MODULE 33 TAXES: INDIVIDUAL
gross income. For purposes of the credit, earned income
excludes workers' compensation benefits. Additionally, the
credit is available only if the tax return covers a full twelve-
month period.
201. (b) The requirement is to determine the tax credit
that cannot be claimed by a corporation. The foreign tax
credit, alternative fuel production credit, and general busi-
ness credit may be claimed by a corporation. The earned
income credit cannot be claimed by a corporation; it is avail-
able only to individuals.
VI.O. Credit for Adoption Expenses
202. (c) The requirement is to determine the correct
statement regarding the credit for adoption expenses. The
adoption expenses credit is a nonrefundable credit for up to
$12,150 (for 2009) of expenses (including special needs
children) incurred to adopt an eligible child. An eligible
child is one who is under eighteen years of age at time of
adoption, or physically or mentally incapable of self-care.
Qualified adoption expenses are taken as a credit in the year
the adoption becomes final.
VI.P. Child Tax Credit
203. (c) The requirement is to determine the incorrect
statement concerning the child tax credit. Individual tax-
payers are permitted to take a tax credit based solely on the
number of their dependent children under age seventeen.
The amount of the credit is $1,000 per qualifying child, but
is subject to reduction if adjusted gross income exceeds cer-
tain income levels. A qualifying child must be a US citizen
or resident.
VI.Q. Hope Scholarship Credit
204. (c) The requirement is to determine the incorrect
statement concerning the 2009 Hope scholarship credit. The
Hope scholarship credit provides for a maximum credit of
$2,500 per year (100% of the first $2,000, plus 25% of the
next $2,000 of tuition fees, and course materials) for the first
four years of postsecondary education. The credit is availa-
ble on a per student basis and covers tuition paid for the
taxpayer, spouse, and dependents. To be eligible, the stu- ,
dent must be enrolled on at least a part-time basis for one
academic period during the year. If a parent claims a child .
as a dependent, only the parent can claim the credit and any
qualified expenses paid by the child are deemed paid by the
parent.
VI.R. Lifetime Learning Credit
205. ·(d) The requirement is to determine the incorrect
statement concerning the lifetime learning credit. The life-
time learning credit provides a credit of 20% of up to
$10,000 of tuition and fees paid by a taxpayer for one or
more students for graduate and undergraduate courses at an
eligible educational institution. The credit may be claimed
for an unlimited number of years, is available on a per
taxpayer basis, and covers tuition paid for the taxpayer,
spouse, and dependents.
VI.S. Estimated Tax Payments
206. (a) The requirement is to determine which state-
ment(s) describe how Baker may avoid the penalty for the
underpayment of estimated tax for the 2008 tax year. An
individual whose regular and alternative minimum tax li-
ability is not sufficiently covered by withholding from
47
wages must pay estimated tax in quarterly installrnents or be
subject to penalty. Individuals will incur no underpayment
penalty for 2008 if the amount of tax withheld plus esti-
mated payments are at least equal to the lesser of (1) 90% of
the current year's tax; (2) 100% of the prior year's tax; or (3)
90% of the tax determined byannualizing current year tax-
able income through each quarter. However, note that for
2008, high-income individuals (i.e., individuals whose ad-
justed gross income for the preceding year exceeds
$150,000) must use 110% (instead Of 100%) if they wish to
base their estimated tax payments on their prior year's tax
liability.
207. (a) The requirement is to determine what amount
would be subject to penalty for the underpayment of esti-
mated taxes. A taxpayer will be subject to an underpayment
of estimated tax penalty if the taxpayer did not pay enough
tax either through withholding or by estimated tax payments.
For 2008, there will be no penalty if the total tax shown on
the return less the amount paid through withholding (in-
cluding excess social security tax withholding) is less than
$1,000. Additionally, for 2008, individuals will incur no .
penalty if the amount of tax withheld plus estimated pay-
ments are at least equal to the lesser of (1) 90% of the cur-
rent year's tax (determined on the basis of actual income or
annualized income), or (2) 100% of the prior year's tax. In
this case, since the tax shown on Krete's return ($16,500)
less the tax paid through withholding ($16,000) was less
than $1,000, there will be no penalty for the underpayment
of estimated taxes. I
VII. Filing Requirements
208. (d) The requirement is to determine the original due
date for a decedent's federal income tax return. The final
return of a decedent is due on the same date the decedent's
return would have been due had death not occurred. An
individual's federal income tax return is due on the 15th day
of the fourth calendar month following the close of the tax
year (e.g., April 15 for a calendar-year taxpayer).
209. (a) The requirement is to determine Birch's filing
requirement. A self-employed individual must file an in-
come tax return if net earnings from self-employment are
$400 or more.
VIII.B. Assessments
210. (c) The requirement is to determine the date on
which the statute oflimitations begins for lackson Corp.'s
2008 tax return. Generally, any tax that is imposed must be
assessed within three years of the filing of the return, or if
later, the due date of the return. Since lackson Corp.' s 2008
return was filed on March 12,2009, and the return was due
on March 15,2009, the statute of limitations expires on
March 15,2012. This means that the statute of limitations
begins on March 16, 2009.
211. (c) The requirement is to determine the latest date
that the IRS can assert a notice of deficiency for a 2008
calendar-year return if the taxpayer neither committed fraud
nor omitted amounts in excess of 25% of gross income. The
normal period for assessment is the later of three years after
a return is filed, or three years after the due date of the
return. Since the 2008 calendar-year return was filed on
March 20, 2009, and was due on April 15, 2009, the IRS
must assert a deficiency no later than April 15, 2012.