Questions and Answers
What does 'Circular 230' regulate?
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'?
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What is meant by 'Privilege' in the context of tax?
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What is 'Estimated Tax'?
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What is an 'Estimated Tax Voucher'?
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What does 'Exemption from Withholding' mean?
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What is an 'Underpayment Penalty'?
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What are 'Withholding Allowances'?
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Match the following forms with their purposes:
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What is an 'Amended Return'?
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What is a 'Closed Year'?
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What is an 'Open Year'?
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What is the 'Failure-to-File Penalty'?
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What does 'Failure to File' mean?
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What is 'Failure to Pay'?
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What is the 'Failure-to-Pay Penalty'?
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What does 'Negligence or Intentional Disregard' refer to?
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What is the 'Negligence-or-Intentional-Disregard Penalty'?
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What is a 'Substantial Understatement'?
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What is the 'Substantial-Understatement Penalty'?
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What is 'Form 1040X' used for?
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When can an amended return be filed?
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Can the 1040X be e-filed?
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What is a 'Household Employee'?
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What are 'Active Income and Losses'?
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What is a 'Partnership'?
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What are 'Passive Income and Losses'?
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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.