Ch 3 - Questions (Dependent Exemptions and Support)

Question 1

What is the personal exemption

Answer 1

Taxpayers may reduce their otherwise taxable income by $4050 for each exemption allowed (2017).

Question 2

How much does a person in the 10% tax bracket save for each allowable exemption?

Answer 2

$405 ($4050 * 10%)

Question 3

Who is a dependent?

Answer 3

A qualifying child (QC) or a qualifying relative (QR)

Question 4

What are the three tests for claiming an exemption of a QC or QR?

Answer 4

Dependent taxpayer test
Joint return test
Citizen of resident test

Question 5

What are the three tests for claiming a QC or QR exemption called.

Answer 5

The Dependent Taxpayer Test

Question 6

What relationships qualify a child as a QC?

Answer 6

Son, daughter, stepchild, foster child, brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them.

Question 7

What age qualifies a child as a QC?

Answer 7

The child must be < age 19 at the end of the year and younger than the taxpayer (or taxpayer spouse if filing jointly)
and
< age 24 at the end of the year and a full time student, and younger than the taxpayer (or spouse if filing jointly)

Question 8

What residency qualifies a child as a QC?

Answer 8

The child must have lived with the taxpayer for more than half of the year.

Question 9

What support qualifies a child as a QC?

Answer 9

The child must not have provided more than half of their own support for the year.

Question 10

What return status qualifies a child as a QC?

Answer 10

The child is not filing a joint return for the year (unless that return is solely as a claim for refund)

Question 11

What is special case, with regard to qualifying a child as a QC?

Answer 11

If the child meets the rules to be a qualifying child of more than one person, the taxpayer must be the person entitled to claim the child as a QC per tie-breaker rules.

Question 12

Can a Qualifying Relative be a Qualifying Child?

Answer 12

No. The person cannot be the taxpayer’s qualifying child or the qualifying child of any other taxpayer.

Question 13

What relationship qualifies a relative as a QR

Answer 13

Be related to the taxpayer as a child; brother, sister, stepbrother, stepsister, father, mother, or ancestor of either; stepfather or stepmother; son or daughter of a brother or sister of the taxpayer; brother or sister of the father or mother of the taxpayer; son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, sister-in-law.

And have lived with the taxpayer all year as a member of the household.

Question 14

What gross income qualifies a QR?

Answer 14

Person’s gross income for the year must be less than $4050 (exemption amount)

Question 15

What support qualifies a QR?

Answer 15

The taxpayer must provide more than half of the person’s total support for the year.

Question 16

What three criteria relate to the taxpayer with regard to their QC and QR deterninations?

Answer 16

The taxpayer cannot be a dependent of another taxpayer

The taxpayer cannot claim a married person who files a joint return as a dependent unless that joint return is only a claim for refund.

The taxpayer cannot claim a person as a dependent unless that person is a US citizen, US resident alien, US national, or resident of Canada or Mexico.

Question 17

What are the 5 tests for QC?

Answer 17

Relationship test
Age test
Residency test
Support test
Joint return test

Question 18

Do adopted children satisfy the relationship test for QC?

Answer 18

Yes, even if the adoption is not yet final, provided the child has been lawfully placed for adoption with the taxpayer.

Question 19

What criteria in the age test is irrespective of age?

Answer 19

If the person is permanently and totally disabled, regardless of age.

Question 20

If a child provides more than half of their own support, can they be a QC?

Answer 20

No.

Question 21

If a foster child receives support for their placement, does affect the support test for the taxpayer for them to be a QC?

Answer 21

Payments received for support of a foster child are considered support provided by the agency, state, or county. A person’s own funds are not support unless they are actually spent.

Question 22

How does a divorce affect the QR test?

Answer 22

Relationships for the QR test that were established by marriage are not ended by death or divorce.

Question 23

If a child receives social security benefits used for thir own support, who is considered to have provided them.

Answer 23

The benefits are considered as provided by the child.

Question 24

Do cousins meet the test for QR?

Answer 24

No

Question 25

Does an age 19 person who is not in school full time meet the test for QC?

Answer 25

No, but they may be a QR.

Question 26

If a taxpayer and spouse are filing a joint return, and the spouse can be claimed as a dependent on someone else’s return, can the taxpayer and spouse claim dependents on their joint return?

Answer 26

No. If someone is a dependent they cannot claim dependents.

Question 27

What are main items to consider in computing a dependent’s support?

Answer 27

Food, lodging, clothing, grooming and personal care items, most unreimbursed medical and dental expenses, most education expenses, transportation, recreation, capital items (car, tv) for individual use.

Question 28

How is the cost of lodging determined in the support test?

Answer 28

The value of the lodging rather than the actual costs - the fair rental value.

Question 29

How are student loans handled in dependency tests?

Answer 29

The tuition paid by the student loan is considered to be provided by the person responsible for repayment of the loan.

Question 30

What are some items that are not included in support for dependency tests?

Answer 30

Capital items for general household use, taxes paid from the dependent’s income, social security and medicare taxes paid from dependent’s wages, life insurance premiums, funeral expenses, Survivor’s and Dependent’s Educational Assistance Payments (used for the support of the child who receives them), Certain scholarships.

Question 31

If a taxpayer buys a new sofa for the house, does this count toward support of a dependent?

Answer 31

No, items for general household use, are not counted toward support, but may count toward fair rental value of housing provided.

Question 32

If a taxpayer pays life insurance premiums on a dependent, does this count toward support of a dependent?

Answer 32

No, life insurance premiums do not qualify as support.

Question 33

How are scholarships for a full time student counted in support of the dependent?

Answer 33

They do not count as support if it is for a son, daughter, stepson, stepdaughter. They would count as support if it is another relationship.

Question 34

Are medical and dental expenses paid by insurance included in support determination?

Answer 34

No.

Question 35

How much is the Child Tax Credit?

Answer 35

Up to $1000 per qualifying child.

Question 36

Is the Child Tax Credit refundable?

Answer 36

No, but there is an Additional Child Tax Credit, which is refundable.

Question 37

What is required to qualify for the Child Tax Credit?

Answer 37

Taxpayer must have a qualifying child. Child must be < 17 at end of year. Must be claimed on taxpayer return. Child must be a US citizen, US National, or resident of the US.

Question 38

Does gross income factor into the Child Tax Credit?

Answer 38

There is a phaseout based on AGI. $75000 single, $110000 MFJ, $55000 MFS.

Question 39

What is Modified Adjusted Gross Income

Answer 39

MAGI always begins with the taxpayers AGI and is then modified for an individual purpose. It does not mean the same thing for every purpose.

Question 40

What document is used to calculate the Child Tax Credit

Answer 40

The Child Tax Credit Worksheet, IRS Pub 972.

Question 41

What must paid tax return preparers exercise when preparing a taxpayers return

Answer 41

Due diligence

Question 42

What are some things involved in due diligence?

Answer 42

Interview the taxpayer. Ask adequate questions. Obtain appropriate and sufficient information to determine correct reporting of income, claiming of tax benefits, and compliance with the tax laws.

Question 43

What is PATH? How did it affect due diligence?

Answer 43

PATH Protecting Americans From Tax Hikes was an act in 2015. Paid tax preparers must also meet specific due diligence requirements when preparing returns and claims for refund involving EITC, AOTC, CTC, and ACTC.

Question 44

What form must be submitted as H&R Block tax professionals regarding due diligence?

Answer 44

Form 8867, Paid Preparer’s Due Diligence Checklist

Question 45

What are the due diligence requirements for H&R Block

Answer 45

Complete checklist. Complete and keep all worksheets used for EITC, AOTC, CTC, ACTC credits. Satisfy the knowledge requirement. Satisfy the documentation requirement.

Question 46

What is the penalty for not fulfilling due diligence requirements?

Answer 46

$510 for each failure, for each credit, on each return. So if all three credits are claimed, could be $1530.

Question 47

What are the CTC due diligence requirements

Answer 47

1. Complete and submit form 8867. 2. Complete and keep all worksheets. 3. Knowledge requirements - paid preparer cannot know of or have any reason to know, that information used to determine a taxpayer’s eligibility for the credit is incorrect, inconsistent, and complete. (Interview, ask adequate questions, review info provided, document their responses. As additional questions until satisfied that eligibility requirements are met, or put on hold until documentation received. 4. Keep Records (keep copies of any documents provided by taxpayer) attach to printed form which is stored in the client file.

Question 48

Can preparer rely on software alone to satisfy knowledge requirement for due diligence?

Answer 48

No. Ask additional questions if needed (& document them). You also cannot ignore information that you obtained through other means.

Question 49

What is the “smell test”

Answer 49

How the IRS refers to the review of the taxpayer’s information.

Question 50

What should happen if something doesn’t seem quite right with the info provided b the taxpayer?

Answer 50

Follow you’re instinct. Ask more questions (record the questions and answers).