EA Part 1::Unit 01: Preliminary Work with Taxpayer Data

Question 1

What is the normal extended due date for individual tax returns?

Answer 1

October 15

Question 2

What information is reported on Form W-2?

Answer 2

Form W-2 reports wages, salaries, tips, and federal income tax withheld as well as Social Security and Medicare taxes withheld.

Question 3

What form is used to calculate an underpayment of estimated tax?

Answer 3

Form 2210, Underpayment of Estimated Tax by Individuals, Estates and Trusts. This form is used to calculate the penalty or determine if the IRS won’t charge a penalty. Form 2210 is also used to request a waiver of penalties, if applicable.

Question 4

What form is used by a sole proprietor to calculate and report self-employment tax?

Answer 4

Schedule SE, Self-Employment Tax

Question 5

What are withholding allowancaes?

Answer 5

A withholding allowance is an exemption that reduces how much income tax an employer automatically deducts from an employee’s paycheck.

Question 6

What is an amended return?

Answer 6

An amended return is a corrected tax return filed on Form 1040X after the original return has been filed.

Question 7

What is a sole proprietorship?

Answer 7

An unincorporated business that is owned and controlled by one person.

Question 8

True or False: The IRS will email you if they have a question about your tax return.

Answer 8

False. The IRS does not communicate with taxpayers via email.

Question 9

What IRS form helps an employer determine how much to withhold from an employee’s paycheck?

Answer 9

Employees fill out a W-4 form to inform employers how much tax to withhold from their paycheck based on filing status, dependents, anticipated tax credits, and deductions.

Question 10

Describe backup withholding.

Answer 10

Backup withholding applies when the taxpayer does not furnish a taxpayer identification number. The current backup withholding rate for U.S. citizens and U.S. residents is 24%.

Question 11

What is the Failure-to-file penalty for individuals?

Answer 11

The Failure-to-File (FTF) Penalty is 5% of the unpaid taxes for each month or part of a month that a tax return is late. This penalty applies when a taxpayer has an amount due, and doesn’t file their return on time.

Question 12

Taxpayers who cannot obtain an SSN must apply for what type of tax ID, in order to file a return?

Answer 12

Taxpayers who cannot obtain an SSN must apply for an ITIN.

Question 13

What form is used to apply for an ITIN?

Answer 13

Form W-7, Application for Individual Taxpayer Identification Number is used to apply for an ITIN. Taxpayers must also submit documentation that will establish foreign status and true identity.

Question 14

What is earned income?

Answer 14

Earned income includes: wages, salaries, tips, and other taxable employee pay. Earned income also includes net earnings from self-employment and other income received for personal services.

Question 15

What does a taxpayer’s marginal tax rate signify?

Answer 15

The marginal tax rate is a rate charged on taxable income for every additional dollar earned. The current top marginal income tax rate is 37 percent.

Question 16

Which form is used to calculate withholding allowances for an employee?

Answer 16

Withholding allowances are figured on Form W-4. An employer uses the number of allowances claimed, together with marital status, to determine how much income tax to withhold from an employee’s wages.

Question 17

What is an ATIN?

Answer 17

An ATIN, or Adoption Taxpayer Identification Number, is a temporary identification number for a child when the adopting parents do not have and cannot get an SSN, Social Security number, until the adoption is final.

Question 18

What is an ITIN?

Answer 18

An ITIN, Individual Taxpayer Identification Number, is used by someone who is not eligible for an SSN, Social Security number, but needs a tax identifying number for filing a tax return.

Question 19

What form is used to report wages earned during the year to an individual taxpayer?

Answer 19

Form W-2.

Question 20

With regards to proving a deduction taken on the tax return, who has the burden of proof?

Answer 20

In most dealings with the IRS, the burden of proof lies with the taxpayer. However, in tax fraud cases, the burden of proof switches to the government (IRM 25.1.1.1.7).

Question 21

What does the IRS mean when they say the tax system is “pay-as-you-go?”

Answer 21

Federal income taxes are pay-as-you-go. This means that taxpayers need to pay most of their income tax during the year, as they receive income, rather than paying at the end of the year.

Question 22

What is the name of the process that employers use to take taxes from employees’ paychecks?

Answer 22

The correct answer is withholding. This money is deposited with the government.

Question 23

What type of return is considered a tax return?

Answer 23

A tax return reports income and loss. It includes original returns, amended returns, and claims for a refund. Extensions, on the other hand, are not “tax returns” because an extension is only a request for additional time to file.

Question 24

What form is used by businesses to report nonemployee compensation that is paid to an independent contractor?

Answer 24

Businesses report nonemployee compensation paid to an independent contractor by filing Form 1099-NEC, Nonemployee Compensation with the IRS. A copy must also be given to the contractor.

Question 25

What is estimated tax?

Answer 25

The amount of tax a taxpayer expects to owe for the year after subtracting expected amounts withheld and certain refundable credits.