SEE - Special Enrollment Exam Quiz: Taxpayer Intake And Prior Returns
12 questions · exam conditions
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Taxpayer Intake And Prior ReturnsQuestion 1 of 12

A new client cannot locate the W-2s and 1099s needed to prepare the 2025 return. Which of the following is correct regarding the use of IRS transcripts at intake?

The preparer should request a Tax Account Transcript, which generally provides the client's income information from all third-party payers for 2025.
A Wage and Income Transcript shows income reported to the IRS by third parties, such as wages and dividends, and is often used when a client lacks the underlying documents.
A Return Transcript will show the income documents the IRS received, including every Form W-2 and Form 1099, but not the amounts reported on those documents.
A Wage and Income Transcript shows only federal income tax withholding amounts and cannot be used to verify self-employment income reported on Form 1099-NEC.
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SEE - Special Enrollment Exam Quiz

SEE - Special Enrollment Exam Quiz: Taxpayer Intake And Prior Returns

Practice Taxpayer Intake And Prior Returns in SEE - Special Enrollment Exam with focused quiz questions that help you check what you know, review explanations, and build confidence with test-style prompts.

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Question 1

A new client cannot locate the W-2s and 1099s needed to prepare the 2025 return. Which of the following is correct regarding the use of IRS transcripts at intake?

  1. The preparer should request a Tax Account Transcript, which generally provides the client's income information from all third-party payers for 2025.
  2. A Wage and Income Transcript shows income reported to the IRS by third parties, such as wages and dividends, and is often used when a client lacks the underlying documents. (correct answer)
  3. A Return Transcript will show the income documents the IRS received, including every Form W-2 and Form 1099, but not the amounts reported on those documents.
  4. A Wage and Income Transcript shows only federal income tax withholding amounts and cannot be used to verify self-employment income reported on Form 1099-NEC.
Explanation: Authority: Form 4506-T instructions; IRS Pub. 17, Your Federal Income Tax. The Wage and Income Transcript reports information from third-party payers, such as Form W-2 wages and Form 1099 dividends, that has been furnished to the IRS, so it is the transcript used to reconstruct income when a client's underlying documents are missing. Choice B is correct: the Wage and Income Transcript shows third-party income and is the practical intake tool when W-2s and 1099s are unavailable. Choice A is incorrect: a Tax Account Transcript shows account activity such as assessments, payments, and adjustments, not third-party income documents. Choice C is incorrect: a Return Transcript shows line items from the return as filed; the underlying information-return documents appear on a Wage and Income Transcript, not on a Return Transcript. Choice D is incorrect: a Wage and Income Transcript includes Form 1099-NEC nonemployee compensation, so it can verify self-employment income reported on that form.

Question 2

During intake, the preparer learns that the IRS filed a substitute return for the client for an earlier year. Which of the following is correct regarding that substitute return?

  1. A substitute return generally does not include all the deductions and credits the taxpayer may properly claim, and the taxpayer should file an original return for that year to claim them. (correct answer)
  2. A substitute return filed by the IRS is treated as the taxpayer's return, so the taxpayer must use Form 1040-X to claim any deductions and credits omitted from that substitute return.
  3. A substitute return is prepared from the taxpayer's own books and records, which the taxpayer must submit to the IRS before the return is filed, so the IRS can verify the amounts.
  4. A substitute return filed by the IRS automatically includes the dependents, credits, and itemized deductions shown on the taxpayer's most recent prior-year return.
Explanation: Authority: IRC § 6020(b); IRS Pub. 17, Your Federal Income Tax. When a taxpayer does not file a required return, the IRS may make a substitute return from information available to it. Such a return generally does not include all of the dependents, deductions, and credits the taxpayer could properly claim, so the taxpayer should file an original return for that year to claim them. Choice A is correct. Choice B is incorrect: after a substitute return has been filed, the taxpayer should file an original return for that year to claim omitted items; Form 1040-X is used to amend a return the taxpayer has actually filed, not to replace a substitute return. Choice C is incorrect: a substitute return is prepared from information available to the IRS, such as Forms W-2 and 1099, not from the taxpayer's books and records. Choice D is incorrect: a substitute return does not automatically carry forward the filing status, dependents, credits, or itemized deductions of an earlier year's return.

Question 3

Which of the following is correct regarding obtaining a copy of a new client's previously filed federal income tax return?

  1. A complete copy of a previously filed return, including all schedules and attachments, is obtained by submitting Form 4506-T to the IRS with the required fee.
  2. A transcript requested on Form 4506-T is an adequate substitute for the prior-year return because it includes the carryover worksheets and other schedule details.
  3. Form 4506 is the request to use for a complete copy of a previously filed return; transcripts requested on Form 4506-T do not show the detail on the supporting schedules. (correct answer)
  4. A Wage and Income Transcript may be used in place of a prior-year return because it includes the income amounts, deductions, and credits from that return.
Explanation: Authority: Form 4506 instructions; Form 4506-T instructions; IRC § 6103(c). A complete copy of a taxpayer's previously filed return, including schedules and attachments, is requested on Form 4506. Form 4506-T is used to request transcripts, and transcripts do not reproduce the detail on the supporting schedules and worksheets, so a preparer who needs carryover computations must obtain the full copy or the client's own copy. Choice C is correct: Form 4506 is the request for a complete copy of the return, while Form 4506-T transcripts do not show the supporting-schedule detail. Choice A is incorrect: Form 4506-T provides transcripts, not a full copy of the return with attachments, and the copy fee applies to Form 4506, not Form 4506-T. Choice B is incorrect: transcripts contain limited line data and do not include the carryover worksheets and other schedule details. Choice D is incorrect: a Wage and Income Transcript lists third-party income documents and does not show the deductions or credits claimed on the return.

Question 4

In March 2025, a new client tells the preparer that she filed her 2024 Form 1040 in February 2025 and then discovered a deduction she omitted. She asks the preparer to claim it on her 2025 return. Which of the following is correct?

  1. The deduction may be claimed on the 2025 return because the 2024 return has already been filed and accepted by the IRS for processing.
  2. The deduction is lost once the 2024 return is filed, because a taxpayer may not correct a return before its original due date.
  3. The deduction must be claimed on a corrected 2024 return, such as a superseding return filed before the April 15, 2025, due date, and may not be claimed on the 2025 return. (correct answer)
  4. The deduction may be claimed on the 2025 return only if the preparer also files Form 1045 with the IRS to request a tentative refund.
Explanation: Authority: Form 1040-X instructions; IRS Pub. 1345 (Authorized IRS e-file Providers). A deduction omitted from a filed return belongs to that tax year and must be claimed on a corrected return for that year; it cannot be shifted to a later year's return. Because the client filed the 2024 return before the April 15, 2025, due date, a superseding 2024 return filed before that date replaces the original; after the due date, Form 1040-X is the correction vehicle. Choice C is correct: the omitted deduction must be claimed on a corrected 2024 return, such as a superseding return filed before the due date, and may not be claimed on the 2025 return. Choice A is incorrect: the IRS's acceptance of the original return does not permit the deduction to be moved to the 2025 return. Choice B is incorrect: a taxpayer may correct a return before its original due date, including by filing a superseding return. Choice D is incorrect: Form 1045 is an application for tentative refund based on carrybacks, not a vehicle for claiming an omitted deduction on a later year's return.

Question 5

Which of the following is correct regarding a capital loss carryover from a client's prior-year return when the preparer is computing the current-year return?

  1. Any capital loss carryover from the prior year may be used in the current year only if the taxpayer has capital gains in the current year.
  2. If the prior year's net capital loss was less than the annual capital loss limit, the unused portion of that limit carries over and may be deducted in the current year.
  3. The capital loss carryover is computed from the current-year capital transactions, so the prior-year return and its carryover worksheet are not needed for this purpose.
  4. The prior year's unused net capital loss carries over, is netted against current-year capital gains, and any remaining carryover then offsets a limited amount of ordinary income. (correct answer)
Explanation: Authority: IRC §§ 1211(b) and 1212(b); Schedule D instructions, Capital Loss Carryover Worksheet. An individual's net capital loss is deductible only up to the annual statutory limit, and the amount not deducted carries over to succeeding tax years. On the current-year Schedule D, the carryover is netted against current-year capital gains, and any remaining net loss may offset ordinary income up to the statutory limit. Choice D states that rule. Choice A is incorrect: a carryover may be used even in a year in which the taxpayer has no capital gains, up to the statutory ordinary-income offset. Choice B is incorrect: the annual capital loss limit is a ceiling on the deduction, and an unused portion of the ceiling does not carry over to another year. Choice C is incorrect: the carryover amount is derived from the prior-year Schedule D and its carryover worksheet; current-year transactions are reported on the current-year Schedule D and do not create the carryover.

Question 6

A taxpayer elected on her 2024 return to apply an overpayment to her 2025 estimated tax. Which of the following is correct regarding that applied amount?

  1. The applied amount is reported as a credit on the 2025 return only if the taxpayer also files Form 1040-ES with the first installment.
  2. The amount of the applied refund is found on the 2024 return and is entered on the 2025 return along with any other estimated tax payments made. (correct answer)
  3. An overpayment applied to the 2025 estimated tax is treated as an additional payment of the 2024 tax and cannot reduce the 2025 estimated payments.
  4. An overpayment applied to the 2025 estimated tax is treated as four equal installment payments made on the 2025 estimated tax due dates.
Explanation: Authority: Form 1040 instructions; IRS Pub. 505, Tax Withholding and Estimated Tax. A taxpayer who elects to apply an overpayment to the next year's estimated tax makes the election on the prior-year return, and the applied amount is then treated as a payment of the current year's estimated tax. It is included with the other estimated tax payments on the current-year return. Choice B is correct: the applied amount is identified on the prior-year return and is entered on the current-year return with the other estimated tax payments. Choice A is incorrect: no Form 1040-ES is required for the applied amount because the election was made on the prior-year return. Choice C is incorrect: the applied overpayment is credited against the 2025 tax, so it counts toward the estimated tax that must be paid and reduces the amount the taxpayer must otherwise remit; it is not an additional payment of the 2024 tax. Choice D is incorrect: an overpayment applied to estimated tax is not divided into four equal installment payments; it is one credit to the current-year estimated tax account and is reported with the other estimated tax payments.

Question 7

A new client asks you to prepare her 2025 federal return. She wants to e-file but does not have a copy of her 2024 return, does not know the adjusted gross income shown on it, and cannot reach her former preparer, who has retired. She has never been issued an Identity Protection PIN.

Which of the following is the most appropriate way for the client to obtain the information needed to e-file her 2025 return?

  1. Request a Wage and Income Transcript, which shows the adjusted gross income from the 2024 return, and use that amount for the e-file verification.
  2. Request a copy of the 2024 return using Form 4506, because a transcript cannot be used when the return was prepared by a different preparer.
  3. Request a Tax Return Transcript, which shows the adjusted gross income from the 2024 return, and use that amount for the e-file verification. (correct answer)
  4. Contact the former preparer for the adjusted gross income, because the IRS will not release prior-year return information directly to the taxpayer.
Explanation: IRS Pub. 1345 (Authorized IRS e-file Providers); Form 4506-T instructions. For the e-file signature verification, the prior-year adjusted gross income is compared with the amount in the IRS's records. A taxpayer who lacks a copy of the prior return may request a free Tax Return Transcript, which shows the adjusted gross income line of the 2024 Form 1040, and use that amount. Choice A is wrong because a Wage and Income Transcript lists third-party income items (W-2s, 1099s) and does not show adjusted gross income. Choice B is wrong because Form 4506-T transcripts may be used regardless of who prepared the prior return; a copy of the return under Form 4506 is not required for verification. Choice D is wrong because taxpayers may obtain their own transcripts directly from the IRS (online, by phone, or by Form 4506-T) without the former preparer's involvement.

Question 8

A single client comes to you in March 2026 to prepare her 2025 return. She gives you her 2024 return prepared by her former preparer. The 2024 return shows adjusted gross income of $100,000, a net capital loss of $28,000 on Schedule D, and $40,000 of cash contributions to public charities on Schedule A. On that return, $3,000 of the capital loss was deducted and the remaining $25,000 was carried to 2025. In 2025, the client sold no capital assets, made no charitable contributions, and her taxable income before applying the capital loss carryover was more than $3,000.

Which of the following is correct for the client's 2025 return?

  1. The client deducts $3,000 of the capital loss carryover in 2025 and carries $22,000 to 2026; no charitable contribution carryover is available from 2024. (correct answer)
  2. The client deducts $3,000 of the capital loss carryover in 2025 and carries $25,000 to 2026; no charitable contribution carryover is available from 2024.
  3. The client deducts the full $25,000 capital loss carryover in 2025 because the loss was fully allowable in 2024; no charitable contribution carryover is available from 2024.
  4. The client deducts $3,000 of the capital loss carryover in 2025 and may also claim a $10,000 charitable contribution carryover from 2024.
Explanation: IRC § 1211(b); IRC § 1212(b); IRC § 170(b)(1)(G). The $25,000 capital loss carried from 2024 is treated as a capital loss in 2025. Because the client had no capital gains in 2025, § 1211(b) limits the deduction to $3,000, and the remaining $22,000 is carried to 2026. Her 2025 taxable income before the carryover was more than $3,000, so the full $3,000 limitation applies. The 2024 cash contributions to public charities were $40,000, which is below 60% of her $100,000 adjusted gross income, so the entire amount was deductible in 2024 and no charitable contribution carryover exists. Choice B fails to reduce the carryover by the $3,000 deducted in 2025. Choice C ignores the $3,000 annual capital-loss limitation. Choice D invents a carryover by applying the 30% private-foundation or capital-gain-property limitation to cash gifts to public charities.

Question 9

In October 2025, a client asks whether he should amend his 2021 and 2022 returns. He overlooked a fully allowable $2,400 American Opportunity credit on the 2021 return and a fully allowable $900 student loan interest deduction on the 2022 return. Both returns were filed by their original due dates, showed no balance due, and all tax was paid through withholding.

Which of the following is correct?

  1. The client may amend both returns, because the refund claim period is three years from the date the original return was filed for each year.
  2. The client may amend the 2021 return, but the refund claim period for the 2022 return has expired because more than two years have passed since that return was filed.
  3. The client may amend the 2022 return, but the refund claim period for the 2021 return expired before October 2025, so the 2021 credit is barred. (correct answer)
  4. The client may not amend either return, because a refund claim must be made within three years of the original due date and both periods have run.
Explanation: IRC § 6511(a), (b). A claim for credit or refund generally must be filed within the later of three years from the date the return was filed or two years from the date the tax was paid; a return filed before its due date is treated as filed on the due date. The 2021 return is deemed filed in April 2022, so the three-year period expired in April 2025, before the October 2025 consultation; the 2021 American Opportunity credit is barred. The 2022 return is deemed filed in April 2023, so its period runs until April 2026, and the amendment for the student loan interest deduction is still timely. Choice A misapplies the three-year rule to the 2021 return. Choice B reverses the years; the 2022 period has not expired. Choice D wrongly treats both periods as closed; the 2022 window remains open.

Question 10

A single client comes to you in January 2026 to prepare her 2025 return. She admits that she never filed federal returns for 2021 through 2024. In each of those years she had wages that exceeded the filing threshold, with federal tax withheld, and she believes she was owed refunds for some years. She asks whether she needs to file those old returns.

Which of the following is correct advice?

  1. The IRS can no longer assess tax for 2021 through 2023 because more than three years have passed since those returns were due, so the client should file only the 2025 return.
  2. The client should file the delinquent returns, but she cannot claim refunds for 2021 through 2024 because the three-year refund claim period has run for each of those years.
  3. The client should file the delinquent returns, but refunds for 2021 and 2022 are barred; only refunds for 2023 and 2024 may still be claimed.
  4. The client should file all four delinquent returns: the assessment period never closes for an unfiled year, but only refunds for 2022 through 2024 may still be claimed if she files promptly. (correct answer)
Explanation: IRC § 6501(c)(3); IRC § 6511(a) and (b)(2). Failure to file a required return means the IRS may assess the tax at any time because the § 6501(a) three-year assessment period does not start until a return is filed. Choice D correctly advises filing all four delinquent returns. For refunds, a claim filed with a late return is subject to the § 6511(b) lookback. The 2021 withholding is deemed paid in April 2022, outside the lookback for a claim filed in January 2026, so the 2021 refund is barred. The 2022, 2023, and 2024 withholdings are deemed paid in April 2023, April 2024, and April 2025, all within the relevant lookback, so those refunds may still be claimed if the returns are filed promptly. Choice A misstates the law: the three-year assessment rule applies only when a return was filed. Choice B incorrectly bars refunds for 2022 through 2024. Choice C incorrectly bars the 2022 refund; a 2022 return filed in January 2026 is still within the claim period.

Question 11

A married couple is having their 2025 joint return prepared. They tell you they made four quarterly estimated tax payments of $500 each in 2025. When reviewing their 2024 return, you see that they elected to apply a $1,200 overpayment shown on that return to their 2025 estimated tax.

Which of the following is correct regarding the treatment of the $1,200?

  1. The $1,200 is not a payment of 2025 tax because the couple did not pay that amount in cash during 2025.
  2. The $1,200 is treated as a 2025 estimated tax payment, so the couple's total estimated tax payments for 2025 are $3,200. (correct answer)
  3. The $1,200 is treated as a 2025 estimated tax payment only if the couple also remitted that amount with their 2024 return as a separate payment.
  4. The $1,200 is not reported as a 2025 payment because the couple already received the benefit of the overpayment when it reduced the 2024 refund.
Explanation: IRC §§ 6402(b) and 6513(d); Form 1040 instructions. When a taxpayer elects to apply an overpayment shown on a return to the next year's estimated tax, the amount is treated as a payment of estimated tax for the succeeding year. The $1,200 credited from the 2024 return therefore counts with the four $500 payments: $1,200 + $500 + $500 + $500 + $500 = $3,200 of 2025 estimated tax payments. Choice B is correct. Choice A is wrong because a credited overpayment is a payment of the following year's tax under § 6513(d); payment does not have to be made in cash during 2025. Choice C is wrong because the election itself applies the overpayment; no separate remittance with the 2024 return is required. Choice D is wrong because the overpayment was not refunded; applying it reduced the 2024 refund, and the same amount is a 2025 payment. It is counted once.

Question 12

While preparing a client's 2025 return, you review the 2023 and 2024 returns he filed with a former preparer. The 2023 return reported a $5,000 long-term capital gain from a stock sale and a $12,000 long-term capital loss from an S corporation Schedule K-1; it deducted $3,000 of the $7,000 net capital loss and carried $4,000 forward. The client had no other capital transactions in 2024; the 2024 return deducted $3,000 of the carryover and carried $1,000 to 2025. In February 2026, the S corporation issues a corrected 2023 Schedule K-1 showing that the client's share of the loss was $6,000, not $12,000.

Which of the following correctly describes what the client should do?

  1. File a Form 1040-X for 2023 only, because the corrected K-1 relates to 2023 and the 2024 return was correct as filed.
  2. File a Form 1040-X for 2024 only, because the 2023 tax was computed correctly and the error appears only on the 2024 return.
  3. Report the correction on the 2025 return by eliminating the $1,000 capital loss carryover on the 2025 Schedule D, without amending 2023 or 2024.
  4. File Forms 1040-X for 2023 and 2024, beginning with 2023, because the correction changes the capital loss carryover that was used on the 2024 return. (correct answer)
Explanation: IRC §§ 1211(b) and 1212(b); IRC § 6037(c); Form 1040-X instructions. A corrected pass-through item is reported on the return for the year to which the Schedule K-1 relates, and the shareholder's return must be consistent with the S corporation's corrected reporting. With the K-1 loss reduced from $12,000 to $6,000, the 2023 net capital loss becomes $5,000 gain minus $6,000 loss = $1,000. The 2023 deduction falls from $3,000 to $1,000, so 2023 tax increases, and nothing is carried to 2024. The 2024 return claimed a $3,000 carryover deduction that no longer exists, so 2024 tax also increases, and the carryover to 2025 becomes zero. Both years must be amended, starting with 2023 so the 2024 amendment uses the corrected carryover. Choice D is correct. Choice A ignores that the 2024 deduction came from the carryover the correction eliminates. Choice B is wrong because the 2023 deduction itself changes, so the 2023 tax was not computed correctly. Choice C is wrong because a prior-year error cannot be corrected on the 2025 return; the years to which the K-1 and the carryover relate must be amended.