Keeping Up With EITC Due Diligence

Question 1

ASSESSMENT

What is the largest amount of foreign earned income a taxpayer eligible for the earned income credit may exclude from his or her gross income subject to U.S. taxation?
(Search Chapter 1)

a. $0
b. $1,000
c. $3,650
d. $10,000

Answer 1

My answer: $0

Question 2

ASSESSMENT

What condition must a taxpayer who is married to a nonresident alien satisfy in order to be eligible for the earned income credit if she is otherwise eligible?
(Search Chapter 1)
a. File a federal tax return as married filing joint.
b. File a federal tax return as married filing separate.
c. File a federal tax return as head of household.
d. File a federal tax return as single.

Answer 2

My Answer: File a federal tax return as married filing joint.

Question 3

ASSESSMENT

Ellen recently graduated from high school, has no qualifying children and is living on her own. What is the youngest age at which she can she qualify for an earned income credit?
(Search Chapter 1)
a. no minimum age applies to a taxpayer’s eligibility for EIC
b. age 19
c. age 21
d. age 25

Answer 3

My Answer: age 25

Question 4

ASSESSMENT

Shirley is permanently and totally disabled, attends college classes and resides with her sister and her sister’s spouse. At what age will Shirley fail to meet the EIC age test to be a qualifying child?
(Search Chapter 1)
a. age 19
b. age 21
c. age 24
d. no maximum age to a qualifying child who is permanently and totally disabled

Answer 4

My Answer: no maximum age to a qualifying child who is permanently and totally disabled

Question 5

ASSESSMENT

If Arthur has no qualifying children, what is the maximum age he may be in 2024 and still qualify for the earned income credit?
(Search Chapter 1)
a. age 25
b. age 64
c. age 72
d. no maximum age applies in 2024 if the taxpayer has no qualifying children

Answer 5

My Answer: age 64

Question 6

ASSESSMENT

For which taxpayer would a Form 8862 be required when claiming the earned income credit this year?
(Search Chapter 2)
a. Form 8862 is required by all taxpayers claiming the earned income credit.
b. A taxpayer who filed Form 8862 last year that was accepted
c. A taxpayer who is not claiming a qualifying child but whose prior earned income credit claim was disallowed because a child she claimed was determined not to be a qualifying child
d. A taxpayer whose prior earned income credit claim was disallowed because she failed to report all self-employed earnings

Answer 6

My Answer: A taxpayer whose prior earned income credit claim was disallowed because she failed to report all self-employed earnings

Question 7

ASSESSMENT

In order to meet the EIC due diligence requirements, a tax return preparer must do all of the following EXCEPT:
(Search Chapter 2)
a. complete and submit a Paid Preparer’s Due Diligence Checklist
b. compute the applicable earned income credit using a worksheet
c. submit an affidavit attesting to having completed all due diligence requirements
d. maintain appropriate records related to preparation of the tax return

Answer 7

My Answer: submit an affidavit attesting to having completed all due diligence requirements

Question 8

ASSESSMENT

Which of the following types of cash received by a taxpayer may be included in income for earned income credit purposes?
(Search Chapter 2)
a. municipal bond interest
b. life insurance death benefits
c. welfare benefits
d. combat pay

Answer 8

My answer: Combat Pay

Question 9

ASSESSMENT

Which of the following is not an exception to the requirement that a taxpayer whose previous claim for the earned income credit was disallowed file IRS Form 8862 in order to claim the credit in the current year?
(Search Chapter 2)
a. A prior earned income credit claim was disallowed solely because of a math or clerical error.
b. A prior IRS Form 8862 filing was accepted.
c. A prior earned income credit claim was disallowed due to a claim for a qualifying child and no qualifying child is currently being claimed.
d. A prior earned income credit claim was disallowed for the taxpayer’s failure to include all his earnings.

Answer 9

Correct Answer: A prior earned income credit claim was disallowed for the taxpayer’s failure to include all his earnings.

Question 10

ASSESSMENT

When the claimed earned income credit has been disallowed by the IRS, which of the following IRS forms must normally be filed when claiming the credit in the next year in which the taxpayer is eligible?
(Search Chapter 2)
a. IRS Form 8867
b. IRS Form 8862
c. IRS Form 2555
d. IRS Form 8853

Answer 10

Correct Answer: b. IRS Form 8862

Question 11

Chapter 1 Practice Question

What is the maximum age a taxpayer with no qualifying children may be at the end of 2024 and still qualify for the earned income credit?
(Search Chapter 1)
a. age 21
b. age 25
c. age 64
d. age 72

Answer 11

Correct Answer: age 64

Question 12

Chapter 1 Practice Question

A taxpayer is ineligible for the earned income credit, even if otherwise eligible, if filing a federal income tax return as:
(Search Chapter 1)
a. Single
b. Married Filing Separate
c. Head of Household
d. Married Filing Joint

Answer 12

Correct Answer: Married Filing Separate

Question 13

Chapter 1 Practice Question

What portion of the cost of keeping up a main home must be paid by a taxpayer filing as Head of Household?
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a. All the cost of keeping up the house must be paid by the taxpayer.
b. At least 25% of the cost of keeping up the house must be paid by the taxpayer.
c. More than half the cost of keeping up the house must be paid by the taxpayer.
d. No required home maintenance level is required to file as Head of Household.

Answer 13

Correct Answer: More than half the cost of keeping up the house must be paid by the taxpayer.

Question 14

Chapter 1 Practice Question

Which of the following is the most commonly encountered earned income credit error?
(Search Chapter 1)
a. an error involving the taxpayer’s filing status
b. an error involving the taxpayer’s reported income
c. an error involving a qualifying child
d. an error involving an incorrect social security numberChapter 1 Practice Question

Answer 14

Correct Answer: an error involving an incorrect social security number

Question 15

Chapter 1 Practice Question

Peter is considered permanently and totally disabled. He is a student at the local community college and lives with his brother and his brother’s wife. What is the maximum age Peter may be and still meet the age test for purposes of the EIC?
(Search Chapter 1)
a. younger than age 19
b. younger than age 21
c. younger than age 24
d. no age limit applies in this case

Answer 15

My Answer: d. no age limit applies in this case

Question 16

Chapter 2 Practice Questions

You are preparing a tax return for 18-year-old Barbara whose income was $4,000. She has a two-year-old daughter, and both live with Barbara’s mother. The initial questions to ask in order to determine if Barbara is eligible to claim the earned income credit should be focused on which of the following?
(Search Chapter 2)
a. whether Barbara’s daughter is a qualifying child
b. whether Barbara has incurred any childcare expenses
c. whether Barbara can be claimed as a qualifying child for EIC purposes
d. whether Barbara’s daughter has a valid social security number

Answer 16

Correct Answer: whether Barbara can be claimed as a qualifying child for EIC purposes

Question 17

Chapter 2 Practice Questions

Celia is married to a nonresident alien who lives in Guatemala. Under what circumstances could she be eligible for the earned income credit?
(Search Chapter 2)
a. only if she files a federal tax return as married filing jointly
b. only if the taxpayer was also a nonresident alien for part of the year
c. only if the taxpayer’s spouse agreed that her foreign income would be subject to U.S. taxation
d. under no circumstances would the taxpayer be eligible for EIC

Answer 17

Correct Answer: d. only if she files a federal tax return as married filing jointly

Question 18

Chapter 2 Practice Questions

Which of the following taxpayers whose EIC claim was previously disallowed would be required to file IRS Form 8862 in order to claim the earned income credit this year?
(Search Chapter 2)
a. Phil, whose EIC was previously disallowed due to his arithmetic error
b. Peggy, whose EIC was previously disallowed for failing to include her self-employed expenses when calculating her income
c. Kim who has no qualifying children and whose EIC was previously disallowed because a child she claimed was determined not to be a qualifying child
d. Bill, whose EIC was disallowed four years ago but who filed IRS Form 8862 last year that was accepted

Answer 18

Correct Answer: b. Peggy, whose EIC was previously disallowed for failing to include her self-employed expenses when calculating her income

Question 19

Chapter 2 Practice Questions

Carol claimed the earned income credit last year, and it was disallowed by the IRS. If no exception applies, what additional IRS form must she attach to her current tax return in order to claim the EIC this year because of the disallowance?
(Search Chapter 2)
a. IRS Form 8867
b. IRS Form 2555
c. IRS Form 8862
d. IRS Form 8853

Answer 19

Correct Answer: Form 8862

Question 20

Chapter 2 Practice Questions

Harriet, a paid tax return preparer, failed to comply with the EIC due diligence requirements in completing her client’s tax return for 2024. If the IRS determined that her failure was not due to reckless disregard for the EIC rules or maintaining an unreasonable position, what maximum financial penalty could be imposed?
(Search Chapter 2)
a. $100
b. $635
c. $1,000
d. $5,000

Answer 20

Correct answer: $635