign bank account. Roxanne looks at the bank statements and determines that Michael has an FBAR reporting requirement. What is Roxanne required to do in this case? A. Roxanne should prepare the FBAR return, or fire the client. B. Roxanne must advise the client of his filing obligations. She is not obligated to prepare the FBAR for the client unless she feels competent to do so and the client has agreed to this additional service. C. Roxanne should advise the client accordingly, and if the client refuses to allow her to file the FBAR, she should disengage. D. Roxanne is required to file the FBAR, whether or not the taxpayer pays a fee for the service.

64. The answer is B. Roxanne must advise the client of his filing obligations. Roxanne is not obligated to prepare the FBAR form for the client unless she feels competent to do so and the client has agreed to this additional service. In the FBAR context, a practitioner acting as a preparer or advisor to a client may determine that one or more foreign accounts exist that must be reported in designated places on the client's tax return. If so, the practitioner should prepare the return or advise the client accordingly. Nevertheless, the practitioner does have an affirmative obligation to advise the client of the need to file an FBAR and the consequences of failing to file.

65. Marion is an enrolled agent. She has a client named Leonardo who has several unpaid invoices. Marion prepared Leonardo's tax return and called him to pick it up. Later that week, Leonardo comes to Marion's office and demands the return of his records. He refuses to pay for any outstanding invoices. What is Marion required to do in this case? A. Marion must promptly return any and all records belonging to the client that are necessary for him to comply with his federal tax obligations. She is not required to give Leonardo the tax return that she prepared. B. Marion must promptly return any and all records, including the tax return that she prepared, regardless of any fee dispute. C. Marion is not required to return the client's records while there is an ongoing fee dispute. D. Marion is required to return the client's records only when the client pays in full.

65. The answer is A. Marion must, at the request of her client, promptly return any and all original records that the client needs to comply with his federal tax obligations. This requirement does not include any forms or schedules the practitioner prepared because she is withholding these documents pending the client's payment. The practitioner may retain copies of the records returned to a client.

66. The "declaration of representative" accompanying a power of attorney must be signed under penalties of perjury with the practitioner declaring that: A. The taxpayer and the preparer are both aware of Circular 230 regulations. B. The practitioner has never been under suspension or disbarment from practice before the Internal Revenue Service. C. The practitioner is authorized to represent the taxpayer identified in the power of attorney for the matters specified therein. D. The taxpayer did not sign the power of attorney under duress.

66. The answer is C. The "declaration of representative" accompanying a power of attorney must be signed under penalties of perjury with the practitioner declaring that the practitioner (or other representative) is authorized to represent the taxpayer identified in the power of attorney for the matters specified therein.

67. How often must enrolled agents renew their enrollment? A. Every year. B. Every two years. C. Every three years. D. Every five years.

67. The answer is C. Enrolled agents must renew their enrollment status every three years. As part of the application process, the IRS checks the candidate's filing history to verify that he has filed his federal returns and paid applicable taxes.

68. Only taxpayers who file electronically can pay an amount due by: A. Check. B. Money order. C. Credit card. D. Electronic funds withdrawal.

68. D. Only who file electronically can pay an amount due by electronic funds withdrawal (this is also called "direct debit").

69. Which of the following constitutes a violation by a tax preparer of Circular 230? A. Advertising to existing clients. B. Charging a contingent fee in connection with a refund claim filed for penalties or interest. C. Filing a tax return with a mathematical error. D. Giving written tax advice based on audit probability.

69. The answer is D. When giving written tax advice, a tax practitioner must not take into account the possibility that a tax return will not be audited or that a matter will not be raised on audit in evaluating a Federal tax matter (i.e., audit lottery). Answer "A" is incorrect, because advertising to clients is not a violation. Answer "B" is incorrect because a contingent fee can be charged in connection with a refund claim filed for penalties or interest. Answer "C" is incorrect, because filing a return with a mathematical error is not a violation if the error was not willful.

7. Louie is a tax preparer. His new client, Minerva, wants to claim the Earned Income Tax Credit. Which of the following issues would automatically disqualify Minerva from claiming the Earned Income Tax Credit for the 2019 tax year? A. Investment income of $3,500. B. Minerva files as Married Filing Separately. C. Minerva files her tax return on paper. D. Minerva is single and does not have a qualifying child.

7. The answer is B. A taxpayer filing MFS (Married Filing Separately) cannot claim the Earned Income Tax Credit. Answer "A" is incorrect because taxpayers whose investment income is more than $3,600 in 2019 cannot claim the ElTC (not $3,500, as the question states). Taxpayers who file MFS cannot claim the credit. Answer "C" is incorrect because filing a tax return on paper does not have any bearing on a taxpayers eligibility for EITC. Answer "D" is incorrect because some taxpayers may be able to get the ElTC if they do not have a qualifying child but meet the income requirements for their filing status.

70. Which IRS insignia may a practitioner use in his advertising? A. The official IRS e-file logo. B. The U.S. Treasury seal. C. The IRS eagle insignia. D. The IRS Financial Management Service insignia.

70. The answer is A. Practitioners generally may not use official IRS insignia in their advertising. However, a practitioner may use the IRS e-file logo. The IRS e-file logo cannot be combined with the IRS eagle symbol, the word "federal," or with other words or symbols that suggest a special relationship between the IRS and the practitioner. Advertising materials must not carry the FMS (IRS Financial Management Service), IRS, or other Treasury seals. Advertising Standards: Permissible Logos

71. Willow prepares her current year tax return and is owed a refund of $1,200. However, she owes federal taxes of $390 from an earlier tax year. Willow requests direct deposit of her refund. What will happen to her refund? A. Her refund will be held until the overdue balance from the prior year is paid in full. B. After her past due amount is offset, the balance will be deposited into her bank account. C. After her past due amount is offset, the balance will be sent as a paper check, since the refund amount cannot be legally altered when a taxpayer chooses direct deposit. D. Her refund will be held indefinitely pending official IRS review.

71. The answer is B. After her past due amount is offset, the balance of her refund will be direct deposited into Willows bank account. If a taxpayer's federal tax refund is decreased due to an offset, the refund will be decreased, and any remaining amount will be deposited into the taxpayers designated account.

72. An individual taxpayer who is concerned about stolen identity refund fraud should consider: A. Filing a tax return using a tax software program. B. Filing a tax return using a paid preparer. C. Filing a tax return with an Identity Protection PIN (IP PIN). D. Filing a paper tax return via U.S. Postal Service.

72. C. A who is concerned about identity theft and owed a refund can help prevent refund fraud by filing his tax return with an IP PIN. Stolen Identity Refund Fraud (SIRF) is a growing type of crime that occurs when thieves file fraudulent refund claims using a legitimate taxpayer's identifying information, such as Social Security numbers that they have stolen. Typically, SIRF perpetrators file the false returns electronically, early in the tax filing season so that the IRS receives the false SIRF return before the legitimate holder of the Social Security number has time to file his return.

73. Which of the following would be an acceptable basis for an IRS appeal? A. An appeal based on political grounds. B. An appeal based on a recent court case. C. An appeal based on religious grounds. D. An appeal based on moral grounds.

73. The answer is B. Reasons for an appeal must be supported by tax law, including recent court cases or any other relevant tax law changes. An appeal cannot be based solely on moral, religious, political, constitutional, conscientious, or similar grounds. IRS Appeals is a venue where disagreements concerning the application of tax law can be resolved on an impartial basis without having to go to court.

74. In which of the following instances does the IRS not require additional documentary evidence to support a taxpayer's travel, gift, or transportation expenses when he is traveling away from home on business? A. A business meal expense of $250. B. An expense of $150 for lodging while traveling on business. C. Per diem allowances for meals or lodging that are reported to an employer under an accountable plan. D. Auto expenses for travel from multiple work locations.

74. The answer is C. The responsibility to prove entries, deductions, and statements made on your tax returns is known as the "burden of proof." Taxpayers generally must have documentary evidence, such as receipts, canceled checks, or bills, to substantiate their expenses. However, documentary evidence is not needed if any of the following conditions apply: • The taxpayer has meals or lodging expenses while traveling away from home for which he reports to his employer using a per diem allowance method under an accountable plan. e The taxpayer's expense, other than lodging, is less than $75. • The taxpayer has a transportation expense for which a receipt is not readily available. However, in the case of mileage, the taxpayer should keep a mileage log.

75. Which of the following infractions could cause an e file provider to be permanently expelled from the IRS e-file program? A. Level One. B. Level Two. C. Level Three. D. All of the above.

75. The answer is C. The IRS can sanction any e-file provider who fails to comply with e-file regulations. The IRS categorizes the seriousness of infractions as Level One (the least serious), Level Two, and Level Three (the most serious). A Level One infraction may result in an e-file provider receiving a written reprimand from the IRS. A Level Two infraction may result in a provider being suspended from participation in e-file for one year. A Level Three infraction may result in a provider being suspended from participating in e-file for two years or permanently expelled from the program. Level three infractions include: Association with known criminals. Monetary crimes. Fiduciary crimes. Conduct indicative of potential fraudulent acts, (e.g., directing all or a portion of the taxpayers refund via direct deposit to the preparer's bank account or negotiating the taxpayer's refund check). Any criminal conduct.

76. What kind of U.S. savings bonds can a taxpayer buy automatically using his tax refund? A. Municipal bonds. B. Series I U.S. savings bonds. C. War bonds. D. Series EE U.S. savings bonds.

76. B. A taxpayer can automatically purchase Series I U.S. Savings Bonds using his tax refund. A taxpayer can buy savings bonds in increments of $50. The taxpayer would buy the bonds at face value, meaning if the taxpayer pays $50 using their refund, they get a $50 savings bond. A taxpayer can buy up to a total of $5,000 in paper Series I U.S. Savings Bonds with their refund.

77. When does a durable power of attorney expire? A. When a taxpayer either marries or divorces. B. When a taxpayer is deemed incompetent. C. When a taxpayer becomes mentally incapacitated. D. When a taxpayer dies.

77. The answer is D. A durable power of attorney is terminated upon a taxpayer's death. A durable power of attorney is not subject to a time limit and will continue in force after the incapacitation or incompetency of the individual. An IRS power of attorney is automatically revoked if the person who made it is found to be incompetent, but a durable power of attorney can only be revoked by the person who made it, and while that person is mentally competent.

78. Kesha is a tax preparer who submits approximately 350 tax returns each year. Many tax returns that she prepares include claims for the Additional Child Tax Credit, but she fails to submit the Form 8867 to the IRS or do any due diligence for any of those returns. What potential preparer penalty does she face from the IRS? A. $50 per failure. B. $250 per return. C. $530 per failure. D. $5,000 per return.

78. The answer is C. In 2019, the IRS may assess a $530 penalty per failure to preparers who do not submit the Form 8867, Paid Preparer's Due Diligence Checklist, with all EITC, AOTC, and ACTC claims. The Tax Cuts and Jobs Act also amended IRC section 6695 to add due diligence requirements for the head of household (HOH) filing.

79. A partnership with or fewer partners is not required to e-file its tax return. A. 50 B. 100 c. 200 D. 250

79. The answer is B. Partnerships with more than 100 partners are required to e-file their partnership tax return. Partnerships with 100 or fewer partners (Schedules K-1) may voluntarily file their returns electronically, but are not required to do so.

8. In order to determine if a taxpayer has a filing requirement, what information is required? A. The taxpayer's income, filing status, and age. B. The taxpayer's income, filing status, and place of birth. C. The taxpayer's filing status and age. D. The taxpayer's income and age.

8. The answer is A. To determine whether a taxpayer has a filing requirement, a preparer needs to know the taxpayer's income, filing status, and age.

80. A tax preparer is required to sign the preparer's section on each tax return that they prepare for compensation. The preparer's declaration on signing the return states that the information contained in the return is true, correct, and complete based on all information he has. This preparer statement is signed A. Under duress. B. Without prejudice. C. Without requirements. D. Under penalties of perjury.

80. The answer is D. This preparer statement on the return is signed under penalty of perjury. The taxpayer also signs the jurat on the taxpayer's signature area of the return, and the preparer's area of the jurat is signed under penalty of perjury, as well.

81. What does Form 8879 authorize? A. Transcript request. B. E-file signature authorization by an ERO. C. Extension of time to e-file. D. Third Party Authorization.

81. The answer is B. A taxpayer may authorize an electronic return originator (ERO) to enter his PIN for him by signing Form 8879, IRS e-file Signature Authorization. Tax preparers must ensure that they receive signed authorizations from their clients before electronically submitting the clients' tax returns.

82. How does a taxpayer submit additional documentation to the IRS on an e-filed tax return? A. The taxpayer should use Form 8453 and mail in supporting documentation. B. A Form 1040X must be filed with the paper attachments. C. The taxpayer should use Form 2848 and mail in supporting documentation. D. The return must be paper-filed if additional documentation must be sent with the return.

82. The answer is A. Form 8453, U.S. Individual Income Tax Transmittal for an IRS e-file Return, is used to send any required paper forms or supporting documentation that may be needed with an e-filed return. Form 8453 must be submitted to the IRS within three business days after receiving acknowledgment that the IRS has accepted the electronically filed return. An example of when this form might be required is when a taxpayer donates a used vehicle to a charity and receives Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes. The taxpayer's return can be e-filed, claiming the deduction, and the Form 1098-C can be mailed in by itself, along with the Form 8453.

83. Gregory is an enrolled agent. He comes into his office one morning and realizes that he has had a data breach—a scammer has logged into his computers remotely and submitted fraudulent returns under his EFIN. How long does Gregory have to contact the IRS to notify them of the breach? A. One day. B. 48 hours. C. 72 hours. D. 5 days.

83. A. Gregory has one day to contact the IRS to report the data breach. In case of a data breach, a tax preparer has one day to contact the IRS. Publication 5199, Tax Preparer Guide to Identity Theft, outlines the warning signs that indicate individual and business clients' Social Security numbers have been compromised, as well as the steps that must be taken in the case of a data breach. Also see IRS Publication 4557, Safeguarding Taxpayer Data, for more information on data security for tax professionals.

84. Weston passed all three parts of the EA exam. He wants to submit his application to become an enrolled agent. With regards to his enrollment, what types of personal tax issues could negatively impact Weston's application for enrollment? A. Lack of an Employer Identification Number. B. Lack of a Social Security number. C. An overdue tax return that has not been filed. D. Weston does not have an EFIN.

84. The answer is C. In general, any overdue tax return that has not been filed could negatively impact a practitioner's application for enrollment. Lack of a Social Security number, EIN, or EFIN would not automatically preclude a tax professional from enrollment. For example, specified tax return preparers who live and work abroad are not precluded from enrollment, even if they do not have an SSN.

85. The statute of limitations for the criminal offense of willfully attempting to evade or defeat any tax is: A. Three years. B. Six years. C. Ten years. D. Indefinite.

85. The answer is B. Under IRC section 6531 (periods of limitation on criminal prosecutions), there is a six-year statute of limitations for the criminal offense of willfully attempting to evade or defeat any tax. Do not confuse this with the collection statute on a fraudulent return. There is no statute of limitations for collection when a fraudulent return is filed, but the collection statute is a civil matter, not a criminal one.

86. Carlisle is an enrolled agent. Carlisle has a new client named Monique who received an assessment from the IRS regarding a joint return she filed in a prior year with her ex-husband, Darby. During the interview, Carlisle learns that Darby was a gambling addict. Upon further examination of Monique's IRS transcripts, Carlisle discovers several more items of income that were left off the original return, and all of them were related to Darby's gambling habit. Monique had no idea that the return she filed had underreported income. Does Monique have any recourse in this case? A. Monique and her ex-husband are both jointly and severally liable for the tax on the previously filed return, and she has no recourse in this case. B. Monique may qualify for relief as an injured spouse. C. Monique may qualify for relief as an innocent spouse. D. Monique may request a conference with the IRS Appeals Office.

86. The answer is C. Monique may qualify for relief as an innocent spouse even when she is responsible for all or part of the tax liability. A spouse requesting innocent spouse relief must not have known, or have reason to have known, that income of the other spouse was underreported or that the tax shown on the return was otherwise incorrect. The taxpayer must complete and attach Form 8857, Request for Innocent Spouse Relief, to apply for innocent spouse relief. Note: An "injured" spouse claim is different from an "innocent spouse" relief request, Form 8379 allows an injured spouse to request the division of the tax overpayment attributed to each spouse. An innocent _spouse uses Form 8857, Request for Innocent Spouse Relief, to request relief from joint liability for tax, interest, and penalties on a joint return for items of the other spouse (or former spouse) that were incorrectly reported on a joint return.

87. What is the function of an IP PIN? A. The IP PIN acts as fraud prevention tool to validate the dependents listed on the tax return. B. The IP PIN acts as an authentication number to validate the correct owner of the Social Security number(s) listed on the tax return. C. The IP PIN acts as an authentication number to validate the taxpayer's eligibility for refundable credits. D. The IP PIN acts as a substitute for an electronic signature on an e-filed return.

87. The answer is B. The IP PIN acts as an authentication number to validate the correct owner of the Social Security number(s) listed on the tax return. The IRS IP PIN is a 6-digit number assigned to eligible taxpayers to help prevent the misuse of their Social Security number on fraudulent federal income tax returns. A new IP PIN will be generated each year.

88. Heartland Realty, LLP is a domestic partnership. Which of the following would prevent Heartland Realty from electing out of the new "Centralized Partnership Audit Regime?" A. Heartland Realty has 50 partners. B. Heartland Realty has a partner that is a C corporation. C. Heartland Realty has a partner that is a single-member LLC. D. Heartland Realty has a partner that is an S corporation.

88. The answer is C. Heartland Realty cannot elect out of the new Centralized Partnership Audit regime if it has a partner that is a single-member LLC. In order to "elect out" of the Centralized Partnership Audit regime, the partnership must have 100 or fewer partners, and the partners must be "permitted partners." Permitted partners include only: individuals, C corporations, S corporations, and estates of deceased partners (but not bankruptcy estates).

89. Katie and Michael are married and file jointly. Michael is in the U.S. Marines, currently serving in a combat zone. Katie has no way to contact her husband for several months. When one spouse is serving in a combat zone, what is required in order to file a joint return? A. Both spouses must sign, so Katie must appeal to the IRS for a special exemption. B. Katie may delay filing the tax return until Michael has returned to the United States and can sign the return. C. Katie may sign the joint return on her husband's behalf, but only if she secured a power of attorney in advance. D. Katie may sign on behalf of her husband, whether or not she has a signed power of attorney.

89. D. Katie is allowed to sign on behalf of her husband whether or not she has a signed power of attorney. A spouse can sign a joint return for a spouse who cannot sign because he is serving in a combat zone, even without a power of attorney. Note: This exception is specifically -for personnel serving in a combat zone and does not apply to taxpayers who are simply Active-duty military. For members of the Armed Forces Serving in a combat zone or qualified hazardous duty area, the deadline for filing tax return* paying taxes, filing claims for refunds, and taking Other actions with the IRS is automatically extended. For more information, see IRS Publication 3, Armed Forces' Tax Guide,

9. Some refund claims include extra due diligence requirements for tax preparers. Which of the following credits or tax situations do not require additional due diligence requirements? A. Premium Tax Credit. B. American Opportunity Tax Credit. C. Additional Child Tax Credit. D. Head of Household filing status.

9. A. A tax preparer has four due diligence requirements related to EITC, AOTC, and ACTC claims. The Tax Cuts and Jobs Act amended IRC section 6695 to add due diligence requirements for the head of household (HOH) filing. A preparer must complete and submit to the IRS Form 8867, Paid Preparer's Due Diligence Checklist. Only the Premium Tax Credit does not have these "additional" due diligence requirements, although a tax preparer must always use reasonable care when preparing a tax return.

90. What is the legal procedure by which the IRS can seize a taxpayer's property in order to satisfy a tax debt? A. An IRS levy. B. A jeopardy assessment. C. An IRS lien. D. A deficiency seizure.

90. The answer is A. The Internal Revenue Service may use a levy to legally seize a taxpayer's property to satisfy a tax debt. A levy is a legal seizure of property. An IRS lien is the precursor to an IRS levy. The lien is a claim used for security of the tax debt.

91. The IRS conducts a suitability check on all EFIN applicants. Suitability checks may include which of the following? A. A drug check. B. A residency check. C. A criminal background check. D. A DMV driving record check.

91. The answer is C. The IRS conducts a suitability check on all EFIN applicants and on all Principals and Responsible Officials listed on the EFIN application. Suitability checks may include all the following: A criminal background check. A credit history check. A tax compliance check to ensure that all required returns are filed and paid, and to identify assessed fraud penalties. A check for prior non-compliance with IRS e-file requirements.

92. All or part of a taxpayer's refund may be offset to pay off past-due debts. Which of the following would not be a reason for the IRS to offset a taxpayer's return? A. The taxpayer has past-due federal taxes. B. The taxpayer has unpaid local utility bills. C. The taxpayer has delinquent student loans. D. Past-due state income tax obligations.

92. The answer is B. Unpaid utility bills would not be included in the IRS's refund offset program. All or part of a taxpayer's refund may be used (offset) to pay off past-due federal tax, unpaid state income tax, state unemployment compensation debts, child support, spousal support, or other federal non-tax debts, such as delinquent student loans.

93. A taxpayer was convicted of felony tax evasion for failing to file a tax return. The taxpayer can face a fine of up to $100,000, in addition to a maximum prison sentence of: A. One year. B. Two years. C. Five years. D. Ten years.

93. The answer is C. In the case of felony tax evasion, for each year a taxpayer does not file a tax return, the penalty can include a fine of up to $25,000 and a prison sentence of up to one year. If it can be demonstrated that the taxpayer deliberately did not file in an attempt to evade taxation, the IRS can pursue a felony conviction, which can include a fine of up to $100,000 and a maximum prison sentence of five years. This would be in addition to any civil penalties which may also be assessed.

94. The following tax professionals have unlimited representation rights before the IRS EXCEPT: A. Enrolled agents. B. Attorneys. C. Certified Public Accountants. D. AFSP certificate holders.

94. The answer is D. AFSP certificate holders only have limited representation rights. Enrolled agents, certified public accountants, and attorneys have unlimited representation rights before the IRS. Tax professionals with these credentials may represent their clients on any matters including audits, payment issues, collection issues, and appeals.

95. Ezekiel previously passed two parts of the EA exam, but did not have the time to finish taking all three parts in the current testing cycle. How long can he carry over those two scores? A. 1 year. B. 2 years. C. 3 years. D. 4 years.

95. B. Ezekiel can carry over his passing scores up to two years from the date he took the examination. For example, if Ezekiel took and passed part 1 on November 15, 2019, and passed part 2 on February 15, 2020, he has until November 15, 2021; to pass the remaining part otherwise he loses credit for part 1. On February 15, 2022, if Ezekiel still has not passed all other parts of the examination, he also loses credit for part 2.

96. A case in the U.S. Tax Court is commenced by A. The filing of a petition. B. A formal protest. C. A taxpayer's appeal. D. An IRS impasse.

96. The answer is A. A case in the U.S. Tax Court is commenced by the filing of a petition. The petition must be timely filed within the allowable time. There are no extensions for filing a petition. The Tax Court cannot extend the time for filing a petition, which is dictated by statute.

97. Marcel's tax return was chosen for audit. He tried to contact the revenue agent in charge of his case, but the agent won't return any of his calls. Marcel believes the IRS is not handling his case in a timely and appropriate manner. Who should be contacted for assistance? A. IRS Help Line. B. U.S. Tax Court. C. Taxpayer Advocate Service. D. IRS Appeals office.

97. The answer is C. Marcel should contact the Taxpayer Advocate Service. Congress created the Taxpayer Advocate Service, an independent function within the IRS, to help taxpayers resolve issues with the IRS. If a taxpayer has a problem that is not being resolved in a timely manner, (for example, an amended return that is taking much longer than normal to process, or a tax refund that has not been released, even months after the return was filed), then the taxpayer can contact the Taxpayer Advocate Service to intervene.

98. What happens when the IRS files a "substitute return" for a taxpayer? A. A substitute return will give the taxpayer credit for all exemptions, credits, and deductions he is entitled to receive. The taxpayer may not file his own tax return if a substitute return has been filed. B. A substitute return will give the taxpayer credit for all exemptions, credits, and deductions he is entitled to receive. The taxpayer may still file his own tax return, and the IRS will generally adjust the account to reflect the correct figures if the taxpayer has evidence of additional items to reduce the tax owed. C. A substitute return may not give the taxpayer credit for all exemptions, credits, and deductions he is entitled to receive. The taxpayer may not file his own tax return if a substitute return has been filed. D. A substitute return may not give the taxpayer credit for all exemptions, credits, and deductions he is entitled to receive. The taxpayer may still file his own tax return to take advantage of any exemptions, credits, and deductions he is entitled to receive. The IRS will generally adjust the account to reflect the correct figures.

98. The answer is D. If a taxpayer fails to file an income tax return, the IRS can file a substitute return (SFR) for him. The IRS will then send a notice of deficiency (90-day letter) proposing a tax assessment. A substitute return may not provide the taxpayer all the exemptions, credits, and deductions he is entitled to receive. However, if the IRS files a substitute return, a taxpayer can still file his own return to take advantage of exemptions, deductions, and credits. The IRS will generally adjust a taxpayer's account to reflect the correct figures.

99. Which of the following is a benefit for a taxpayer who appeals his tax assessment through the U.S. Tax Court? A. He does not have to pay his contested tax first. B. He can appeal his decision back to IRS Appeals if the judge rules against him. C. He can contest tax deficiencies of any type or amount. D. He can use an enrolled agent to represent him in court.

99. The answer is A. One advantage of the U.S. Tax Court is that a taxpayer is not required to pay the contested tax first (as he must when appealing in other U.S. courts).