Enrolled Agent Exam Part 1
Individual tax identification number (ITIN) vs Tax identification number (TIN) -
ANS-Individual tax identification number (ITIN):
- An ITIN does not authorize work in the U.S. or provide eligibility for Social Security
benefits or the Earned Income Tax Credit.
- Any ITIN that is not used on a federal tax return for three consecutive tax years will
expire.
- A taxpayer can't electronically file (e-file) a return using an ITIN in the calendar year
the ITIN is assigned.
Tax identification number (TIN):
- Everybody on the tax return, including dependents, needs a valid taxpayer
identification number (TIN) issued by the due date of the return (including extensions).
There is an exception for a child that is born and dies in the same year
- A TIN is a Social Security number (SSN), an individual taxpayer identification number
(ITIN), or an adoption taxpayer identification number (ATIN)
- Earned Income Credit, Child Tax Credit, and Additional Child Tax Credit requires a
valid SSN only
Under the American Rescue Plan Act of 2021, for 2021 and future years, if a qualifying
child does not have a valid SSN, taxpayer may claim the earned income credit for
individuals with no qualifying children.
- Credit for Other Dependents and American Opportunity Credit requires a valid SSN,
ITIN, or ATIN
Due diligence penalty - ANS-For any failure relating to a return or claim for refund filed
in 2023 (generally 2022 tax returns filed in 2023), penalty is $560 for each failure with
no maximum penalty unless failure is due to reasonable cause and not willful neglect.
Failure to be diligent in determining eligibility for certain tax benefits - Earned Income
Credit, American Opportunity Credit, Child Tax Credit (including Additional Child Tax
Credit and Credit for Other Dependents), and Head of Household filing status. Preparer
must ask all questions required on Form 8867 and also ask additional questions when
information seems incorrect, inconsistent, or incomplete. Preparer must also verify
identity, prepare a computational checklist (Form 8867 or equivalent), and meet a
recordkeeping requirement.
Custodial parent - ANS-The custodial parent is the parent with whom the child lived for
the greater number of nights during the year. Only the custodial parent is entitled to
,claim the child for head of household filing status, the credit for child and dependent
care expenses, the exclusion for dependent care benefits, the earned income credit,
and the health coverage tax credit.
The custodial parent can file form 8332 allowing the noncustodial parent to claim the
child for the child tax credit, additional child tax credit, and the credit for other
dependents
Situations where taxpayer is required to file a return - ANS-- Net earnings from
self-employment are $400 or more
- Church wages are $108.28 or more (from a church that is FICA exempt)
- The taxpayer (or spouse, if filing jointly) received HSA, Archer MSA, or Medicare
Advantage MSA distributions
- Advance payments of the premium tax credit were made for the taxpayer, spouse, or a
dependent who enrolled in coverage through the Health Insurance Marketplace
- The taxpayer owes special taxes (e.g. household employment taxes) or must
recapture certain credits or taxes
A single dependent (who may be claimed by another taxpayer) must file a return if any
of the following apply in 2022 - ANS-- Unearned income more than $1,150 ($2,900 if
blind or 65 or older, $4,650 if blind and 65 or older)
- Earned income more than $12,950 ($14,700 if blind or 65 or older, $16,450 if blind and
65 or older)
- Gross income more than the larger of:
-$1,150 ($2,900 if blind or 65 or older, $4,650 if blind and 65 or older), or
-Earned income (up to $12,550) plus $400 (plus $2,150 if blind or 65 or older, plus
$3,900 if blind and 65 or older)
A taxpayer with gross income below the gross income threshold (based on filing status
and age) is not required to file a return. Gross income threshold 2022: - ANS-- Single
$12,950 ($14,700 if 65 or older)
- Head of Household $19,400 ($21,150 if 65 or older)
,- Married Filing Jointly $25,900 ($27,300 if one spouse 65 or older, $28,700 if both
spouses 65 or older)
- Qualifying Surviving Spouse $25,900 ($27,300 if 65 or older)
- Married Filing Separately $5 (any age)
Gross income - ANS-The total of earned and unearned income subject to tax.
Gross income means all income you received in the form of money, goods, property,
and services that isn't exempt from tax, including any income from sources outside the
United States or from the sale of your main home (even if you can exclude part or all of
it).
Earned income Includes - ANS-Earned income includes
- wages, salaries, tips,
- union strike benefits,
- long-term disability benefits received prior to minimum retirement age,
- net earnings from self-employment, and
- non-taxable combat pay (only if elected and included in taxable income).
- Includes the amount of taxable scholarship or fellowship grant (only for purposes of
filing requirements and the standard deduction).
For IRA contributions, taxable alimony from divorces finalized before 2019
Unearned income - ANS-Payments classified as income that are not considered
earned, include:
- unemployment compensation,
- taxable Social Security benefits,
- taxable pensions,
- annuity income,
- canceled debt,
- unearned income from a trust,
- taxable interest, dividends, capital gains,
- alimony, or
- pay received while in jail.
Constructive receipt - ANS-Constructive receipt occurs when the income is available for
a taxpayer's unrestricted withdrawal. Physical possession is not a requirement.
, Cash Method vs Accrual Method - ANS-Cash method: Most individual taxpayers use
the cash method. Record income on constructive receipt and expenses when payment
is made.
Accrual method: Record income when earned and expenses when accrued. The IRS
considers the taxpayer to have earned income when all the events have occurred that
fix the right to receive such income and the amount is reasonably determinable.
Tip income taxability - ANS-- All tips (cash or FMV of property) are subject to federal
income tax, SS, and Medicare.
- A penalty equal to 50% of unpaid SS and Medicare taxes due on unreported tips.
- Report cash and charge tips to the employer by the 10th of the following month if $20
or more.
- Tips reported to the employer on time are considered income in month reported.
- Tips that are not reported on time are considered income in month actually received.
- Report non-cash tips to IRS, not employer. No SS or Medicare on non-cash tips.
Group term life insurance taxability - ANS-The cost of up to $50,000 of group term life
insurance coverage provided by an employer is not included in income.
The employee's income shall include premiums paid by the employer for more than
$50,000 of coverage.
Disability income taxability - ANS-The amount received due to employer-paid plan
premiums is taxable.
Sick pay taxability - ANS-Pay received from an employer while sick or injured is part of
salary or wages. Include sick pay benefits received from other sources in income if the
employee did not pay premiums to receive the benefit.
Advance commissions taxability - ANS-Include advance commissions or other amounts
for future services as income in the year received
Individual tax identification number (ITIN) vs Tax identification number (TIN) -
ANS-Individual tax identification number (ITIN):
- An ITIN does not authorize work in the U.S. or provide eligibility for Social Security
benefits or the Earned Income Tax Credit.
- Any ITIN that is not used on a federal tax return for three consecutive tax years will
expire.
- A taxpayer can't electronically file (e-file) a return using an ITIN in the calendar year
the ITIN is assigned.
Tax identification number (TIN):
- Everybody on the tax return, including dependents, needs a valid taxpayer
identification number (TIN) issued by the due date of the return (including extensions).
There is an exception for a child that is born and dies in the same year
- A TIN is a Social Security number (SSN), an individual taxpayer identification number
(ITIN), or an adoption taxpayer identification number (ATIN)
- Earned Income Credit, Child Tax Credit, and Additional Child Tax Credit requires a
valid SSN only
Under the American Rescue Plan Act of 2021, for 2021 and future years, if a qualifying
child does not have a valid SSN, taxpayer may claim the earned income credit for
individuals with no qualifying children.
- Credit for Other Dependents and American Opportunity Credit requires a valid SSN,
ITIN, or ATIN
Due diligence penalty - ANS-For any failure relating to a return or claim for refund filed
in 2023 (generally 2022 tax returns filed in 2023), penalty is $560 for each failure with
no maximum penalty unless failure is due to reasonable cause and not willful neglect.
Failure to be diligent in determining eligibility for certain tax benefits - Earned Income
Credit, American Opportunity Credit, Child Tax Credit (including Additional Child Tax
Credit and Credit for Other Dependents), and Head of Household filing status. Preparer
must ask all questions required on Form 8867 and also ask additional questions when
information seems incorrect, inconsistent, or incomplete. Preparer must also verify
identity, prepare a computational checklist (Form 8867 or equivalent), and meet a
recordkeeping requirement.
Custodial parent - ANS-The custodial parent is the parent with whom the child lived for
the greater number of nights during the year. Only the custodial parent is entitled to
,claim the child for head of household filing status, the credit for child and dependent
care expenses, the exclusion for dependent care benefits, the earned income credit,
and the health coverage tax credit.
The custodial parent can file form 8332 allowing the noncustodial parent to claim the
child for the child tax credit, additional child tax credit, and the credit for other
dependents
Situations where taxpayer is required to file a return - ANS-- Net earnings from
self-employment are $400 or more
- Church wages are $108.28 or more (from a church that is FICA exempt)
- The taxpayer (or spouse, if filing jointly) received HSA, Archer MSA, or Medicare
Advantage MSA distributions
- Advance payments of the premium tax credit were made for the taxpayer, spouse, or a
dependent who enrolled in coverage through the Health Insurance Marketplace
- The taxpayer owes special taxes (e.g. household employment taxes) or must
recapture certain credits or taxes
A single dependent (who may be claimed by another taxpayer) must file a return if any
of the following apply in 2022 - ANS-- Unearned income more than $1,150 ($2,900 if
blind or 65 or older, $4,650 if blind and 65 or older)
- Earned income more than $12,950 ($14,700 if blind or 65 or older, $16,450 if blind and
65 or older)
- Gross income more than the larger of:
-$1,150 ($2,900 if blind or 65 or older, $4,650 if blind and 65 or older), or
-Earned income (up to $12,550) plus $400 (plus $2,150 if blind or 65 or older, plus
$3,900 if blind and 65 or older)
A taxpayer with gross income below the gross income threshold (based on filing status
and age) is not required to file a return. Gross income threshold 2022: - ANS-- Single
$12,950 ($14,700 if 65 or older)
- Head of Household $19,400 ($21,150 if 65 or older)
,- Married Filing Jointly $25,900 ($27,300 if one spouse 65 or older, $28,700 if both
spouses 65 or older)
- Qualifying Surviving Spouse $25,900 ($27,300 if 65 or older)
- Married Filing Separately $5 (any age)
Gross income - ANS-The total of earned and unearned income subject to tax.
Gross income means all income you received in the form of money, goods, property,
and services that isn't exempt from tax, including any income from sources outside the
United States or from the sale of your main home (even if you can exclude part or all of
it).
Earned income Includes - ANS-Earned income includes
- wages, salaries, tips,
- union strike benefits,
- long-term disability benefits received prior to minimum retirement age,
- net earnings from self-employment, and
- non-taxable combat pay (only if elected and included in taxable income).
- Includes the amount of taxable scholarship or fellowship grant (only for purposes of
filing requirements and the standard deduction).
For IRA contributions, taxable alimony from divorces finalized before 2019
Unearned income - ANS-Payments classified as income that are not considered
earned, include:
- unemployment compensation,
- taxable Social Security benefits,
- taxable pensions,
- annuity income,
- canceled debt,
- unearned income from a trust,
- taxable interest, dividends, capital gains,
- alimony, or
- pay received while in jail.
Constructive receipt - ANS-Constructive receipt occurs when the income is available for
a taxpayer's unrestricted withdrawal. Physical possession is not a requirement.
, Cash Method vs Accrual Method - ANS-Cash method: Most individual taxpayers use
the cash method. Record income on constructive receipt and expenses when payment
is made.
Accrual method: Record income when earned and expenses when accrued. The IRS
considers the taxpayer to have earned income when all the events have occurred that
fix the right to receive such income and the amount is reasonably determinable.
Tip income taxability - ANS-- All tips (cash or FMV of property) are subject to federal
income tax, SS, and Medicare.
- A penalty equal to 50% of unpaid SS and Medicare taxes due on unreported tips.
- Report cash and charge tips to the employer by the 10th of the following month if $20
or more.
- Tips reported to the employer on time are considered income in month reported.
- Tips that are not reported on time are considered income in month actually received.
- Report non-cash tips to IRS, not employer. No SS or Medicare on non-cash tips.
Group term life insurance taxability - ANS-The cost of up to $50,000 of group term life
insurance coverage provided by an employer is not included in income.
The employee's income shall include premiums paid by the employer for more than
$50,000 of coverage.
Disability income taxability - ANS-The amount received due to employer-paid plan
premiums is taxable.
Sick pay taxability - ANS-Pay received from an employer while sick or injured is part of
salary or wages. Include sick pay benefits received from other sources in income if the
employee did not pay premiums to receive the benefit.
Advance commissions taxability - ANS-Include advance commissions or other amounts
for future services as income in the year received
