H&R Block Income Tax Course Flashcards

Questions and Answers

What does 'Circular 230' regulate?

Disclosure of tax information

Noncompliance with tax code

Practice of attorneys before the IRS (correct)

Due diligence requirements for tax professionals

What is the definition of 'Disclosure'?

The release of tax information by an IRS employee.

What does 'Due Diligence' refer to?

Requirements that tax professionals must follow when preparing income tax returns.

What is 'Noncompliance'?

Failure or refusal to comply with the tax code. Signup and view all the answers

What is meant by 'Privilege' in the context of tax?

Protection from being required to disclose confidential communications between two parties. Signup and view all the answers

What is 'Estimated Tax'?

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

What is an 'Estimated Tax Voucher'?

A statement outlining the estimated tax a taxpayer anticipates for the current taxable year. Signup and view all the answers

What does 'Exemption from Withholding' mean?

Status claimed on Form W-4 directing the employer not to withhold federal income taxes. Signup and view all the answers

What is an 'Underpayment Penalty'?

A penalty incurred if a taxpayer did not pay enough tax on a timely basis during the year. Signup and view all the answers

What are 'Withholding Allowances'?

An increase by which income tax withholding on certain income is reduced. Signup and view all the answers

Match the following forms with their purposes:

Form W-4 = Employee's Withholding Allowance Certificate Form 8815 = Exclusion of Interest From Series EE and I U.S. Savings Bonds Form 2210 = Underpayment of Estimated Tax by Individuals Form 4868 = Application for Automatic Extension of Time To File Signup and view all the answers

What is an 'Amended Return'?

A tax return filed on Form 1040X after the original return has been filed. Signup and view all the answers

What is a 'Closed Year'?

A tax year for which the statute of limitations has expired. Signup and view all the answers

What is an 'Open Year'?

A taxable year for which the statute of limitations has not yet expired. Signup and view all the answers

What is the 'Failure-to-File Penalty'?

Generally 5% for each month the return is late, not exceeding 25% of the unpaid tax. Signup and view all the answers

What does 'Failure to File' mean?

A taxpayer fails to file the return by the due date and there is a balance due. Signup and view all the answers

What is 'Failure to Pay'?

Taxpayer fails to pay the tax owed by the due date. Signup and view all the answers

What is the 'Failure-to-Pay Penalty'?

0.5% of the unpaid taxes for each month after the due date, not exceeding 25%. Signup and view all the answers

What does 'Negligence or Intentional Disregard' refer to?

Taxpayer shows negligence or disregard of the rules or regulations causing an underpayment. Signup and view all the answers

What is the 'Negligence-or-Intentional-Disregard Penalty'?

20% of the underpayment. Signup and view all the answers

What is a 'Substantial Understatement'?

Taxpayer understates their tax by the larger of $5,000 or 10% of the correct tax. Signup and view all the answers

What is the 'Substantial-Understatement Penalty'?

20% of the underpayment. Signup and view all the answers

What is 'Form 1040X' used for?

Amended U.S. Individual Income Tax Return. Signup and view all the answers

When can an amended return be filed?

Within three years of the original return's filing date or two years from the tax payment date. Signup and view all the answers

Can the 1040X be e-filed?

No. Signup and view all the answers

What is a 'Household Employee'?

An individual who performs non-business services in a taxpayer's home. Signup and view all the answers

What are 'Active Income and Losses'?

Those for which a taxpayer performs services. Signup and view all the answers

What is a 'Partnership'?

A form of business in which two or more persons join their money and skills. Signup and view all the answers

What are 'Passive Income and Losses'?

Those from business activities in which the taxpayer does not materially participate. Signup and view all the answers

Study Notes

Tax Regulations and Responsibilities

Circular 230: Governs practice standards for attorneys, CPAs, enrolled agents, actuaries, and appraisers before the IRS.
Due Diligence: Obligates tax professionals to follow specific procedures while preparing income tax returns to ensure accuracy and compliance.
Noncompliance: Occurs when individuals or entities fail to follow the tax code, leading to potential penalties.
Privilege: Shields confidential communications between clients and their tax advisors or attorneys from being disclosed.

Tax Payments and Withholding

Estimated Tax: Represents the tax amount a taxpayer anticipates owing after accounting for withholdings and credits.
Estimated Tax Voucher: Details the taxpayer's estimated tax obligations including self-employment tax and withholding amounts not subjected to tax.
Exemption from Withholding: A status on Form W-4 that instructs employees not to have federal taxes withheld from their wages.
Withholding Allowances: Adjusts the amount of tax withheld from employee paychecks based on the number of allowances claimed.

Tax Forms Overview

Form W-4: Known as the Employee's Withholding Allowance Certificate used to determine federal income tax withholding.
Form 8815: Focuses on the exclusion of interest from certain U.S. Savings Bonds issued after 1989.
Form 2210: Addresses underpayment of estimated tax by individuals, estates, and trusts.
Form 4868: Application granting an automatic extension for filing individual income tax returns.
Form 8888: Used for allocation of tax refunds.
Form 9465: Request for an installment agreement for tax payments.
Form 1040X: Employed for filing an amended U.S. individual income tax return.

Tax Penalties and Compliance Issues

Underpayment Penalty: Imposed if a taxpayer fails to pay enough estimated tax throughout the year.
Failure-to-File Penalty: Generally assessed at 5% per month up to a maximum of 25% of unpaid taxes.
Failure to Pay: Penalty applies when taxes owed are not paid by the due date.
Negligence or Intentional Disregard: Refers to actions resulting in underpayment due to negligence or disregard of tax laws, incurring penalties.
Substantial Understatement: When a taxpayer significantly understates their tax liability, leading to further penalties.

Tax Year Status

Closed Year: A tax year that is no longer open to adjustments because the statute of limitations has expired.
Open Year: A year in which the statute of limitations is still in effect, allowing for adjustments or audits.

Special Considerations

Amended Returns: Can be filed within three years of the original filing date or two years from tax payment, whichever is later.
Household Employee: A worker providing non-business services in a taxpayer's residence.
Active vs. Passive Income: Active income is generated through taxpayer services, while passive income stems from business activities in which the taxpayer does not actively engage.

Electronic Filing

1040X Electronic Filing: Amended returns cannot be e-filed; they must be submitted on paper.

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Description

Test your knowledge on key tax regulations and concepts with these flashcards from the H&R Block Income Tax Course. Each card features important terms like "Circular 230" and "Due Diligence" to help reinforce your understanding of IRS practices and requirements.