H&R BLOCK INCOME TAX COURSE
Circular 230 - Answers- Regulations governing the practice of attorneys, certified public
accountants, enrolled agents, enrolled actuaries, and appraisers before the IRS.
Disclosure - Answers- The release of tax information by an IRS employee.
Due Diligence - Answers- Requirements that tax professionals must follow when
preparing income tax returns.
Noncompliance - Answers- Failure or refusal to comply with the tax code.
Privilege - Answers- Protection from being required to disclose confidential
communications between two parties, such as attorney and client.
Estimated Tax - Answers- The amount of tax a taxpayer expects to owe for the year
after subtracting expected amounts withheld and certain refundable credits.
Estimated Tax Voucher - Answers- A statement by an individual of (1) the amount of
income tax he estimates he will incur during the current taxable year on income that is
not subject to withholding, (2) the excess amount over that withheld on income which is
subject to withholding, and (3) his estimated self-employment tax.
Exemption from Withholding - Answers- Status claimed on Form W-4 directing the
employer not to withhold federal income taxes from the employee.
Underpayment Penalty - Answers- If a taxpayer did not pay enough tax on a timely
basis during the year, he may be required to pay an underpayment penalty.
Withholding Allowances - Answers- An increase by which income tax withholding on
certain income is reduced.
Two Ways to Pay as You Go - Answers- Withholding and Estimated Tax Payments
Form W-4 - Answers- Employee's Withholding Allowance Certificate
Form 8815 - Answers- Exclusion of Interest From Series EE and I U.S. Savings Bonds
Issued After 1989
Form 2210 - Answers- Underpayment of Estimated Tax by Individuals, Estates, and
Trusts
Form 4868 - Answers- Application for Automatic Extension of Time To File U.S.
Individual Income Tax Return
,Form 8888 - Answers- Allocation of Refund
Form 9465 - Answers- Installment Agreement Request
Amended Return - Answers- A tax return filed on Form 1040X after the original return
has been filed.
Closed Year - Answers- A tax year for which the statute of limitations has expired.
Open Year - Answers- A taxable year for which the statute of limitations has not yet
expired.
Failure-to-File Penalty - Answers- Generally 5% for each month or part of a month the
return is late, but not more than 25% of the tax not paid.
Failure to File - Answers- Taxpayer fails to file the return by the due date, and there is a
balance due.
Failure to Pay - Answers- Taxpayer fails to pay the tax owed by the due date.
Failure-to-Pay Penalty - Answers- 0.5% of the unpaid taxes for each month or part of a
month after the due date, but not more than 25%.
When can an amended return be filed? - Answers- Within three years of the date the
original return was filed, or within two years of the date the tax was paid, whichever is
later.
Can the 1040X be e-filed? - Answers- No.
Household Employee - Answers- An individual who performs nonbusiness services in a
taxpayer's home.
Active Income and Losses - Answers- Those for which a taxpayer performs services.
Partnership - Answers- A form of business in which two or more persons join their
money and skills in conducting the business as co-owners.
Passive Income and Losses - Answers- Those from business activities in which the
taxpayer does not materially participate, and all rental activities.
Portfolio Income and Losses - Answers- Those from such sources as dividends,
interest, capital gains and losses, and royalties.
Rental Income - Answers- Income received by the taxpayer for allowing another
person's use of the taxpayer's property.
,Royalty - Answers- (1) A payment received for the right to exploit a taxpayer's
ownership of natural resources or a taxpayer's literary, musical, or artistic creation. (2)
An interest in the oil and gas in place that entitles the holder to a specified fraction, in
kind or in value, of the total production from the property, free of any expenses of
development and operation.
Negligence or Intentional Disregard - Answers- Taxpayer shows negligence or
disregard of the rules or regulations causing an underpayment.
Negligence-or-Intentional-Disregard Penalty - Answers- 20% of the underpayment.
Substantial Understatment - Answers- Taxpayer understates their tax by the larger of
$5,000 or 10% of the correct tax.
Substantial-Understatement Penalty - Answers- 20% of the underpayment.
Form 1040X - Answers- Amended U.S. Individual Income Tax Return
S Corporation - Answers- A qualified small business corporation that has elected
special tax treatment under subchapter S of the Internal Revenue Code. S corporations
pass income, losses, and deductions through to shareholders to report on their
individual returns.
Trust - Answers- A tax entity that distributes all or part of its income to beneficiaries as
instructed by the trust agreement.
Requirements for a Real Estate Professional - Answers- 1. More than half of the
personal services performed by the taxpayer in all trades or businesses during the tax
year were performed in real property trades or businesses in which the taxpayer
materially participated.
2. The taxpayer performed more than 750 hours of services during the year in real
property trades or businesses in which the taxpayer materially participated.
Trade or Business Activities - Answers- Any activity that: Involves the conduct of a trade
or business; is conducted in anticipation of starting a trade or business; Involves
research or experimental expenditures that are deductible under IRS Code 174.
Nonpassive Income - Answers- Income derived from activities that are not passive.
Types of Nonpassive Income - Answers- Portfolio income; personal service income;
other income.
Portfolio Income - Answers- Includes interest, dividends, annuities, and royalties not
derived in the ordinary course of business.
, Personal Service Income - Answers- Salaries, wages, commissions, self-employment
income from trade or business in which the taxpayer materially participates, deferred
compensation, taxable social security and other retirement benefits, and payments from
partnerships to partners for personal services.
Rent - Answers- Income received for the use of property.
Is rent earned or unearned income? - Answers- Unearned.
Schedule E - Answers- Supplemental Income and Loss
Deductible Maintenance and Repairs - Answers- Those that do not appreciably add to
the value or useful life of the property.
Is the value of the owner's labor deductible when it comes to rental property? -
Answers- No.
Rental Property Depreciable Basis - Answers- Basis MINUS land value TIMES the
rental use percentage.
Vacation home - Answers- A dwelling unit and may be a house, apartment,
condominium, mobile home, boat, or any other property that provides normal living
accomodations.
Used as a Residence - Answers- A dwelling unit is used for personal purposes during
the year for whichever is greater: more than 14 days; more than 10% of the days the
house is rented at fair rental value.
Royalty - Answers- Payments received for the right to extract natural resources from
the taxpayer's property or to use a taxpayer's literary, musical, or artistic creation.
Economic Interest - Answers- One acquired by investment, the return on which is
dependent upon the extraction of the natural deposit or cutting of the timber.
Two Methods of Computing Depletion - Answers- Cost and Percentage
What tax form must estates and trusts file? - Answers- Form 1041
What tax form must partnerships file? - Answers- Form 1065
Do partnerships pay income taxes? - Answers- No.
General Partner - Answers- One who is personally responsible for partnership debts.
Circular 230 - Answers- Regulations governing the practice of attorneys, certified public
accountants, enrolled agents, enrolled actuaries, and appraisers before the IRS.
Disclosure - Answers- The release of tax information by an IRS employee.
Due Diligence - Answers- Requirements that tax professionals must follow when
preparing income tax returns.
Noncompliance - Answers- Failure or refusal to comply with the tax code.
Privilege - Answers- Protection from being required to disclose confidential
communications between two parties, such as attorney and client.
Estimated Tax - Answers- The amount of tax a taxpayer expects to owe for the year
after subtracting expected amounts withheld and certain refundable credits.
Estimated Tax Voucher - Answers- A statement by an individual of (1) the amount of
income tax he estimates he will incur during the current taxable year on income that is
not subject to withholding, (2) the excess amount over that withheld on income which is
subject to withholding, and (3) his estimated self-employment tax.
Exemption from Withholding - Answers- Status claimed on Form W-4 directing the
employer not to withhold federal income taxes from the employee.
Underpayment Penalty - Answers- If a taxpayer did not pay enough tax on a timely
basis during the year, he may be required to pay an underpayment penalty.
Withholding Allowances - Answers- An increase by which income tax withholding on
certain income is reduced.
Two Ways to Pay as You Go - Answers- Withholding and Estimated Tax Payments
Form W-4 - Answers- Employee's Withholding Allowance Certificate
Form 8815 - Answers- Exclusion of Interest From Series EE and I U.S. Savings Bonds
Issued After 1989
Form 2210 - Answers- Underpayment of Estimated Tax by Individuals, Estates, and
Trusts
Form 4868 - Answers- Application for Automatic Extension of Time To File U.S.
Individual Income Tax Return
,Form 8888 - Answers- Allocation of Refund
Form 9465 - Answers- Installment Agreement Request
Amended Return - Answers- A tax return filed on Form 1040X after the original return
has been filed.
Closed Year - Answers- A tax year for which the statute of limitations has expired.
Open Year - Answers- A taxable year for which the statute of limitations has not yet
expired.
Failure-to-File Penalty - Answers- Generally 5% for each month or part of a month the
return is late, but not more than 25% of the tax not paid.
Failure to File - Answers- Taxpayer fails to file the return by the due date, and there is a
balance due.
Failure to Pay - Answers- Taxpayer fails to pay the tax owed by the due date.
Failure-to-Pay Penalty - Answers- 0.5% of the unpaid taxes for each month or part of a
month after the due date, but not more than 25%.
When can an amended return be filed? - Answers- Within three years of the date the
original return was filed, or within two years of the date the tax was paid, whichever is
later.
Can the 1040X be e-filed? - Answers- No.
Household Employee - Answers- An individual who performs nonbusiness services in a
taxpayer's home.
Active Income and Losses - Answers- Those for which a taxpayer performs services.
Partnership - Answers- A form of business in which two or more persons join their
money and skills in conducting the business as co-owners.
Passive Income and Losses - Answers- Those from business activities in which the
taxpayer does not materially participate, and all rental activities.
Portfolio Income and Losses - Answers- Those from such sources as dividends,
interest, capital gains and losses, and royalties.
Rental Income - Answers- Income received by the taxpayer for allowing another
person's use of the taxpayer's property.
,Royalty - Answers- (1) A payment received for the right to exploit a taxpayer's
ownership of natural resources or a taxpayer's literary, musical, or artistic creation. (2)
An interest in the oil and gas in place that entitles the holder to a specified fraction, in
kind or in value, of the total production from the property, free of any expenses of
development and operation.
Negligence or Intentional Disregard - Answers- Taxpayer shows negligence or
disregard of the rules or regulations causing an underpayment.
Negligence-or-Intentional-Disregard Penalty - Answers- 20% of the underpayment.
Substantial Understatment - Answers- Taxpayer understates their tax by the larger of
$5,000 or 10% of the correct tax.
Substantial-Understatement Penalty - Answers- 20% of the underpayment.
Form 1040X - Answers- Amended U.S. Individual Income Tax Return
S Corporation - Answers- A qualified small business corporation that has elected
special tax treatment under subchapter S of the Internal Revenue Code. S corporations
pass income, losses, and deductions through to shareholders to report on their
individual returns.
Trust - Answers- A tax entity that distributes all or part of its income to beneficiaries as
instructed by the trust agreement.
Requirements for a Real Estate Professional - Answers- 1. More than half of the
personal services performed by the taxpayer in all trades or businesses during the tax
year were performed in real property trades or businesses in which the taxpayer
materially participated.
2. The taxpayer performed more than 750 hours of services during the year in real
property trades or businesses in which the taxpayer materially participated.
Trade or Business Activities - Answers- Any activity that: Involves the conduct of a trade
or business; is conducted in anticipation of starting a trade or business; Involves
research or experimental expenditures that are deductible under IRS Code 174.
Nonpassive Income - Answers- Income derived from activities that are not passive.
Types of Nonpassive Income - Answers- Portfolio income; personal service income;
other income.
Portfolio Income - Answers- Includes interest, dividends, annuities, and royalties not
derived in the ordinary course of business.
, Personal Service Income - Answers- Salaries, wages, commissions, self-employment
income from trade or business in which the taxpayer materially participates, deferred
compensation, taxable social security and other retirement benefits, and payments from
partnerships to partners for personal services.
Rent - Answers- Income received for the use of property.
Is rent earned or unearned income? - Answers- Unearned.
Schedule E - Answers- Supplemental Income and Loss
Deductible Maintenance and Repairs - Answers- Those that do not appreciably add to
the value or useful life of the property.
Is the value of the owner's labor deductible when it comes to rental property? -
Answers- No.
Rental Property Depreciable Basis - Answers- Basis MINUS land value TIMES the
rental use percentage.
Vacation home - Answers- A dwelling unit and may be a house, apartment,
condominium, mobile home, boat, or any other property that provides normal living
accomodations.
Used as a Residence - Answers- A dwelling unit is used for personal purposes during
the year for whichever is greater: more than 14 days; more than 10% of the days the
house is rented at fair rental value.
Royalty - Answers- Payments received for the right to extract natural resources from
the taxpayer's property or to use a taxpayer's literary, musical, or artistic creation.
Economic Interest - Answers- One acquired by investment, the return on which is
dependent upon the extraction of the natural deposit or cutting of the timber.
Two Methods of Computing Depletion - Answers- Cost and Percentage
What tax form must estates and trusts file? - Answers- Form 1041
What tax form must partnerships file? - Answers- Form 1065
Do partnerships pay income taxes? - Answers- No.
General Partner - Answers- One who is personally responsible for partnership debts.
