Tax Consulting Registered Tax Return Preparer 2 — Questions and Answers
Question 1: Which IRS competency exam was historically required to become a Registered Tax Return Preparer (RTRP)?
- The RTRP test covering Form 1040 series and ethics (Correct answer)
- The CPA Uniform Exam
- The Enrolled Agent Special Enrollment Exam
- The bar examination
Correct answer: The RTRP test covering Form 1040 series and ethics
The RTRP program required passing a competency test focused on the Form 1040 series and tax ethics.
Question 2: A taxpayer's filing status is 'Married Filing Jointly.' What is the standard deduction concept a preparer must apply?
- A fixed dollar amount that reduces taxable income (Correct answer)
- A credit subtracted directly from tax owed
- A penalty for joint filing
- An additional tax on combined income
Correct answer: A fixed dollar amount that reduces taxable income
The standard deduction is a fixed amount that reduces taxable income based on filing status.
Question 3: Which form does a preparer use to report self-employment income and expenses for a sole proprietor?
- Schedule C (Correct answer)
- Schedule A
- Schedule D
- Schedule E
Correct answer: Schedule C
Schedule C reports profit or loss from a sole proprietorship business.
Question 4: What is the purpose of a PTIN for a paid tax return preparer?
- It identifies the preparer on returns they prepare for compensation (Correct answer)
- It replaces the taxpayer's SSN
- It is a state business license
- It authorizes e-filing without an EFIN
Correct answer: It identifies the preparer on returns they prepare for compensation
A Preparer Tax Identification Number must be used by anyone who prepares federal returns for pay.
Question 5: A client reports gambling winnings. How must a preparer treat them?
- As taxable income reported in full, with losses deductible only if itemizing (Correct answer)
- As tax-exempt income
- As capital gains only
- As self-employment income subject to SE tax
Correct answer: As taxable income reported in full, with losses deductible only if itemizing
Gambling winnings are fully taxable, and losses are deductible only up to winnings if the taxpayer itemizes.
Question 6: Which credit is refundable, meaning it can produce a refund beyond tax liability?
- Earned Income Tax Credit (Correct answer)
- Foreign Tax Credit
- Lifetime Learning Credit
- Child and Dependent Care Credit
Correct answer: Earned Income Tax Credit
The Earned Income Tax Credit is refundable and can result in a refund exceeding tax owed.
Question 7: Under Circular 230, what must a preparer do upon learning of a client's prior-year error or omission?
- Promptly advise the client of the error and its consequences (Correct answer)
- Correct it secretly without telling the client
- Report the client to the IRS immediately
- Ignore it unless the IRS asks
Correct answer: Promptly advise the client of the error and its consequences
Circular 230 requires advising the client of any noncompliance, error, or omission and its consequences.
Tax Consulting Registered Tax Return Preparer 2
Which IRS competency exam was historically required to become a Registered Tax Return Preparer (RTRP)?