Ch 11 - Terms (ACTC and EITC)

Question 1

Additional Child Tax Credit (ACTC)

Answer 1

A refundable credit available to certain taxpayers who get less than the full amount of the child tax credit. The credit is available to taxpayers with earned income exceeding $3000 or those with three or more qualifying children and whose regular child tax credit exceeds tax liabilities minus other refundable credits. The Additional Child Tax Credit is computed on Form 8812.

Question 2

Child Tax Credit (CTC)

Answer 2

A nonrefundable credit of up to $1000 per dependent child under age 17 at the end of the tax year.

Question 3

Custodial Parent

Answer 3

The parent with whom a child lived for the greater number of nights during the year.

Question 4

Dependent

Answer 4

An individual whose personal exemption may be claimed on another person’s income tax return. To be claimed as a dependent, a person must meet certain tests.

Question 5

Due Diligence Penalty

Answer 5

A penalty that can be assessed against tax preparers who fail to comply with the due diligence requirements of the EITC, CTC, ATC, and AOTC (American Opportunity Credit)

Question 6

Due Diligence Requirements

Answer 6

Requirements established by the IRS that paid tax return preparers must follow when preparing returns. As part of exercising due diligence, tax preparers must interview the taxpayer, ask adequate questions, and obtain appropriate and sufficient information to determine correct reporting of income, claiming of tax benefits, and compliance with the tax law.

Question 7

Earned Income Credit (EIC or EITC)

Answer 7

A refundable tax credit for qualified taxpayers based on earned income, adjusted gross income, and the number of qualifying children.

Question 8

Eligible Foster Child

Answer 8

A child, other than the taxpayer’s biological child, stepchild, or adopted child, who was placed with the taxpayer by an authorized placement agency or by a court order, decree, or judgment.

Question 9

Full-Time Student

Answer 9

An individual who is enrolled in a school for the number of hours or courses considered by the school to be full time. School includes elementary and secondary schools, post-secondary colleges, and technical and trade schools. It does not include on-the-job training, correspondence schools, or night school. However, a student will not be disqualified by night classes that are part of a full-time course of study.

Question 10

Investment Income

Answer 10

This term generally includes income from interest, dividends, capital gains, and other types of distributions.

Question 11

Knowledge requirement

Answer 11

The requirement that a tax preparer must not know, or have reason to know, that any information used in determining a taxpayer’s eligibility for, or the amount of, CTC, ACTC, AITC, or AOTC is incorrect.

Question 12

Noncustodial Parent

Answer 12

The parent who is not the custodial parent of the child.

Question 13

Nonrefundable credit

Answer 13

A credit which cannot exceed the taxpayer’s tax liability

Question 14

Permanent and Total Disability

Answer 14

A disability that prevents an individual from engaging in any substantial gainful activity because of a medically determined physical or mental impairment that is expected to result in death, or that has lasted or is expected to last for a continuous period of not less than 12 months.

Question 15

Principal Place of Abode (Principal Residence)

Answer 15

The place that an individual considers to be his permanent home. A person’s abode does not change when he is temporarily absent due to illness, school, military service, etc, as long as his living area is maintained and he can reasonably be expected to return home after the temporary absence.

Question 16

Qualifying Child (QC)

Answer 16

A child who meets the relationship, age, residency, support, joint return, and the special tests with regard to a taxpayer to determine the taxpayer’s eligibility to claim the dependency exemption, CTC, EIC, or Child and Dependent Care Credit with regard to the child, or to use the HoH filing status.

Question 17

Qualifying Relative (QR)

Answer 17

A person who bears a certain relationship to the taxpayer, for whom the taxpayer provides more than one-half support for the year, whose gross income for the year is less than the exemption amount, and who is not claimed as a qualifying child of any taxpayer.

Question 18

Refundable Credit

Answer 18

A credit for which the IRS will send the taxpayer a refund for any amount in excess of the taxpayer’s tax liability.

Question 19

Support

Answer 19

The total amount provided on behalf of an individual. Support includes food, lodging, and other necessities, as well as recreation and other nonessential expenditures. Support is not limited to necessities, and can be as lavish as the taxpayer can afford.