26 Jun Question: Comprehensive Income Tax Course
Comprehensive Income Tax Course: Module 1
4. Randy turned 16 last year and had his first summer job. Even though his parents are claiming
him as a dependent he wants to file a return in order to get his refund. He receives his W-2
and decides he can do his own return using form 1040-EZ. Which of the following information
is not found on a Form W-2?
a) The taxpayer’s Social Security number
b) The taxpayer’s wages, tips and other compensation
c) The taxpayer’s federal tax to be refunded
d) The taxpayer’s state wages
5. Clark has been a tax preparer for many years and has completed countless tax returns. Which
of the following is an exception to the most commonly used filing forms to report income and
deductions to the IRS?
a) 1040NR
b) 1040EZ
c) 1040A
d) 1040
6. Janet is unsure of her correct filing status. Which of the following is listed incorrectly as a
filing status available on the federal tax return?
a) Single
b) Married filing Head of Household
c) Married Filing Jointly
d) Head of Household
7. Don had very low income last year and asks whether he even needs to file. Which of the
following is an exception to the filing requirements table that would require filing with lower
income?
a) Self-employment income in excess of $400
b) A dependent over age 19 who has earned income in the amount of $3,950
c) Wages of less than $108.28 from a church or qualified controlled organization that is
exempt from employer Social Security or Medicare taxes
d) A dependent with unearned income of $500
8. Henry turned 65 on January 1. Jane, Henry’s wife, turned 65 the day before Henry. What is
their filing requirement for tax year 2014?
a) $20,300
b) $21,500
c) $22,700
d) $23,600
9. Jack understated a client’s tax liability this year. Jack will face a penalty, as a paid preparer,
for intentional understatement of a taxpayer’s tax liability due to an unreasonable position.
What is the penalty?
a) $500 per return
b) $50 per return up to $25,000 per year
c) $250 per return
d) Greater of $1,000 or 50% of the income derived per return
10. Mary’s husband, Bob, died March 12, 2014. She married Richard on December 15, 2014.
What would Bob’s filing status be?
a) Single
b) Married Filing Jointly
c) Married Filing Separately
d) Head of Household
11. Bob died March 12, 2013, leaving Mary with a two-year old son. What would Mary’s filing
status be for tax year 2014 if she does not remarry?
a) Married Filing Jointly
b) Married Filing Separately
c) Head of Household
d) Qualifying Widow(er) with Dependent Child
12. Bob died March 12, 2013. If in tax year 2016, Mary still does not remarry what would be her
filing status? (Mary still has a dependent child living with her.)
a) Single
b) Married Filing Jointly
c) Married Filing Separately
d) Head of Household
13. Jack, who is a paid preparer, understated a client’s tax liability this year. What is the paid
preparer penalty for intentional disregard for IRS rules resulting in understatement of
taxpayer’s tax liability?
a) $50 per return up to $25,000 per year
b) $5,000 per return up to $25,000 per year
c) $1,000 per return
d) Greater of $5,000 or 50%of the income derived per return
14. Mr. and Mrs. Collins are having marital problems and temporarily separated in May 2014.
Their two young children are living with Mrs. Collins. They’re uncertain what filing status they
should use. When would a taxpayer be considered unmarried and able to file as Head of
Household?
a) He is married and living with his spouse as husband and wife.
b) He is living with his spouse in a common law marriage that is recognized in the state where
he now lives, or in the state where the common law marriage began.
c) He is married and living apart from his spouse, but not legally separated under a decree
of divorce or separate maintenance.
d) Spouse did not live in the home at all during the last six months of the year, has a qualifying
child and is otherwise eligible to file as Head of Household.
15. Review the following scenarios. Which scenario is matched to the incorrect form?
a) Married taxpayers with income of less than $17,000 filing Form 1040EZ
b) A Single person who itemizes his deductions on Schedule A and files Form 1040
c) A married couple with interest and/or dividends less than $1,500 and child care credit.
The taxpayer has taxable income of $67,850 and files form 1040A.
d) A married filing separate taxpayer with a taxable income of $102,000 filing Form 1040EZ
16. Mr. Simpson died on September 26th. Who is responsible for filing his final return?
a) His mother
b) His attorney
c) His personal representative
d) His ex-wife
17. Allen is the executor of his mother’s estate. What additional form should be filed with his
mother’s personal return to claim a refund?
a) No additional form is needed because Allen is the personal representative.
b) Form 1310
c) No one is eligible to claim a refund for a decedent.
d) Form 1041
18. Mr. and Mrs. Kelly separated in October. Mrs. Kelly had no income during the year. She
resides in the couple’s house and Mr. Kelly continues to pay all expenses for the household.
Mrs. Kelly has decided that she does not want to file a joint return with Mr. Kelly. The couple
has no dependent children. Which of the following statements is true in regard to their
situation?
a) Mr. Kelly can file a joint return without Mrs. Kelly’s consent.
b) Mr. Kelly must file a Married Filing Separate return. He may claim Mrs. Kelly’s exemption
without her consent.
c) Mr. Kelly must file a Married Filing Separately return. He may claim Mrs. Kelly as a
dependent only if she consents.
d) Mr. Kelly must file as Single, and he may not claim Mrs. Kelly as an exemption.
19. The Browns filed as Married Filing Jointly and claim four dependents. Which of the following
would a Married Filing Jointly taxpayer not be able to claim as a dependency exemption?
a) A qualifying child
b) A qualifying foster child
c) A parent
d) A spouse
20. If any of the Browns’ four dependents is a qualifying relative there are requirements which
must be satisfied. Which of the following is an invalid requirement that must be satisfied to
claim an exemption for a qualifying relative?
a) Member of household or relationship test
b) Support test
c) Gross income test
d) Age test
21. Clark, the veteran preparer, knows there are several types of Taxpayer Identification Numbers
(TIN). Which of the following is an invalid Taxpayer Identification Number that can be used
on Form 1040A?
a) Social Security Number (SSN)
b) Employer Identification Number (EIN)
c) Individual Taxpayer Identification Number (ITIN)
d) Adoption Taxpayer Identification Number (ATIN)
22. Calvin Olsen and his siblings provided support for their mother all year. Based on the following
information, who is eligible to claim their mother’s exemption using the multiple support
agreement?
Calvin provided $4,000 for support
Calvin’s brother Jerome provided $1,250 for support
Calvin’s sister Alice provided $1,250 for support
Calvin’s sister Betsy provided $3,000 for support
Calvin’s sister Nancy provided $3,500 for support
a) Calvin, Betsy, or Nancy
b) Calvin only
c) Calvin or Nancy
d) Calvin and his siblings should decide who claims the exemption
23. The Smiths are separated and must determine who may claim their son Todd as a dependent.
Which of the following conditions does not need to be true in order for a divorced or separated
parent to satisfy the dependency residency test for a child?
a) The parents are divorced or legally separated under a decree of divorce or separate
maintenance agreement or, separated under a written separation agreement, or lived
apart at all times during the last 6 months of the calendar year.
b) The parents provided more than half of the child’s total support for the calendar year.
c) One or both parents had custody of the child for more than half of the calendar year.
d) The child chooses which parent to live with.
24. Henry and Ethel Morris have an AGI of $219,800. The couple is filing MFJ and they claimed
four exemptions. What is their exemption deduction for 2014?
a) $15,800
b) $15,600
c) $16,800
d) $14,800
25. Bill’s wife just had twins and he wants his federal withholding changed on his paycheck. What
form should be used to determine federal withholding exemptions?
a) 1040
b) 1040V
c) W-2
d) W-4
26. Bill, the new father of twins, asks his tax preparer to change his federal withholding. His tax
preparer tells him he cannot do this. Who is responsible for determining the taxpayer’s
withholding allowance?
a) The taxpayer
b) The employer
c) The IRS
d) The Social Security Administration
27. Bill’s tax preparer explains to Bill how to go about changing his federal withholding. Where or
with whom should Form W-4 be filed?
a) The taxpayer’s employer
b) The Internal Revenue Service
c) The Social Security Administration
d) The Department of Labor
28. Bill’s tax preparer also explains to Bill whether or not he should review his W-4 information.
How often should the Form W-4 be evaluated?
a) It is not necessary to evaluate the W-4 after it is initially completed for new employment.
b) Annually, or as often as the taxpayer’s situation changes
c) Only in the case of birth of a dependent
d) Only when the taxpayer’s marital status changes
29. Harry is single with a full-time job as well as a part-time job for extra money. What should a
single taxpayer with two jobs do about withholding and exemptions?
a) Claim the same number of withholdings at both places of employment
b) Complete a separate set of Form W-4 worksheets for each place of employment
c) Complete only one set of Form W-4 worksheets for all places of employment and divide
the exemptions between the two jobs
d) Decide how many exemption allowances he wants to claim for each place of employment
30. Last year Bob was refunded all federal withholding because he had no tax liability. He has
determined he should be exempt from withholding because he isn’t expecting to have tax
liability again this year. What should a taxpayer do if he determines that he is exempt from
withholding?
a) Write “Exempt” on line 7 of Form W-4
b) Write “Exempt” at the top of Form W-4
c) Write “Exempt” at the top of Form 1040EZ, 1040A, or 1040
d) Write “Exempt” on the withholding line of Form 1040EZ, 1040A, or 1040
31. In order for Bob to continue to claim to be exempt, when is it necessary for him to complete a
new Form W-4?
a) Only if his situation changes
b) No later than February 15 each year
c) No later than December 1 each year
d) No later than January 1 each year
32. Tim will receive his first pension distribution this year. He’s concerned whether or not this
distribution is taxable. Which of the following type of pension and annuity distributions would
be exempt from having taxes withheld?
a) Traditional individual retirement arrangement (IRA)
b) A life insurance company under an endowment, annuity, or life insurance contract
c) A pension, annuity, or profit-sharing plan, a stock bonus plan
d) A Roth IRA distribution
33. On August 14, Olaf was involved in an electrical accident which left him with partial vision in
only one eye. Olaf’s ophthalmologist has prescribed a contact lens to correct the vision in one
eye. However, due to pain Olaf can only wear the contact lens for a few hours each day.
Olaf’s vision is not expected to improve beyond the present condition. Is Olaf entitled to the
higher standard deduction for blindness?
a) No, Olaf must be totally blind in both eyes to be eligible for the higher standard deduction.
b) No, Olaf is not entitled to the higher standard deduction because his vision is correctable
with a contact lens.
c) Yes, Olaf is entitled to the higher standard deduction because he can only wear the
contact lens briefly.
d) Yes, Olaf is entitled to the higher standard deduction but only beginning in the year
following the accident.
34. Lester is retired with only investment income and prefers not to make estimated tax payments.
Which of the following is listed incorrectly as a qualification a taxpayer must meet to avoid
making estimated tax payments in the current year?
a) He was required to file a prior year tax return.
b) He had no tax liability for the prior year.
c) He was a U.S. citizen or resident for the whole year.
d) His prior year tax year covered a 12 month-period.
35. Lester’s tax preparer convinces Lester he should make the estimated payments and explains
to Lester when the payments are due. Estimated taxes are due on all of the dates listed below
with the exception of:
a) April 15
b) June 15
c) September 15
d) December 15
36. Ray’s preparer tells him he may owe an underpayment penalty on this year’s taxes. Which of
the statements below would prevent a taxpayer from owing an underpayment penalty?
a) He fails to withhold enough income tax.
b) He fails to make required estimated tax payments.
c) He fails to make estimated tax payments on time.
d) He did not have a tax liability in the previous tax year.
37. Ray chooses to let the IRS determine his underpayment penalty. What will the IRS do if the
IRS calculates the underpayment penalty for a taxpayer?
a) Wait to collect the penalty until the taxpayer files his next tax return
b) Deduct the penalty amount from current estimated tax payments
c) Deduct the penalty from current withholdings
d) Send the taxpayer a bill
38. Greg has a balance due on his current return. He will not owe a penalty if his total tax less
withholding is less than which of the following amounts?
a) $1,500
b) $1,000
c) Last year’s liability
d) $2,000
39. Greg’s preparer tells him he may be required to pay estimated taxes. Which of the following
conditions would cause Greg to be required to pay estimated taxes?
a) He expects to owe more than $1,000.
b) He expects to owe Federal income taxes.
c) He expects to owe at least $1,000.
d) Only if he is receives a Form 1099.
40. Wayne’s employer provides meals and lodging on business trips. Which of the following is
listed incorrectly as a condition that must be met for the taxpayer to avoid reporting the value
of meals and lodging as income?
a) The meals are: Furnished on the business premises of the employer for the
convenience of the employer
b) Lodging is: Furnished on the business premises of the employer for the convenience of
the employer
c) A condition of employment (the taxpayer must accept it in order to be able to properly
perform his duties)
d) The cost of the meals must not exceed the federal per diem rate.
41. Riley received benefits from an accident or health insurance plan through his employer. Under
what circumstances are these benefits not taxable to Riley the employee?
a) If the employer paid the plan premiums
b) If the amount of the premiums were included in the employee’s income
c) If the amount of the premiums were not included in the employee’s income
d) Only if the employer decides the benefits are not taxable
42. Connie’s employer provided her with a company vehicle that she is allowed to drive home.
Connie is allowed to use the vehicle for personal use. What portion of the vehicle usage is
taxable to Connie?
a) Connie’s business and personal use of the vehicle are taxable.
b) None of the vehicle usage is taxable to Connie.
c) Only the personal use portion that is not commuting to and from work is taxable.
d) Connie’s personal use of the vehicle is taxable.
43. Teresa’s employer sold her a new car at a discount. To prevent Teresa from paying taxes on
the discount she received, which of the following statements must be true?
a) The discount Teresa received must be the same discount offered to customers in the
ordinary course of business in which Teresa works.
b) The employer must decide prior to the sale if he is going to report the discount as a taxable
fringe benefit.
c) Teresa must pay cash for the car.
d) Teresa’s employer must offer the same discount plus 20% to all customers.
44. Becky is a flight attendant for a company that owns both an airline and a hotel chain. Her
employer allows her to take personal flights, only if there is an unoccupied seat. He also
allows her to stay in any one of their hotels, only if there is an unoccupied room, at no cost.
What value will Becky report as income?
a) Becky will not be required to report any value as income.
b) Becky will report the value of the flight as income.
c) Becky will report both the value of the flight and the hotel stay as income.
d) Becky will report only the value of the hotel stay as income.
45. Sam’s employer provides transportation benefits. Which of the following is unacceptable as
a qualified transportation benefit?
a) A transit pass
b) Reimbursement for tolls
c) Qualified parking
d) Transportation in a commuter highway vehicle between the taxpayer’s home and work
place
46. Sam’s employer also provides his employees with small benefits that it would be unreasonable
to account for. These benefits are called de minimis benefits. Which of the following would
not be a de minimis benefit?
a) Company picnics
b) Cab fare home when working overtime
c) A bonus
d) Discounts at the company cafeteria
47. The Smiths are separated and unsure how to report community income. Which of the following
is listed incorrectly as a condition under which a taxpayer is not responsible for tax relating
to an item of community income?
a) He does not file a joint return for the tax year.
b) He does not include an item of community income in gross income on his separate return.
c) He established that he did not know of, and had no reason to know of, that community
income.
d) He treats the item as if only he is entitled to the income.
48. Troy needed to have the transmission in his car rebuilt. Gene, Troy’s best friend, offered to
rebuild the transmission in exchange for an old pickup truck belonging to Troy. Troy agreed
and gave the truck to Gene. The value of the service Gene provided is $950. The value of
the pickup is $750. How much bartering income must Troy report on his tax return?
a) $ 950
b) $ 750
c) $ 0
d) $1,700
49. Sam started a new job and was told his employer offers a cafeteria plan. Sam is unsure what
a cafeteria plan is. Which of the following defines a cafeteria plan?
a) A plan allowing an employer to have an onsite facility for employee meals
b) A corporate citizen plan to furnish meals to low income residents
c) An arrangement whereby an employer offers a choice of nontaxable fringe benefits from
which to select
d) A plan awarding the employee with a variety of stock options
50. Last year John received a refund or reimbursement of items he previously had used as
deductions on his tax return. Which of the following is not a recovery of an item previously
deducted?
a) A refund of a medical expense deducted in a prior year
b) Reimbursement of an employee business expense deducted in a prior year
c) Mortgage interest refund
d) Self-employment tax
51. John is unsure how to report recoveries on his tax return. How should a recovery of an item
previously deducted be reported?
a) A credit
b) A deduction
c) Income
d) An exemption
52. Thomas received the following payments during the year and does not know if these items
should be reported on his tax return. Identify the taxable item for Thomas.
a) Cash rebates
b) Recoveries of items that did not produce tax benefits in previous years
c) Accidental health insurance proceeds (Employee paid premiums)
d) Vacation pay
53. Cha
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