Tax Preparer Final Exam Review with
Complete solutions
A taxpayer is building a new home and had a solar water heater installed in 2009, but
the home was not ready to be occupied until early 2010. Can they take the residential
energy credit? - ANSWER-Yes, they can take the credit on their 2010 tax return. (8.21)
A taxpayer makes his final 2008 state estimated tax payment on January 15, 2009.
Where should he report this item? - ANSWER-It is included on his 2009 Schedule A,
line 5. This payment also should have been included on the estimated payments line of
his 2008 state return.
A taxpayer wants to amend his 2006 return. He filed it April 16, 2007. The return was
examined by the IRS on January 9, 2009 and $280 additional tax was paid that date.
What is the latest date on which an amended return may be filed? - ANSWER-January
9, 2011
Any refund will be limited to $280 (the tax paid within the two years preceding the date
the amended return was filed). (23.3)
A taxpayer wrote a check for a $500 donation to his mosque. Is his cancelled check
sufficient documentation to support his deduction? - ANSWER-No. Donations of $250 or
more must have written substantiation from the donee. (12.29)
A taxpayer's employer paid $500 of a taxpayer's $2,000 child care expenses for him.
How will the employer's assistance affect the child-care credit? - ANSWER-Total child
care expenses must be reduced by any amounts paid by the employer. (8.11)
An employee has an office where he works, but his work load demands that he bring
home work on evenings and weekends. He uses a room of his home regularly and
exclusively for his work. May he deduct home-office expenses? - ANSWER-No, the
employer provides a work office. (17.23)
Are early distributions from qualified retirement plans always penalized? - ANSWER-No.
• Does not apply to qualified disaster recovery assistance distributions.
• Does not apply to any recovery of cost or any amount rolled over in a timely manner.
(22.12,13)
Are scholarships and fellowships taxable? - ANSWER-• If a W-2 is received it is FULLY
taxable.
• Amounts to Non-degree candidates are FULLY taxable and reported on Line 7 marked
"SCH"
• Amounts to Degree candidates spent for qualified expenses are NOT taxable. (18.5)
, At what amount must interest income be reported on Form 1040, Schedule B? -
ANSWER-When the total taxable interest exceeds $1,500 (6.2)
Carol has a home office. When she is not using the office, she lets her children play
video games on an old television she keeps there. Can Carol deduct home-office
expenses? - ANSWER-No. The space must be used exclusively for the business.
(17.21)
Define basis. - ANSWER-A measure of the taxpayer's investment in property for tax
purposes. (20.4)
For MACRS purposes, we need to divide real property into two categories. What are
they? - ANSWER-Residential and Nonresidential (16.7)
For tax purposes, when is a person's marital status determined? - ANSWER-On the last
day of the tax year. (3.2)
Ho do we determine the MACRS recovery period of a piece of personal property? -
ANSWER-By using the Table of Asset Class Lives and Recovery Periods (16.3)
How can a disability pension qualify as earned income for the EIC? We've learned
pensions are not earned income. - ANSWER-Before the taxpayer reaches minimum
retirement age, it's considered earned income (18.11)
How can a married individual meet the joint return test to remain a qualifying child? -
ANSWER-They can meet this test by not filing a joint return with their spouse, or they
can file a joint return with their spouse if they are filing only to claim a refund of any
taxes withheld. (4.4)
How can you determine who paid more than half of the person's support? - ANSWER-
Total support is determined and reduced by the funds received by and for the person
from all sources other than the taxpayer. The remaining support is considered to be
provided by the taxpayer. (4.9)
How does a Tax Professional know if a distribution exception applies? - ANSWER-• He
can determine that by using thorough interview questions when discussing the
distribution with the client.
• The distribution code on the 1099-R can also be helpful to the Tax Professional.
(22.12)
How does a Tax Professional meet due diligence requirements? - ANSWER-• Tax
Professionals fulfill due diligence requirements by making every effort to prepare
accurate and complete returns.
• Tax Professionals must have knowledge of tax law, and apply a reasonability check to
the information provided by their clients. (26.1)
Complete solutions
A taxpayer is building a new home and had a solar water heater installed in 2009, but
the home was not ready to be occupied until early 2010. Can they take the residential
energy credit? - ANSWER-Yes, they can take the credit on their 2010 tax return. (8.21)
A taxpayer makes his final 2008 state estimated tax payment on January 15, 2009.
Where should he report this item? - ANSWER-It is included on his 2009 Schedule A,
line 5. This payment also should have been included on the estimated payments line of
his 2008 state return.
A taxpayer wants to amend his 2006 return. He filed it April 16, 2007. The return was
examined by the IRS on January 9, 2009 and $280 additional tax was paid that date.
What is the latest date on which an amended return may be filed? - ANSWER-January
9, 2011
Any refund will be limited to $280 (the tax paid within the two years preceding the date
the amended return was filed). (23.3)
A taxpayer wrote a check for a $500 donation to his mosque. Is his cancelled check
sufficient documentation to support his deduction? - ANSWER-No. Donations of $250 or
more must have written substantiation from the donee. (12.29)
A taxpayer's employer paid $500 of a taxpayer's $2,000 child care expenses for him.
How will the employer's assistance affect the child-care credit? - ANSWER-Total child
care expenses must be reduced by any amounts paid by the employer. (8.11)
An employee has an office where he works, but his work load demands that he bring
home work on evenings and weekends. He uses a room of his home regularly and
exclusively for his work. May he deduct home-office expenses? - ANSWER-No, the
employer provides a work office. (17.23)
Are early distributions from qualified retirement plans always penalized? - ANSWER-No.
• Does not apply to qualified disaster recovery assistance distributions.
• Does not apply to any recovery of cost or any amount rolled over in a timely manner.
(22.12,13)
Are scholarships and fellowships taxable? - ANSWER-• If a W-2 is received it is FULLY
taxable.
• Amounts to Non-degree candidates are FULLY taxable and reported on Line 7 marked
"SCH"
• Amounts to Degree candidates spent for qualified expenses are NOT taxable. (18.5)
, At what amount must interest income be reported on Form 1040, Schedule B? -
ANSWER-When the total taxable interest exceeds $1,500 (6.2)
Carol has a home office. When she is not using the office, she lets her children play
video games on an old television she keeps there. Can Carol deduct home-office
expenses? - ANSWER-No. The space must be used exclusively for the business.
(17.21)
Define basis. - ANSWER-A measure of the taxpayer's investment in property for tax
purposes. (20.4)
For MACRS purposes, we need to divide real property into two categories. What are
they? - ANSWER-Residential and Nonresidential (16.7)
For tax purposes, when is a person's marital status determined? - ANSWER-On the last
day of the tax year. (3.2)
Ho do we determine the MACRS recovery period of a piece of personal property? -
ANSWER-By using the Table of Asset Class Lives and Recovery Periods (16.3)
How can a disability pension qualify as earned income for the EIC? We've learned
pensions are not earned income. - ANSWER-Before the taxpayer reaches minimum
retirement age, it's considered earned income (18.11)
How can a married individual meet the joint return test to remain a qualifying child? -
ANSWER-They can meet this test by not filing a joint return with their spouse, or they
can file a joint return with their spouse if they are filing only to claim a refund of any
taxes withheld. (4.4)
How can you determine who paid more than half of the person's support? - ANSWER-
Total support is determined and reduced by the funds received by and for the person
from all sources other than the taxpayer. The remaining support is considered to be
provided by the taxpayer. (4.9)
How does a Tax Professional know if a distribution exception applies? - ANSWER-• He
can determine that by using thorough interview questions when discussing the
distribution with the client.
• The distribution code on the 1099-R can also be helpful to the Tax Professional.
(22.12)
How does a Tax Professional meet due diligence requirements? - ANSWER-• Tax
Professionals fulfill due diligence requirements by making every effort to prepare
accurate and complete returns.
• Tax Professionals must have knowledge of tax law, and apply a reasonability check to
the information provided by their clients. (26.1)
