R2: Individual Tax - Adjustments, Deductions, and Credits

Question 1

Which above the line deductions get added back for AMT purposes?

Answer 1

PANIC (Panic Timme)
Passive activity losses are added back, or recalculated
Accelerated depreciation adjustment
Net operating loss must be recomputed
Installment method may not be used by dealer for property sales
Contracts (long-term)

Question 2

Which itemized deductions get added back for AMT purposes?

Answer 2

TIMME (Panic Timme)
Taxes reduced by taxable refunds
Interest (some, mortgage not used to buy, build, or improve qualified dwelling is added back)
Medical expenses not exceeding 10% of AGI
Miscellaneous deductions subject to 2% of AGI
Exemptions - personal & standard deductions not allowed

Question 3

When should a preparer recommend a position?

Answer 3

In general, a preparer should recommend a tax return position only if the preparer has good faith belief that the position has a realistic possibility of being sustained administratively or judicially on its merits.

Question 4

What should a CPA consider in choosing whether to provide written or oral advice to a client?

Answer 4

In determining whether to provide advice in writing, the tax preparer should consider, among other factors, the sophistication of the tax client.

Question 5

What is the statute of limitations on IRS tax assessments?

Answer 5

Ordinarily, a tax must be assessed within 3 years after a return is filed. The assessment period begins from the due date of the return if the return is filed prior to the due date or “filing date” if the return is filed later, e.g., with an extension. The assessment period is extended to 6 years for returns that omit more than 25% of the gross income originally reported.

Question 6

What is the statute of limitations on fraudulent returns?

Answer 6

There is no statute of limitations for fraud or filing false tax returns.

Question 7

Are credits allowed under the Federal Unemployment Tax Act (FUTA)?

Answer 7

Credits for this tax are allowed to employers for certain state unemployment taxes paid by the employer.

Question 8

What premiums are included in medical deductions?

Answer 8

Medical expense can include insurance premiums providing reimbursement for medical care, but not loss of income.