Enrolled Agent > EA - Part 1: Individuals > Unit 1: Preliminary Work with Taxpayer Data > Flashcards

Unit 1: Preliminary Work with Taxpayer Data Flashcards

Gather and verify taxpayer identity, filing requirements, and key intake information necessary to begin tax preparation. (80 cards)

Study These Flashcards
1
Q

Why should tax preparers review prior-year tax returns?

A

To identify math errors, identify carryovers (e.g., NOLs, credits), and verify prior-year depreciation and asset basis.

Tax preparers must inform the taxpayer of any discovered errors or omissions but are not obligated to correct them.

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2
Q

What biographical information must tax preparers collect from taxpayers?

A
  • Legal name, date of birth, and marital status
  • Residency status and/or citizenship
  • Dependent information
  • Taxpayer’s identification number (SSN, ITIN, or ATIN)

Collecting accurate biographical information is crucial to prevent fraudulent tax filings.

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3
Q

What is an Identity Protection PIN?

(IP PIN)

A

A 6-digit number issued by the IRS to prevent unauthorized use of a taxpayer’s SSN on tax returns.

The IP PIN service is available to all taxpayers to protect their SSN or ITIN from unauthorized use.

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4
Q

What are the three types of Taxpayer Identification Numbers?

(TINs)

A
  • Social Security number (SSN)
  • Individual taxpayer identification number (ITIN)
  • Adoption taxpayer identification number (ATIN)

All individuals listed on a federal income tax return must have a valid TIN.

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5
Q

What are the ways to apply for an Individual Taxpayer Identification Number?

(ITIN)

A
  • Submit Form W-7 by mail with tax return
  • Use an IRS-authorized Certified Acceptance Agent (CAA)
  • Apply in-person at an IRS Taxpayer Assistance Center

An ITIN is for federal tax reporting only and does not affect immigration status or eligibility for Social Security benefits.

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6
Q

When is an Individual Taxpayer Identification Number (ITIN) used?

A

When a taxpayer is not eligible for an SSN but needs a TIN to file a U.S. tax return or report U.S. income.

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7
Q

Fill in the blank:

An Adoption Taxpayer Identification Number (ATIN) is requested using Form _______.

A

W-7A

An ATIN is for adopted children not yet eligible for a Social Security number and expires two years from issuance.

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8
Q

Can a taxpayer claim a child who was born and died in the same tax year but did not receive a Social Security Number?

A

Yes. The taxpayer must:

  • File a paper return
  • Attach a copy of the birth certificate or hospital medical record
  • Enter ‘DIED’ in the space for the dependent’s SSN

The child can be claimed as a dependent if a birth certificate shows the child was born alive.

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9
Q

How long should taxpayers retain copies of their tax returns and related records?

A
  • At least three years from the date filed or original due date
  • At least six years if more than 25% of gross income is omitted

Retaining records helps with income identification, tracking expenses, property documentation, audit evidence, and future tax preparation.

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10
Q

What is Form 1040 used for?

A

The primary tax form for U.S. taxpayers to file their individual annual income tax returns with the IRS.

Form 1040 includes Schedules 1, 2, and 3 for additional income, taxes, credits, and payments.

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11
Q

True or False:

Form 1040-NR is used by U.S. citizens to report their worldwide income.

A

False

Form 1040-NR is used by nonresident aliens to report their U.S. source income, not by U.S. citizens or residents.

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12
Q

What is Form 1040-SR used for?

A

Used by seniors who are age 65 or older. It is essentially the same as the standard Form 1040 but designed to be easier to read with a bigger font.

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13
Q

Who uses Form 1040-NR?

A

Used by nonresident aliens to report their U.S. source income.

It is never used by U.S. citizens or U.S. residents. Nonresident aliens are individuals who have not passed the green card test or the substantial presence test.

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14
Q

What is Form 1040-X used for?

A

Used to correct errors in a previously filed Form 1040, Form 1040-SR, or 1040-NR.

Taxpayers electronically filing amended returns may choose direct deposit to obtain a faster refund.

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15
Q

How are individuals’ federal taxable incomes taxed in the United States?

A

At progressive rates, with tax rates increasing at each successive income bracket.

For tax year 2025, there are seven tax brackets: 10%, 12%, 22%, 24%, 32%, 35%, and 37%.

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16
Q

What is the normal due date for individual tax returns?

A

April 15

If April 15 falls on a Saturday, Sunday, or legal holiday, the due date is extended until the next business day.

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17
Q

What is the purpose of Form 4868?

A

It is used to request an automatic extension of time to file a tax return.

The extension must be filed by the original due date and grants an additional six months to file a tax return.

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18
Q

Who qualifies as an ‘affected taxpayer’ in a federally declared disaster area?

A
  • Individuals and businesses located in a disaster area
  • Those whose tax records are located in a disaster area
  • Relief workers working in the disaster area

Affected taxpayers can include those outside the disaster area if their necessary records are in the disaster area.

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19
Q

What is the IRS penalty for failing to file a tax return on time?

A

The penalty is usually 5% of the unpaid balance due for each month or part of a month a return is late, up to a maximum of 25% of the unpaid taxes.

If the return is more than 60 days late, the minimum penalty is the lesser of $525 or 100% of the unpaid tax.

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20
Q

What is the Failure-to-Pay Penalty rate for unpaid taxes?

A

½ of 1% (0.5%) of unpaid taxes for each month, or part of a month, after the due date that the taxes are not paid, up to 25% of the unpaid taxes.

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21
Q

Under what circumstances does the failure-to-pay penalty rate increase to 1% per month?

A

When any tax remains unpaid the day after a demand for immediate payment is issued, or ten days after notice of intent to levy certain assets is issued.

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22
Q

What are acceptable reasons for penalty abatement due to ‘reasonable cause’?

A
  • Fire, casualty, natural disaster or other disturbances
  • Inability to obtain records due to a casualty or a disaster
  • Death, serious illness, incapacitation, or unavoidable absence of the taxpayer or a member of the taxpayer’s immediate family
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23
Q

True or False:

Interest on unpaid tax can be reduced or abated for reasonable cause.

A

False

Interest will only be abated in rare cases when there is a mathematical error made by the IRS.

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24
Q

What form is used to request abatement of interest?

A

Form 843, Claim for Refund and Request for Abatement

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25
How can a taxpayer **avoid** an **underpayment penalty** for estimated tax payments?
By paying the smaller of: * 90% of the current year’s tax liability, or * 100% of the prior year’s tax liability (110% if AGI was over $150,000) * The taxpayer is not required to make estimated payments if they had a zero tax liability in the prior year. *$1,000 Rule: Avoid the penalty if the total tax liability on the return, after subtracting withholdings and credits, is less than $1,000
26
What is the **safe harbor rule** for high-income taxpayers to avoid an estimated tax penalty?
For taxpayers with **adjusted gross income over $150,000** ($75,000 if married filing separately), they must pay the **smaller of 90%** of their expected tax liability for the current year or **110% of the tax** shown on their prior-year return.
27
When are the estimated **tax due dates** for individuals?
* First Payment Due: **April 15** * Second Payment Due: **June 16** * Third Payment Due: **September 15** * Fourth Payment Due: **January 15** (of the following year) ## Footnote June 15th, 2025 falls on a Sunday.
28
What is the special rule for estimated tax payments for **farmers** and **fishermen**?
If at least two-thirds of the taxpayer’s gross income comes from farming or fishing: * They can avoid estimated tax payments entirely by filing and paying in full by **March 2, 2026** (March 1, 2026 is a Sunday) or * If they choose to pay estimated tax, they are required to make only one payment, due by January 15 of the following year ## Footnote This rule is specific to farmers and fishermen and does not apply to other types of business activities.
29
What is the **backup withholding rate** for U.S. citizens and legal residents in 2025?
24% ## Footnote Backup withholding applies to various types of income, including wages, interest, dividends, and payments to independent contractors, under certain conditions.
30
Under what conditions might backup withholding be required?
* The individual did not provide a valid taxpayer identification number. * The IRS notified the payor that the taxpayer’s SSN or ITIN is incorrect. * The IRS notified the payor to start withholding on interest and dividends due to unreported income. * The payee failed to certify they were not subject to backup withholding for underreporting interest and dividends.
31
What is the **filing threshold** for a single taxpayer under 65 in 2025?
$15,750
32
What is '**earned income**' according to the IRS?
It includes **wages**, **salaries**, **tips**, and **self-employment earnings** from business or farm ownership.
33
What is the filing threshold for **Married Filing Separate** (MFS) taxpayers in 2025?
$5 ## Footnote This threshold applies regardless of age and is notably low compared to other filing statuses.
34
When must a **dependent child** file a tax return for unearned income in 2025?
If their unearned income is greater than $1,350.
35
What is the '**kiddie tax**' threshold for unearned income in 2025?
* The first $1,350 of unearned income is not taxed * The next $1,350 is taxed at the child’s rate * Any amount above $2,700 is taxed at the parents’ rate
36
What is the purpose of **Schedule C**?
To **report income and expenses** related to a business for self-employed taxpayers.
37
When must a taxpayer file a tax return due to **self-employment income**?
When they have net earnings from self-employment of **at least $400**.
38
What is **Innocent Spouse Relief**?
**Relief from tax liability** on a joint return due to **understated tax from erroneous items** attributable to a taxpayer's spouse or former spouse. ## Footnote The taxpayer must not have known or had reason to know about the understatement at the time of signing the joint return.
39
What form is used to request **Innocent Spouse Relief**?
**Form 8857**, Request for Innocent Spouse Relief
40
What does **Separation of Liability Relief** do for a qualifying taxpayer?
It allocates a **joint tax liability** between **former spouses or separated individuals**, making the requesting spouse liable only for the portion of tax attributable to them. ## Footnote Separation of Liability Relief only applies to amounts owed and does not generate a refund.
41
Under what circumstances can a taxpayer qualify for **Equitable Relief**?
When holding the taxpayer liable for the **understated tax would be unfair** based on the facts and circumstances. ## Footnote This relief is available even if the taxpayer doesn’t qualify for Innocent Spouse or Separation of Liability Relief.
42
What is an **Injured Spouse Claim**?
A claim to **recover a taxpayer's portion of a refund** that is applied to their spouse's past financial obligations. ## Footnote Injured spouses use Form 8379, Injured Spouse Allocation, to request their portion of the refund.
43
What is the general **time frame** for filing an **amended return to claim a refund**?
Within three years from the date the return was filed (or from the original due date of the return, if filed early) or two years from the date the tax was paid, whichever is later.
44
# Fill in the blank: A taxpayer is considered "**financially disabled**" if they are unable to manage their financial responsibilities due to \_\_\_\_\_\_\_.
mental or physical impairment
45
What are some reasons that can extend the **statute of limitations** for filing a late tax refund claim?
* Financial disability * Bad debt from worthless securities * Payment or accrual of foreign tax * Net operating loss (NOL) carryback * Carryback of certain tax credits * Exceptions for military personnel * Taxpayers in federally declared disaster areas or affected by terroristic or military action
46
What is the **extended statute of limitations** for filing a refund claim if a taxpayer is considered '**financially disabled**'?
The normal statute of limitations is paused during the period of financial disability. A taxpayer is considered financially disabled if they cannot manage their financial affairs due to a **physical or mental impairment** and have documentation from a physician.
47
List scenarios where a taxpayer can request a **refund beyond the normal deadline**.
* Bad debt from worthless securities (up to seven years prior) * Payment or accrual of foreign tax (up to ten years prior) * Net operating loss (NOL) carryback * Carryback of certain tax credits * Exceptions for military personnel * Taxpayers in federally declared disaster areas or affected by terroristic/military action
48
What is the **general statute of limitations** for IRS **assessment of tax** after a return is filed?
**Three years** from the later of the return's due date or the date it was actually filed.
49
Under what condition does the IRS have **six years to assess tax** on a return?
When the taxpayer **omits from gross income** an amount **greater than 25%** of the **gross income** that should have been reported on the return.
50
Is there a statute of limitations for tax assessment if a taxpayer never files a return or if the return is fraudulent?
No
51
How long is the **statute of limitations** for IRS **collection of tax** from the date of assessment?
Ten years
52
What is the **Collection Statute Expiration Date**? | (CSED)
The date when the **ten-year period** for IRS collection of tax **expires**. ## Footnote Certain events can extend the amount of time the IRS has to collect.
53
What happens if a taxpayer **fails to file a return** regarding the statute of limitations on assessment?
The statute of limitations on assessment remains **open indefinitely**.
54
What does signing a tax return under '**penalty of perjury**' mean?
Taxpayers affirm that the information is **accurate and truthful** to the best of their knowledge.
55
Who must **sign** a **tax return** if a tax preparer is used?
* The taxpayer * The tax preparer
56
What are the consequences under **IRC Section 7206** for knowingly filing a **false tax return**?
* Charged with a **felony** * **Fines** up to $100,000 * **Imprisonment** for up to three years
57
What **application form** is used to request an **ITIN**?
Form W-7
58
What is an **Adoption Taxpayer Identification Number** used for? | (ATIN)
An ATIN is used for **adopted children** who are **not yet eligible** for a Social Security number.
59
How is the **failure-to-file penalty** adjusted if both the failure-to-file and failure-to-pay penalties apply?
The 5% failure-to-file penalty is **reduced** by the **failure-to-pay penalty**.
60
When is the deadline for **qualified farmers and fishermen** to file their tax return and pay all taxes owed to avoid estimated tax payments?
March 1 ## Footnote For the 2025 tax year, this deadline is March 2, 2026, because March 1 is a Sunday.
61
What type of income is subject to the '**kiddie tax**'?
Unearned income ## Footnote This includes interest, dividends, and capital gain distributions.
62
What form is used to report **self-employment income**?
Schedule C
63
What is required to qualify for **Separation of Liability Relief**?
The requesting spouse **must no longer be married**, **legally separated**, **widowed**, or have **lived apart for at least a year** from the spouse with whom they filed a joint return.
64
What is the main **difference** between Equitable Relief and the other two types of spousal relief?
**Equitable Relief** may be granted for an **underpaid** tax, meaning it was properly reported but not paid.
65
What form is used for an **Injured Spouse claim**?
Form 8379
66
# True or False: To be considered an injured spouse, the taxpayer must not be responsible for the debt.
True
67
What is the time limit to **amend a return for losses** from worthless securities?
Seven years from the date of the transaction. ## Footnote This extended period allows taxpayers to claim losses from securities deemed worthless.
68
# True or False: An ITIN allows a taxpayer to claim the Child Tax Credit.
False ## Footnote A valid Social Security Number (SSN) is required to claim the Child Tax Credit.
69
What is **Schedule 1-A** used for in tax years 2025 through 2028?
Used to claim deductions for: * Qualifed Tips * Qualified Overtime * Qualified Car Loan Interest * Senior Deduction
70
What is the purpose of **Schedule 2**?
To report **additional taxes owed**, such as the alternative minimum tax, self-employment tax, or household employment taxes.
71
Who qualifies for the **automatic two-month extension** to file a tax return by June 15?
* Nonresident aliens who do not have wage income subject to U.S. withholding * U.S. citizens or legal U.S. residents living outside the United States or Puerto Rico * Taxpayers on active military service duty outside the U.S.
72
What is the **special exception** for **combat zones** regarding tax deadlines?
The deadline for filing a tax return and payment of tax owed is automatically **extended** for service members and certain personnel serving in a combat zone.
73
What happens to the **failure-to-file penalty** if a taxpayer is due a **refund**?
No penalty will be assessed.
74
What is the '**pay-as-you-go**' tax system?
Taxpayers need to pay most of their tax during the year as they earn income, through withholding or estimated tax payments.
75
What **form** is used by employees to **adjust withholding amounts**?
Form W-4 | (Employee’s Withholding Certificate)
76
What **form** is used to calculate an **estimated tax penalty**?
Form 2210 | (Underpayment of Estimated Tax by Individuals, Estates and Trusts)
77
What **form** can a taxpayer use to **request a waiver of penalties** due to special circumstances?
Form 2210 ## Footnote Special circumstances include situations like a casualty, disaster, or other unusual events that prevent timely tax payments.
78
What is considered 'gross income' according to the IRS?
All forms of **taxable income received by a taxpayer**, including money, goods, property, and services that are not exempt from taxes.
79
Who is required to file **Form 1099-NEC**?
A business that pays an independent contractor at least **$600** during the year. ## Footnote This is different from the income tax filing requirement for self-employed individuals.
80
What are the filing requirements for a **church employee**?
Earned **$108.28** or more as a church employee.
EA - Part 1: Individuals
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