HRB FINAL EXAM UPDATED ACTUAL
Exam Questions and CORRECT Answers
How much is the penalty if a paid prepaerer fails to meet the child tax credit due diligence
requirements - CORRECT ANSWER - $510 for each failure, for each credit on each
return Total Penalty max for return is $1530
What is the first due diligence requirement for the EITC, CTC,ACTC, AOTC and how does a
paid preparer meet this requirement? - CORRECT ANSWER - Complete and submit the
form 8867. 1. Complete the form thoroughly and conscientously read the form carefully 2.
submit the form on every claim for eitc, ctc/actc and aotc
CHAPTER 4: DEPENDENT-RELATED FILING STATUS - CORRECT ANSWER -
What filing statuses are available to taxpayers who are unmarried - CORRECT
ANSWER - 1. Single 2. Head of Household 3. Qualifying widow(er)
How may a married taxpayer qualify as unmarried for tax purposes? - CORRECT
ANSWER - Must be legally seperated under a decree of divorce or separate maintenance
or meet these requirements: 1. must file a separate return 2. must have provided more than half
the cost of maintaining a household 3. the home must have been the principle place of abode
What requirements must be met for a taxpayer to qualify to file as head of household -
CORRECT ANSWER - 1. unmarried on the last day of year 2. paid more than 1/2 to
maintain home 3. taxpayer has qualifying child or relative or parent
What are some of the costs of maintaining a home? - CORRECT ANSWER - Rent,
mortgage interest, real estate taxes, homeowner or renter insurance, repairs/maintenance,
utilities, food eaten in home
,What requirements must be met for a taxpayer to use the qualifying wideo(er) status? -
CORRECT ANSWER - 1. Taxpayer's spouse died in either of the two tax years
immediately preceding the current tax year 2. Taxpayer paid over half the cost of maintaining the
household wich is home of their dependent son , stepson or step daughter for the entire year and
cannot remarry
In the case of divorced or separated parents, which parent generally gets to claim the qualifying
child? - CORRECT ANSWER - Generally, the custodial parent is the one in which the
child spent the most nights. If child lived equal nights, the parent with the higher AGI
What is the exception to this rule? - CORRECT ANSWER - Custodial parent may waive
the right to claim dependency exemption (Form 8332)
What happens when more than one taxpayer claims the same qualifying child? - CORRECT
ANSWER - The IRS will apply the TIE BREAKER RULES
CHAPTER 6: ITEMIZED DEDUCTIONS - CORRECT ANSWER -
When is it considered advantageous for a taxpayer to itemize? - CORRECT ANSWER -
When allowable expenses for things like home mortgage interest and property taxes, state
income taxes or sales taxes, medical expenses, charitable contributions that exceed the standard
deduction
Is the deduction for medical expenses limited? - CORRECT ANSWER - You can deduct
such costs only to the extent that unreimbursed expenses exceed 10% of your AGI 7.5% if 65
years old or older
What types of taxes are deductible? - CORRECT ANSWER - *State and local taxes *
Real Property tax * Personal Property Tax * Foreign income tax (withheld during the year)
What are some common types of itemized deductions that are subject to the 2% -of-AGI floor? -
CORRECT ANSWER - Tax preperation fees- Unreimbursed ordinary and necessay
,employment expenses, gambling losses to the extent of winnings, hobby losses to extent of
hobby income, tax advice and preperation fees, investment expenses
What are some miscellaneous itemized deductions that are not subject to the 2%-of-AGI
limitation? - CORRECT ANSWER - Gambling losses, impairment related expenses for
handicap, decedents remaining basis, federal estate tax in respect of a decedent
A taxpayer wrote a check for a $500 donation to their mosque. Is their canceled check sufficient
documentation to support the deduction? - CORRECT ANSWER - No, the gift exceeded
$249 must obtain written substantation from the donee organization
CHAPTER 11: EITC AND ACTC - CORRECT ANSWER -
Who may qualify for the Additional Child Tax Credit? - CORRECT ANSWER - Must
qualify for the Child Tax Credit and has one of the following: Earned Income exceeding $3000,
3 or more qualifying children whose child tax credit was limited
What is the second due diligence requirements for the EITC, CTC/ACTC and AOTC and how
does a paid preparer meet this requirement for EITC and CTC/ACTC? - CORRECT
ANSWER - Requirement 2 - The second due diligence requirements for ACTC is to
complete and keep all worksheets for ACTC the credit is calculated using Schedule 8812 for
CTC a worksheet must be completed and kept
If a taxpayer has no qualifying children, what are the four qualifications they must meet to
receive the Earned Income Tax Credit? - CORRECT ANSWER - 1. Must be at least 25
years old but younger than 65 on Dec 31, 2016 (If married filing jointly either spouse can meet
this requirement) 2. Must not be able to be claimed as a dependent on another taxpayers return 3.
Must not be a qualifying child of another person 4. Must live in the United States more than 1/2
the year 5. Must have earned income and AGI of less than $14,880 ($20,430 if MFJ)
If a taxpayer has one or more qualifying children, what the four specific qualifcations they must
meet to receive the Earned Income Tax Credit? - CORRECT ANSWER - (11.12) 1. Have
qualifying child who meets the relationship, age, residency and joint return tests 2. Have a
qualifying child who is not claimed by another EITC 3. Not be qualifying child of another person
, 4. Have earned income and AGI less than one of the following: *$39,296 ($44,846 if MFJ)
*$44,648 ($50,198 if MFJ) with two qualifying children *$47,955 ($53,606 if MFJ) with three or
more children
What are the six qualifications that must be met for any taxpayers to be eligible to claim the
Earned Income Tax Credit? - CORRECT ANSWER - 1. Have a valid SSN 2. Not use the
filing status MFS 3. Be a US citizen or resident alien all year 4. Not file a Form 2555, Foreign
Earned Income or Form 2555EZ Foreign Income Exclusion 5. Have investment income of $3400
or less 6. Have Earned Income of at least $1
Chris (26) has an earned income and AGI of $9,486. He has no other income. He lived in the
United States all year and is not one's dependent. He has a valid SSN and is filing as single. He is
a US citizen. Does Chris qualify for EITC? - CORRECT ANSWER - Yes
What is the third due diligence requirement for the EITC, CTC/ACTC, and AOTC, and how
does a paid preparer meet this requirement for EITC and CTC/ACTC? - CORRECT
ANSWER - Knowledge Requirement: Tax preparer cannot know of or have any reason to
know that any information used to determine taxpayers eligibility for, or the amount of , the
credit is incorrect or inconsistent. Tax Preparers must complete the smell test (Retain notes and
ask open end questions)
Is unemployment compensation taxable? - CORRECT ANSWER - Yes
Are scholarships and fellowships taxable? - CORRECT ANSWER - If the student is a non
degree candidate or is not attending an eligible educational institution then the scholarship or
fellowship are fully taxable
What documents will the taxpayer receive from their employer reproting disability pension
payments? - CORRECT ANSWER - 1099R
Where is income from disability pension payments entered on Form 1040 A? - CORRECT
ANSWER - 1040 A line 7 Note: once the taxpayer reaches minimum retirement age,
pension income is reported on Form 1040A lines 12a and 12b..it could go on line 12a or b if
retired
Exam Questions and CORRECT Answers
How much is the penalty if a paid prepaerer fails to meet the child tax credit due diligence
requirements - CORRECT ANSWER - $510 for each failure, for each credit on each
return Total Penalty max for return is $1530
What is the first due diligence requirement for the EITC, CTC,ACTC, AOTC and how does a
paid preparer meet this requirement? - CORRECT ANSWER - Complete and submit the
form 8867. 1. Complete the form thoroughly and conscientously read the form carefully 2.
submit the form on every claim for eitc, ctc/actc and aotc
CHAPTER 4: DEPENDENT-RELATED FILING STATUS - CORRECT ANSWER -
What filing statuses are available to taxpayers who are unmarried - CORRECT
ANSWER - 1. Single 2. Head of Household 3. Qualifying widow(er)
How may a married taxpayer qualify as unmarried for tax purposes? - CORRECT
ANSWER - Must be legally seperated under a decree of divorce or separate maintenance
or meet these requirements: 1. must file a separate return 2. must have provided more than half
the cost of maintaining a household 3. the home must have been the principle place of abode
What requirements must be met for a taxpayer to qualify to file as head of household -
CORRECT ANSWER - 1. unmarried on the last day of year 2. paid more than 1/2 to
maintain home 3. taxpayer has qualifying child or relative or parent
What are some of the costs of maintaining a home? - CORRECT ANSWER - Rent,
mortgage interest, real estate taxes, homeowner or renter insurance, repairs/maintenance,
utilities, food eaten in home
,What requirements must be met for a taxpayer to use the qualifying wideo(er) status? -
CORRECT ANSWER - 1. Taxpayer's spouse died in either of the two tax years
immediately preceding the current tax year 2. Taxpayer paid over half the cost of maintaining the
household wich is home of their dependent son , stepson or step daughter for the entire year and
cannot remarry
In the case of divorced or separated parents, which parent generally gets to claim the qualifying
child? - CORRECT ANSWER - Generally, the custodial parent is the one in which the
child spent the most nights. If child lived equal nights, the parent with the higher AGI
What is the exception to this rule? - CORRECT ANSWER - Custodial parent may waive
the right to claim dependency exemption (Form 8332)
What happens when more than one taxpayer claims the same qualifying child? - CORRECT
ANSWER - The IRS will apply the TIE BREAKER RULES
CHAPTER 6: ITEMIZED DEDUCTIONS - CORRECT ANSWER -
When is it considered advantageous for a taxpayer to itemize? - CORRECT ANSWER -
When allowable expenses for things like home mortgage interest and property taxes, state
income taxes or sales taxes, medical expenses, charitable contributions that exceed the standard
deduction
Is the deduction for medical expenses limited? - CORRECT ANSWER - You can deduct
such costs only to the extent that unreimbursed expenses exceed 10% of your AGI 7.5% if 65
years old or older
What types of taxes are deductible? - CORRECT ANSWER - *State and local taxes *
Real Property tax * Personal Property Tax * Foreign income tax (withheld during the year)
What are some common types of itemized deductions that are subject to the 2% -of-AGI floor? -
CORRECT ANSWER - Tax preperation fees- Unreimbursed ordinary and necessay
,employment expenses, gambling losses to the extent of winnings, hobby losses to extent of
hobby income, tax advice and preperation fees, investment expenses
What are some miscellaneous itemized deductions that are not subject to the 2%-of-AGI
limitation? - CORRECT ANSWER - Gambling losses, impairment related expenses for
handicap, decedents remaining basis, federal estate tax in respect of a decedent
A taxpayer wrote a check for a $500 donation to their mosque. Is their canceled check sufficient
documentation to support the deduction? - CORRECT ANSWER - No, the gift exceeded
$249 must obtain written substantation from the donee organization
CHAPTER 11: EITC AND ACTC - CORRECT ANSWER -
Who may qualify for the Additional Child Tax Credit? - CORRECT ANSWER - Must
qualify for the Child Tax Credit and has one of the following: Earned Income exceeding $3000,
3 or more qualifying children whose child tax credit was limited
What is the second due diligence requirements for the EITC, CTC/ACTC and AOTC and how
does a paid preparer meet this requirement for EITC and CTC/ACTC? - CORRECT
ANSWER - Requirement 2 - The second due diligence requirements for ACTC is to
complete and keep all worksheets for ACTC the credit is calculated using Schedule 8812 for
CTC a worksheet must be completed and kept
If a taxpayer has no qualifying children, what are the four qualifications they must meet to
receive the Earned Income Tax Credit? - CORRECT ANSWER - 1. Must be at least 25
years old but younger than 65 on Dec 31, 2016 (If married filing jointly either spouse can meet
this requirement) 2. Must not be able to be claimed as a dependent on another taxpayers return 3.
Must not be a qualifying child of another person 4. Must live in the United States more than 1/2
the year 5. Must have earned income and AGI of less than $14,880 ($20,430 if MFJ)
If a taxpayer has one or more qualifying children, what the four specific qualifcations they must
meet to receive the Earned Income Tax Credit? - CORRECT ANSWER - (11.12) 1. Have
qualifying child who meets the relationship, age, residency and joint return tests 2. Have a
qualifying child who is not claimed by another EITC 3. Not be qualifying child of another person
, 4. Have earned income and AGI less than one of the following: *$39,296 ($44,846 if MFJ)
*$44,648 ($50,198 if MFJ) with two qualifying children *$47,955 ($53,606 if MFJ) with three or
more children
What are the six qualifications that must be met for any taxpayers to be eligible to claim the
Earned Income Tax Credit? - CORRECT ANSWER - 1. Have a valid SSN 2. Not use the
filing status MFS 3. Be a US citizen or resident alien all year 4. Not file a Form 2555, Foreign
Earned Income or Form 2555EZ Foreign Income Exclusion 5. Have investment income of $3400
or less 6. Have Earned Income of at least $1
Chris (26) has an earned income and AGI of $9,486. He has no other income. He lived in the
United States all year and is not one's dependent. He has a valid SSN and is filing as single. He is
a US citizen. Does Chris qualify for EITC? - CORRECT ANSWER - Yes
What is the third due diligence requirement for the EITC, CTC/ACTC, and AOTC, and how
does a paid preparer meet this requirement for EITC and CTC/ACTC? - CORRECT
ANSWER - Knowledge Requirement: Tax preparer cannot know of or have any reason to
know that any information used to determine taxpayers eligibility for, or the amount of , the
credit is incorrect or inconsistent. Tax Preparers must complete the smell test (Retain notes and
ask open end questions)
Is unemployment compensation taxable? - CORRECT ANSWER - Yes
Are scholarships and fellowships taxable? - CORRECT ANSWER - If the student is a non
degree candidate or is not attending an eligible educational institution then the scholarship or
fellowship are fully taxable
What documents will the taxpayer receive from their employer reproting disability pension
payments? - CORRECT ANSWER - 1099R
Where is income from disability pension payments entered on Form 1040 A? - CORRECT
ANSWER - 1040 A line 7 Note: once the taxpayer reaches minimum retirement age,
pension income is reported on Form 1040A lines 12a and 12b..it could go on line 12a or b if
retired
