H&R BLOCK INCOME TAX COURSE
EXAM WITH VERIFIED ANSWERS
Circular l230 l- lcorrect lanswers l-Regulations lgoverning lthe lpractice lof lattorneys,
lcertified lpublic laccountants, lenrolled lagents, lenrolled lactuaries, land lappraisers
lbefore lthe lIRS.
Disclosure l- lcorrect lanswers l-The lrelease lof ltax linformation lby lan lIRS lemployee.
Due lDiligence l- lcorrect lanswers l-Requirements lthat ltax lprofessionals lmust lfollow
lwhen lpreparing lincome ltax lreturns.
Noncompliance l- lcorrect lanswers l-Failure lor lrefusal lto lcomply lwith lthe ltax lcode.
Privilege l- lcorrect lanswers l-Protection lfrom lbeing lrequired lto ldisclose lconfidential
lcommunications lbetween ltwo lparties, lsuch las lattorney land lclient.
Estimated lTax l- lcorrect lanswers l-The lamount lof ltax la ltaxpayer lexpects lto lowe
lfor lthe lyear lafter lsubtracting lexpected lamounts lwithheld land lcertain lrefundable
lcredits.
,Estimated lTax lVoucher l- lcorrect lanswers l-A lstatement lby lan lindividual lof l(1) lthe
lamount lof lincome ltax lhe lestimates lhe lwill lincur lduring lthe lcurrent ltaxable lyear
lon lincome lthat lis lnot lsubject lto lwithholding, l(2) lthe lexcess lamount lover lthat
lwithheld lon lincome lwhich lis lsubject lto lwithholding, land l(3) lhis lestimated lself-
employment ltax.
Exemption lfrom lWithholding l- lcorrect lanswers l-Status lclaimed lon lForm lW-4
ldirecting lthe lemployer lnot lto lwithhold lfederal lincome ltaxes lfrom lthe lemployee.
Underpayment lPenalty l- lcorrect lanswers l-If la ltaxpayer ldid lnot lpay lenough ltax lon
la ltimely lbasis lduring lthe lyear, lhe lmay lbe lrequired lto lpay lan lunderpayment
lpenalty.
Withholding lAllowances l- lcorrect lanswers l-An lincrease lby lwhich lincome ltax
lwithholding lon lcertain lincome lis lreduced.
Two lWays lto lPay las lYou lGo l- lcorrect lanswers l-Withholding land lEstimated lTax
lPayments
Form lW-4 l- lcorrect lanswers l-Employee's lWithholding lAllowance lCertificate
Form l8815 l- lcorrect lanswers l-Exclusion lof lInterest lFrom lSeries lEE land lI lU.S.
lSavings lBonds lIssued lAfter l1989
Form l2210 l- lcorrect lanswers l-Underpayment lof lEstimated lTax lby lIndividuals,
lEstates, land lTrusts
Form l4868 l- lcorrect lanswers l-Application lfor lAutomatic lExtension lof lTime lTo lFile
lU.S. lIndividual lIncome lTax lReturn
Form l8888 l- lcorrect lanswers l-Allocation lof lRefund
Form l9465 l- lcorrect lanswers l-Installment lAgreement lRequest
Amended lReturn l- lcorrect lanswers l-A ltax lreturn lfiled lon lForm l1040X lafter lthe
loriginal lreturn lhas lbeen lfiled.
Closed lYear l- lcorrect lanswers l-A ltax lyear lfor lwhich lthe lstatute lof llimitations lhas
lexpired.
Open lYear l- lcorrect lanswers l-A ltaxable lyear lfor lwhich lthe lstatute lof llimitations
lhas lnot lyet lexpired.
Failure-to-File lPenalty l- lcorrect lanswers l-Generally l5% lfor leach lmonth lor lpart lof
la lmonth lthe lreturn lis llate, lbut lnot lmore lthan l25% lof lthe ltax lnot lpaid.
Failure lto lFile l- lcorrect lanswers l-Taxpayer lfails lto lfile lthe lreturn lby lthe ldue ldate,
land lthere lis la lbalance ldue.
,Failure lto lPay l- lcorrect lanswers l-Taxpayer lfails lto lpay lthe ltax lowed lby lthe ldue
ldate.
Failure-to-Pay lPenalty l- lcorrect lanswers l-0.5% lof lthe lunpaid ltaxes lfor leach lmonth
lor lpart lof la lmonth lafter lthe ldue ldate, lbut lnot lmore lthan l25%.
Negligence lor lIntentional lDisregard l- lcorrect lanswers l-Taxpayer lshows lnegligence
lor ldisregard lof lthe lrules lor lregulations lcausing lan lunderpayment.
Negligence-or-Intentional-Disregard lPenalty l- lcorrect lanswers l-20% lof lthe
lunderpayment.
Substantial lUnderstatment l- lcorrect lanswers l-Taxpayer lunderstates ltheir ltax lby
lthe llarger lof l$5,000 lor l10% lof lthe lcorrect ltax.
Substantial-Understatement lPenalty l- lcorrect lanswers l-20% lof lthe lunderpayment.
Form l1040X l- lcorrect lanswers l-Amended lU.S. lIndividual lIncome lTax lReturn
When lcan lan lamended lreturn lbe lfiled? l- lcorrect lanswers l-Within lthree lyears lof
lthe ldate lthe loriginal lreturn lwas lfiled, lor lwithin ltwo lyears lof lthe ldate lthe ltax lwas
lpaid, lwhichever lis llater.
Can lthe l1040X lbe le-filed? l- lcorrect lanswers l-No.
Household lEmployee l- lcorrect lanswers l-An lindividual lwho lperforms lnonbusiness
lservices lin la ltaxpayer's lhome.
Active lIncome land lLosses l- lcorrect lanswers l-Those lfor lwhich la ltaxpayer
lperforms lservices.
Partnership l- lcorrect lanswers l-A lform lof lbusiness lin lwhich ltwo lor lmore lpersons
ljoin ltheir lmoney land lskills lin lconducting lthe lbusiness las lco-owners.
Passive lIncome land lLosses l- lcorrect lanswers l-Those lfrom lbusiness lactivities lin
lwhich lthe ltaxpayer ldoes lnot lmaterially lparticipate, land lall lrental lactivities.
Portfolio lIncome land lLosses l- lcorrect lanswers l-Those lfrom lsuch lsources las
ldividends, linterest, lcapital lgains land llosses, land lroyalties.
Rental lIncome l- lcorrect lanswers l-Income lreceived lby lthe ltaxpayer lfor lallowing
lanother lperson's luse lof lthe ltaxpayer's lproperty.
Royalty l- lcorrect lanswers l-(1) lA lpayment lreceived lfor lthe lright lto lexploit la
ltaxpayer's lownership lof lnatural lresources lor la ltaxpayer's lliterary, lmusical, lor
lartistic lcreation. l(2) lAn linterest lin lthe loil land lgas lin lplace lthat lentitles lthe lholder
lto la lspecified lfraction, lin lkind lor lin lvalue, lof lthe ltotal lproduction lfrom lthe
lproperty, lfree lof lany lexpenses lof ldevelopment land loperation.
, S lCorporation l- lcorrect lanswers l-A lqualified lsmall lbusiness lcorporation lthat lhas
lelected lspecial ltax ltreatment lunder lsubchapter lS lof lthe lInternal lRevenue lCode.
lS lcorporations lpass lincome, llosses, land ldeductions lthrough lto lshareholders lto
lreport lon ltheir lindividual lreturns.
Trust l- lcorrect lanswers l-A ltax lentity lthat ldistributes lall lor lpart lof lits lincome lto
lbeneficiaries las linstructed lby lthe ltrust lagreement.
Requirements lfor la lReal lEstate lProfessional l- lcorrect lanswers l-1. lMore lthan lhalf
lof lthe lpersonal lservices lperformed lby lthe ltaxpayer lin lall ltrades lor lbusinesses
lduring lthe ltax lyear lwere lperformed lin lreal lproperty ltrades lor lbusinesses lin lwhich
lthe ltaxpayer lmaterially lparticipated.
2. lThe ltaxpayer lperformed lmore lthan l750 lhours lof lservices lduring lthe lyear lin
lreal lproperty ltrades lor lbusinesses lin lwhich lthe ltaxpayer lmaterially lparticipated.
Trade lor lBusiness lActivities l- lcorrect lanswers l-Any lactivity lthat: lInvolves lthe
lconduct lof la ltrade lor lbusiness; lis lconducted lin lanticipation lof lstarting la ltrade lor
lbusiness; lInvolves lresearch lor lexperimental lexpenditures lthat lare ldeductible
lunder lIRS lCode l174.
Nonpassive lIncome l- lcorrect lanswers l-Income lderived lfrom lactivities lthat lare lnot
lpassive.
Types lof lNonpassive lIncome l- lcorrect lanswers l-Portfolio lincome; lpersonal lservice
lincome; lother lincome.
Portfolio lIncome l- lcorrect lanswers l-Includes linterest, ldividends, lannuities, land
lroyalties lnot lderived lin lthe lordinary lcourse lof lbusiness.
Personal lService lIncome l- lcorrect lanswers l-Salaries, lwages, lcommissions, lself-
employment lincome lfrom ltrade lor lbusiness lin lwhich lthe ltaxpayer lmaterially
lparticipates, ldeferred lcompensation, ltaxable lsocial lsecurity land lother lretirement
lbenefits, land lpayments lfrom lpartnerships lto lpartners lfor lpersonal lservices.
Rent l- lcorrect lanswers l-Income lreceived lfor lthe luse lof lproperty.
Is lrent learned lor lunearned lincome? l- lcorrect lanswers l-Unearned.
Schedule lE l- lcorrect lanswers l-Supplemental lIncome land lLoss
Deductible lMaintenance land lRepairs l- lcorrect lanswers l-Those lthat ldo lnot
lappreciably ladd lto lthe lvalue lor luseful llife lof lthe lproperty.
Is lthe lvalue lof lthe lowner's llabor ldeductible lwhen lit lcomes lto lrental lproperty? l-
lcorrect lanswers l-No.
Rental lProperty lDepreciable lBasis l- lcorrect lanswers l-Basis lMINUS lland lvalue
lTIMES lthe lrental luse lpercentage.
EXAM WITH VERIFIED ANSWERS
Circular l230 l- lcorrect lanswers l-Regulations lgoverning lthe lpractice lof lattorneys,
lcertified lpublic laccountants, lenrolled lagents, lenrolled lactuaries, land lappraisers
lbefore lthe lIRS.
Disclosure l- lcorrect lanswers l-The lrelease lof ltax linformation lby lan lIRS lemployee.
Due lDiligence l- lcorrect lanswers l-Requirements lthat ltax lprofessionals lmust lfollow
lwhen lpreparing lincome ltax lreturns.
Noncompliance l- lcorrect lanswers l-Failure lor lrefusal lto lcomply lwith lthe ltax lcode.
Privilege l- lcorrect lanswers l-Protection lfrom lbeing lrequired lto ldisclose lconfidential
lcommunications lbetween ltwo lparties, lsuch las lattorney land lclient.
Estimated lTax l- lcorrect lanswers l-The lamount lof ltax la ltaxpayer lexpects lto lowe
lfor lthe lyear lafter lsubtracting lexpected lamounts lwithheld land lcertain lrefundable
lcredits.
,Estimated lTax lVoucher l- lcorrect lanswers l-A lstatement lby lan lindividual lof l(1) lthe
lamount lof lincome ltax lhe lestimates lhe lwill lincur lduring lthe lcurrent ltaxable lyear
lon lincome lthat lis lnot lsubject lto lwithholding, l(2) lthe lexcess lamount lover lthat
lwithheld lon lincome lwhich lis lsubject lto lwithholding, land l(3) lhis lestimated lself-
employment ltax.
Exemption lfrom lWithholding l- lcorrect lanswers l-Status lclaimed lon lForm lW-4
ldirecting lthe lemployer lnot lto lwithhold lfederal lincome ltaxes lfrom lthe lemployee.
Underpayment lPenalty l- lcorrect lanswers l-If la ltaxpayer ldid lnot lpay lenough ltax lon
la ltimely lbasis lduring lthe lyear, lhe lmay lbe lrequired lto lpay lan lunderpayment
lpenalty.
Withholding lAllowances l- lcorrect lanswers l-An lincrease lby lwhich lincome ltax
lwithholding lon lcertain lincome lis lreduced.
Two lWays lto lPay las lYou lGo l- lcorrect lanswers l-Withholding land lEstimated lTax
lPayments
Form lW-4 l- lcorrect lanswers l-Employee's lWithholding lAllowance lCertificate
Form l8815 l- lcorrect lanswers l-Exclusion lof lInterest lFrom lSeries lEE land lI lU.S.
lSavings lBonds lIssued lAfter l1989
Form l2210 l- lcorrect lanswers l-Underpayment lof lEstimated lTax lby lIndividuals,
lEstates, land lTrusts
Form l4868 l- lcorrect lanswers l-Application lfor lAutomatic lExtension lof lTime lTo lFile
lU.S. lIndividual lIncome lTax lReturn
Form l8888 l- lcorrect lanswers l-Allocation lof lRefund
Form l9465 l- lcorrect lanswers l-Installment lAgreement lRequest
Amended lReturn l- lcorrect lanswers l-A ltax lreturn lfiled lon lForm l1040X lafter lthe
loriginal lreturn lhas lbeen lfiled.
Closed lYear l- lcorrect lanswers l-A ltax lyear lfor lwhich lthe lstatute lof llimitations lhas
lexpired.
Open lYear l- lcorrect lanswers l-A ltaxable lyear lfor lwhich lthe lstatute lof llimitations
lhas lnot lyet lexpired.
Failure-to-File lPenalty l- lcorrect lanswers l-Generally l5% lfor leach lmonth lor lpart lof
la lmonth lthe lreturn lis llate, lbut lnot lmore lthan l25% lof lthe ltax lnot lpaid.
Failure lto lFile l- lcorrect lanswers l-Taxpayer lfails lto lfile lthe lreturn lby lthe ldue ldate,
land lthere lis la lbalance ldue.
,Failure lto lPay l- lcorrect lanswers l-Taxpayer lfails lto lpay lthe ltax lowed lby lthe ldue
ldate.
Failure-to-Pay lPenalty l- lcorrect lanswers l-0.5% lof lthe lunpaid ltaxes lfor leach lmonth
lor lpart lof la lmonth lafter lthe ldue ldate, lbut lnot lmore lthan l25%.
Negligence lor lIntentional lDisregard l- lcorrect lanswers l-Taxpayer lshows lnegligence
lor ldisregard lof lthe lrules lor lregulations lcausing lan lunderpayment.
Negligence-or-Intentional-Disregard lPenalty l- lcorrect lanswers l-20% lof lthe
lunderpayment.
Substantial lUnderstatment l- lcorrect lanswers l-Taxpayer lunderstates ltheir ltax lby
lthe llarger lof l$5,000 lor l10% lof lthe lcorrect ltax.
Substantial-Understatement lPenalty l- lcorrect lanswers l-20% lof lthe lunderpayment.
Form l1040X l- lcorrect lanswers l-Amended lU.S. lIndividual lIncome lTax lReturn
When lcan lan lamended lreturn lbe lfiled? l- lcorrect lanswers l-Within lthree lyears lof
lthe ldate lthe loriginal lreturn lwas lfiled, lor lwithin ltwo lyears lof lthe ldate lthe ltax lwas
lpaid, lwhichever lis llater.
Can lthe l1040X lbe le-filed? l- lcorrect lanswers l-No.
Household lEmployee l- lcorrect lanswers l-An lindividual lwho lperforms lnonbusiness
lservices lin la ltaxpayer's lhome.
Active lIncome land lLosses l- lcorrect lanswers l-Those lfor lwhich la ltaxpayer
lperforms lservices.
Partnership l- lcorrect lanswers l-A lform lof lbusiness lin lwhich ltwo lor lmore lpersons
ljoin ltheir lmoney land lskills lin lconducting lthe lbusiness las lco-owners.
Passive lIncome land lLosses l- lcorrect lanswers l-Those lfrom lbusiness lactivities lin
lwhich lthe ltaxpayer ldoes lnot lmaterially lparticipate, land lall lrental lactivities.
Portfolio lIncome land lLosses l- lcorrect lanswers l-Those lfrom lsuch lsources las
ldividends, linterest, lcapital lgains land llosses, land lroyalties.
Rental lIncome l- lcorrect lanswers l-Income lreceived lby lthe ltaxpayer lfor lallowing
lanother lperson's luse lof lthe ltaxpayer's lproperty.
Royalty l- lcorrect lanswers l-(1) lA lpayment lreceived lfor lthe lright lto lexploit la
ltaxpayer's lownership lof lnatural lresources lor la ltaxpayer's lliterary, lmusical, lor
lartistic lcreation. l(2) lAn linterest lin lthe loil land lgas lin lplace lthat lentitles lthe lholder
lto la lspecified lfraction, lin lkind lor lin lvalue, lof lthe ltotal lproduction lfrom lthe
lproperty, lfree lof lany lexpenses lof ldevelopment land loperation.
, S lCorporation l- lcorrect lanswers l-A lqualified lsmall lbusiness lcorporation lthat lhas
lelected lspecial ltax ltreatment lunder lsubchapter lS lof lthe lInternal lRevenue lCode.
lS lcorporations lpass lincome, llosses, land ldeductions lthrough lto lshareholders lto
lreport lon ltheir lindividual lreturns.
Trust l- lcorrect lanswers l-A ltax lentity lthat ldistributes lall lor lpart lof lits lincome lto
lbeneficiaries las linstructed lby lthe ltrust lagreement.
Requirements lfor la lReal lEstate lProfessional l- lcorrect lanswers l-1. lMore lthan lhalf
lof lthe lpersonal lservices lperformed lby lthe ltaxpayer lin lall ltrades lor lbusinesses
lduring lthe ltax lyear lwere lperformed lin lreal lproperty ltrades lor lbusinesses lin lwhich
lthe ltaxpayer lmaterially lparticipated.
2. lThe ltaxpayer lperformed lmore lthan l750 lhours lof lservices lduring lthe lyear lin
lreal lproperty ltrades lor lbusinesses lin lwhich lthe ltaxpayer lmaterially lparticipated.
Trade lor lBusiness lActivities l- lcorrect lanswers l-Any lactivity lthat: lInvolves lthe
lconduct lof la ltrade lor lbusiness; lis lconducted lin lanticipation lof lstarting la ltrade lor
lbusiness; lInvolves lresearch lor lexperimental lexpenditures lthat lare ldeductible
lunder lIRS lCode l174.
Nonpassive lIncome l- lcorrect lanswers l-Income lderived lfrom lactivities lthat lare lnot
lpassive.
Types lof lNonpassive lIncome l- lcorrect lanswers l-Portfolio lincome; lpersonal lservice
lincome; lother lincome.
Portfolio lIncome l- lcorrect lanswers l-Includes linterest, ldividends, lannuities, land
lroyalties lnot lderived lin lthe lordinary lcourse lof lbusiness.
Personal lService lIncome l- lcorrect lanswers l-Salaries, lwages, lcommissions, lself-
employment lincome lfrom ltrade lor lbusiness lin lwhich lthe ltaxpayer lmaterially
lparticipates, ldeferred lcompensation, ltaxable lsocial lsecurity land lother lretirement
lbenefits, land lpayments lfrom lpartnerships lto lpartners lfor lpersonal lservices.
Rent l- lcorrect lanswers l-Income lreceived lfor lthe luse lof lproperty.
Is lrent learned lor lunearned lincome? l- lcorrect lanswers l-Unearned.
Schedule lE l- lcorrect lanswers l-Supplemental lIncome land lLoss
Deductible lMaintenance land lRepairs l- lcorrect lanswers l-Those lthat ldo lnot
lappreciably ladd lto lthe lvalue lor luseful llife lof lthe lproperty.
Is lthe lvalue lof lthe lowner's llabor ldeductible lwhen lit lcomes lto lrental lproperty? l-
lcorrect lanswers l-No.
Rental lProperty lDepreciable lBasis l- lcorrect lanswers l-Basis lMINUS lland lvalue
lTIMES lthe lrental luse lpercentage.
