EA: Part 3 EX2 taxpayer Questions &
Answers
1. Daniella is a tax professional who prepares hundreds of tax returns each year. As
such, she is subject to the e-file mandate. She has a new client, Fernando, who refuses
to e-file his tax return. What is the proper action for Daniella to take in this case?
A. If her client refuses to e-file, Daniella must decline the engagement.
B. She must refer Fernando to a different tax return preparer.
C. She can prepare Fernando's return on paper and attach Form 8948.
D. She should encourage Fernando to file electronically. If he refuses, Daniella does not
need to sign the return as a paid preparer. - ANSWER1. The answer is C. Daniella may
still prepare the return. She should attach Form 8948, Preparer Explanation for Not
Filing Electronically, to her client's paper return. Any tax preparer who files 11 or more
Forms 1040 or Forms 1041 (combined) during a calendar year must use IRS e-file.
However, clients themselves may choose not to e-file their returns. Fernando must mail
the return himself and include a hand-signed and dated statement documenting his
choice to file on paper.
2. Calhoun owes $3,900 in federal income tax, but cannot pay the taxes due. He could
like to apply for an installment agreement in order to pay over time. In which scenario
would the IRS waive the user fees for Calhoun's installment agreement request?
A. Calhoun is a full-time student.
B. Calhoun's income is below 250% of the applicable federal poverty level.
C. Calhoun's income is below 400% of the applicable federal poverty level.
D. Calhoun is currently unemployed and receiving only unemployment compensation. -
ANSWER2. The answer is B. Taxpayers are generally charged a one-time fee to set up
an installment agreement with the IRS. User fees may be reduced or waived entirely for
low-income taxpayers. The IRS would waive the user fees for Calhoun's installment
agreement request if Calhoun's income is: at or below 250% of the applicable federal
poverty level.
3. In which of the following situations must a tax return preparer obtain client consent to
disclose or receive sensitive tax return information?
A. The preparer receives a grand jury subpoena requesting client records.
B. The preparer reports a possible crime to authorities involving one of his clients.
C. For purposes of peer reviews.
D. None of the above disclosures requires permission from a client. - ANSWER3. The
answer is D. Generally, confidential taxpayer information can only be disclosed upon a
taxpayer's written authorization. However, a tax return preparer is not required to obtain
disclosure consent from a client if the disclosure is made for any of the following
reasons:
, A court order or subpoena issued by any court of record whether at the federal, state,
or local level. The required information must be clearly identified in the document
(subpoena or court order) in order for a preparer to disclose information.
An administrative order, demand, summons, or subpoena issued by any federal agency
(such as the IRS), state agency, or commission charged under the laws of the state with
licensing, registration, or regulation of tax return preparers.
To report a crime to proper authorities. Even if the preparer is mistaken and no crime
has occurred, he will not be subject to sanctions if he makes the disclosure in good
faith.
For purposes of peer reviews.
Finally, a preparer may disclose private client information to his attorney, or to an
employee of the IRS, in connection with an IRS investigation of the preparer.
4. Joey received an examination notice in 2019. During the examination of Joey's Form
1040, the IRS examiner found numerous errors resulting in additional tax. One of the
adjustments was a large amount of unreported income discovered in a concealed bank
account. Some deductions were supported with altered or defaced documents. Joey
also gave false statements throughout the examination. All of the acts of the taxpayer,
when seen as a whole, most likely indicate:
A. Negligence.
B. Fraud.
C. Noncompliance.
D. A tax protester argument. - ANSWER4. The answer is B. All the acts of the taxpayer,
when seen as a whole, indicate fraud. Fraud, as distinguished from negligence, is
always intentional. One of the elements of fraud is the intent to evade tax. The
existence of several "badges of fraud" will usually indicate fraud, rather than negligence.
5. The IRS's e-file rules prohibit a tax preparer from:
A. Filing using a client's last pay stub for wage information, if he has not yet received his
Form W-2.
B. Specifying that the IRS direct deposit a client's tax refund to the client's checking
account.
C. Charging a separate fee to e-file.
D. All of the above. - ANSWER5. The answer is A. Under IRS e-file rules, a tax preparer
is not allowed to electronically file a client's tax return using a pay stub only. The
preparer must wait until the client has a Form W-2 (there are exceptions for taxpayers
who require a substitute Form W-2, Form 4852, Substitute for Form W-2, Wage and Tax
Statement) such as when an employer goes out of business and the forms are never
issued, but these instances are rare. A substitute W-2 form should only be used when
all other avenues are exhausted, and the taxpayer cannot reasonably obtain a Form W-
2 from the employer).
6. A Statutory Notice of Deficiency is also known as a 90-day letter because:
,A. The taxpayer has 90 days from the date of the letter to request a Collection Appeals
hearing.
B. The taxpayer has 90 days from the date of the letter to file a formal protest with TIGT
A.
C. The taxpayer has 90 days from the date of the letter to file a protest with the IRS
Office of Appeals.
D. The taxpayer has 90 days from the date of the letter to file a petition with the United
States
Tax Court. - ANSWER6. The answer is D. A Statutory Notice of Deficiency is also
known as a 90 -day letter because the taxpayer generally has 90 days from the date of
the letter to file a petition with the United States Tax Court. The deadline increases to
150 days if the notice is addressed to a taxpayer who is outside the country.
7. Under Circular 230, an employer of other tax preparers must:
A. Furnish the IRS a record of all tax return preparers employed.
B. Keep a record of all tax return preparers employed and make it available for IRS
inspection upon request.
C. Document each tax preparer's performance and keep a record that must be made
available for IRS inspection upon request.
D. All of the above. - ANSWER7. The answer is B. An employer of other tax preparers
must keep a record of those employed and make it available for IRS inspection upon
request. The records must include the name, taxpayer identification number, and place
of work for each tax return preparer employed. Records must be retained for at least
three years following the close of the return period.
8. A single financial account is limited to electronically deposited tax refunds per tax
year.
A. One
B. Two
C. Three
D. No limit - ANSWER8. The answer is C. A financial account or prepaid debit card can
have a maximum of three refunds direct deposited into it per tax year. Any additional
deposits for the year for which an electronic refund is requested will be converted to a
paper refund check and mailed to the taxpayer. The IRS is limiting the number to try to
prevent criminals from easily obtaining multiple refunds.
9. Which of the following is not a reason for the IRS to abate interest on a taxpayer's tax
liability?
A. Managerial act.
B. Ministerial act.
C. When the interest was incurred while the taxpayer was in a combat zone or federally
declared disaster area.
D. Reasonable cause. - ANSWER9. The answer is D. Interest owed by a taxpayer will
be abated or waived in the following
, instances:
• When it is excessive, barred by statute, or erroneously or illegally assessed. o When it
is assessed on an erroneous refund.
e When it was incurred while the taxpayer was in a combat zone or in a declared
disaster
area.
Further, the IRS will waive interest that is the result of certain errors or delays caused by
an IRS employee, which are known as managerial acts and ministerial acts. However,
(in contrast to abatement of penalties, which can be abated for reasonable cause),
reasonable cause is not allowed as the basis for abatement of interest.
10. Safeguarding of IRS e-file from fraud and abuse is the shared responsibility of:
A. The IRS and the Police.
B. The IRS and the FBI.
C. The IRS and Authorized IRS e-file Providers.
D. The Department of the U.S. Treasury and official tax software providers. -
ANSWER10. The answer is C. Safeguarding of IRS e-file from fraud and abuse is the
shared responsibility of the IRS and Authorized IRS e-file Providers (see Publication
1345 for more information).
11. Trent decided to represent himself in an IRS audit. When he arrived at the IRS
office, he became agitated during the initial examination interview and requested to
speak to a representative. Which of the following statements is correct?
A. The taxpayer may leave the examination and finish the audit through
correspondence.
B. An IRS interview must be suspended when the taxpayer clearly requests the right to
consult with a representative.
C. If the taxpayer chooses to suspend the interview, he must return in person with his
representative.
D. The IRS is not required to cease an examination when the taxpayer requests a
representative. - ANSWER11. The answer is B. Trent's IRS interview must be
suspended when he clearly requests to consult with a representative. Throughout the
examination process, a taxpayer can act on his own behalf or have someone represent
him. The taxpayer is not required to be present if the representative is a federally
authorized practitioner (generally, an enrolled agent, CPA, or attorney). The taxpayer is
also not required to be present if the representative is one of the other qualified
individuals listed in Circular 230, such as a family member, an employee representing
an employer or an unenrolled preparer who is authorized to represent the taxpayer (with
more limited rights than enrolled representatives) because he has prepared the return
under examination and has completed all of the Annual Filing Season Program
requirements.
12. Due to recent changes in the law, the IRS can't issue refunds for 2019 tax returns
before February 15, 2020, if those returns claim which of the following credits?
