1. Under Circular 230, Lisa, a Tax Professional, may sign, as the preparer, a ta
ID: 2449277 • Letter: 1
Question
1. Under Circular 230, Lisa, a Tax Professional, may sign, as the preparer, a tax return that:
a.Reports a $12,000 loss from an investment with no documentation or written opinion.
b.Shows zero income tax due and includes a claim that filing and paying income taxes are voluntary.
c.Takes a non-frivolous position and has substantial authority for the position.
d.Takes an undisclosed position that Marissa has not encountered before and does not have time to research.
2.What is a Tax Professional's correct response to a client who omitted items on an income tax return which was submitted in a previous year? Advise the client promptly of the fact of the omissions and:
a.Refuse to prepare the current-year return until the previous return is amended.
b.Make an adjustment for the previous year's omission on the current-year return.
c.Advise them of the consequences as provided under the Internal Revenue Code and Preparer Regulations.
d.Refer the client to a supervisor.
3.Under what circumstances may a tax preparer who prepares federal tax returns endorse or otherwise negotiate a client's federal tax refund check?
a.A tax preparer may cash a federal tax refund check if the client endorses the check and grants power of attorney on Form 2848.
b.No circumstances exist that allow a tax preparer to endorse or otherwise negotiate a client's federal tax refund check.
.c.A tax preparer may endorse and cash a federal tax refund check if the amount of the check is less than $100 and the client has no bank account.
d.A tax preparer, who is authorized to represent taxpayers, may endorse and cash a federal tax refund check for a client.
4.Sabrina, who wants to claim EITC, informs her Tax Professional that she is still married but is separated from her spouse, and that her seven-year-old son lives with her. Logically, what is the first EITC-related question to ask her?
a.How long has your son lived in your household?
b.When did your spouse last live in your household?
c.Did anyone else live in your household?
d.Do you want to file a joint return with your spouse?
5.Tax preparation software is designed to meet EITC due diligence tests. But the software alone cannot satisfy which test?
a.Retain a record of how and when EITC information was obtained and the identity of the person who provided it.
b.Comply with the knowledge requirement.
c.Complete an eligibility checklist.
d.Compute the amount of the credit.
6.Henry, who is not a dependent, states he wishes to claim EITC this year for his 35-year-old dependent child. Both reside in the U.S. Henry states that the child lives with Henry, is not married, is disabled, and has not worked during the year. What does Henry's Tax Professional need to do to determine if the child can qualify Henry for EITC?
a.Enter Henry's child on his return and identify him as a disabled qualifying child.
b.Advise the client of the tax definition of disabled and apply sound judgment and common sense to see if the definition is met.
c.Ask for proof of the child's income.
d.Explain to Henry that a 35-year-old child is too old to be a qualifying child for EITC.
7.If a Schedule C taxpayer does NOT bring the Tax Professional documentation to prove income:
a.They cannot claim EITC.
b.The Tax Professional cannot prepare the return.
c.They can make a Form 1099-MISC to document their own income.
d.They must give the Tax Professional other indication that the self-employment income is accurate, before the Tax Professional can complete and sign the return.
8.A good Schedule C interview includes a Tax Professional:
a.Explaining to the taxpayer that an accurate Schedule C reports all income and expenses associated with the business.
b.Accepting the taxpayer's statement of expenses with no questions asked.
c.Ignoring items which might reduce the client's refund.
d.Providing amounts for expenses typical in the region where the return is being prepared.
9.When a taxpayer comes to H&R Block hoping to defraud the government by electronically filing a false return:
a.The taxpayer is protected by IRS privacy rules, which forbid the Tax Professional to tell anyone else about the return.
b.Contact your supervisor.
c.Call the IRS as soon as possible.
d.Confront the taxpayer and, in no uncertain terms, accuse them of fraud.
10.When a taxpayer receives more EITC after adding a Schedule C to their return than they would have received without it, the Tax Professional must:
a.Document in notes the amount of EITC with and without Schedule C.
b.Omit Schedule C from the return.
c.Apply sound judgment and common sense to the information provided and provide question and answer documentation to show the questions asked and the taxpayer's responses.
d.Enter only a modest amount of expenses on Schedule C.
please help me, am take a taxes exam thanks
Explanation / Answer
1. A tax professional should see that the following conditions are satisified when signing tax returns as per circular 230: (i) there is substantial authority for the position (ii) the position was adequately disclosed (iii) the position should be non frivolous. Hence the answer is option - "c" - Takes a non-frivolous position and has substantial authority for the position.
2. The answer is option "c" - Advise them of the consequences as provided under the Internal Revenue Code. As per SSTS 6 and circular 230, the tax practitioner has to make aware the client of the error and apprise him of the consequences. Correcting these errors or omissions in the current year return is prohibited.
3. The answer is option "b" - No circumstances exist that allow a tax preparer to endorse or otherwise negotiate a client's federal tax refund check. This is as per provision of Circular 230 #10.31
4. EITC is a benefit for working people who have low to moderate income. To claim EITC, you must have a qualifying child. A qualifying child is under the age 19 years, must be the son or daughter, and must have lived with you for more than half of the year. So the answer is option - "a" - How long has your son lived in your household?
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