CTP Tax Preparation & Filing 4

Question 1

A taxpayer converts a traditional IRA to a Roth IRA. What is the tax consequence in the year of conversion?

Accepted Answer

The converted amount is included in gross income as ordinary income

Answer

When converting a traditional IRA to a Roth IRA, the pre-tax amount converted is included in gross income as ordinary income in the year of conversion.

Question 2

What is the statute of limitations for the IRS to assess additional tax on a standard federal income tax return?

Accepted Answer

3 years from the later of the filing date or due date

Answer

The standard statute of limitations is 3 years from the later of the date the return was filed or the original due date of the return.

Question 3

A taxpayer receives a 1099-C for $8,000 of cancelled credit card debt. Under what circumstance might this amount NOT be taxable?

Accepted Answer

If the taxpayer was insolvent immediately before the cancellation

Answer

Cancelled debt is excludable from income to the extent the taxpayer was insolvent (liabilities exceeded assets) immediately before the cancellation under IRC §108.

Question 4

Which form do employers use to reconcile annual W-2 filings with the Social Security Administration?

Accepted Answer

Form W-3

Answer

Form W-3 (Transmittal of Wage and Tax Statements) is submitted to the SSA along with Copy A of all W-2 forms to reconcile totals.

Question 5

A taxpayer sells their primary residence for a $300,000 gain after living there 3 of the last 5 years. How much gain is taxable if they file as Single?

Accepted Answer

$50,000 — only gains above $250,000 are taxable

Answer

Single filers can exclude up to $250,000 of gain on a primary residence sale under IRC §121, so $300,000 - $250,000 = $50,000 is taxable.

(CTP) Certified Tax Professional Practice Test

(CTP) Certified Tax Professional Practice Test

CTP Tax Preparation & Filing 4