2016 on-line fundamental individual federal income...

Student's Study Guide

and

Reference Binder

2016 EDITION

05/16

The COMPROK-TAX, Inc.

2016 ON-LINE FUNDAMENTAL INDIVIDUAL FEDERAL INCOME TAX COURSE

2016 Tax Education Development Team:YUSUF A. MUHAMMAD • PRINCIPAL • Candid YAM’sK Tax & Financial Services, LLCExecutive Consultant andChairman of the Department of EducationCOMPROK-TAX, Inc. (CTIK)and CTIK ASSOCIATES:Silas Anderson • Denise Bingham • Adebukola Oyejobi • Denise G. White • and FredericJ. Zeno

1st Publication (June, 1992)25tg Publication (May, 2016)

Candid YAM is a service mark of Yusuf A. MuhammadCOMPRO is a service mark of COMPRO-TAX, Inc.

All rights reserved.4155 West Cardinal Dr. • Suite C

Beaumont, TX 77705-4431(409) 832-1040 • (800) 782-2605

FAX: (409) 838-0576E-mail: [email protected]

www.comprotax.com

mailto:[email protected]

My message is a simple reiteration of some very old and proven facts. There is a method that much more often than not, works when attemptingto obtain the skills to prepare income tax returns and do it well. Thereare several methods of seeking and developing an opportunity to use thoseskills once obtained to better yourself financially. While there is no doubt“nothing new under the sun,” there were so many things under the sun tostart with that equally without a doubt is the fact that humankind will bemaking new discoveries – discoveries in the area of compiling these oldthings into seemingly new ways – well into the future. The basicingredients, however, are always present. Desire, commitment, goalsetting, planning, determination, smart persistent work, sacrifice,THINKING, THINKING, and of course, THINKING, – these are thebasic ingredients that form the adhesive that seals the vision of success,that turns what ought to be into what is for us all. Simply put – forget theobstacles; let’s DO IT!

Yusuf A. Muhammad, CTS, AFSP

The COMPROK-TAX, Inc.

ON-LINE FUNDAMENTAL INDIVIDUAL FEDERAL INCOME TAX COURSE

For 2016

Student's Study Guide and Reference Binder

Preliminary ListingsEnrollment Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Separately Issued

Education Chairman’s Welcome Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . Next Page

Extracted IRS Reliance and Mission Statements . . . . . . . . . . . . . . . . . . . . . i

Acknowledgments .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii

About This Guide and Reference Binder . . . . . . . . . . . . . . . . . . . . . . . . . . . . v

Syllabus (Course Description) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix

Dates of Classes and Supplemental Seminars . . . . . . . . . . . . . . . . . . . . . . . xiii

Keeping In Touch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xv

Prospective Tax Clientele for the 2017 Processing Year (2016 Returns). . . xvii

Glossary (Income Tax Terminology) .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxiii

Income-Reporting Forms for 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xliiiA BASIC EXPLANATION OF THE MOST–OFTEN RECEIVEDINCOME-REPORTING FORMS FOR 2015

Appendix A • CTI Board Member List for August, 2015 — July, 2016 . . . xlvii

Appendix B • The History of Taxation in America . . . . . . . . . . . . . . . . . . . xlix

Appendix C • The Basic History of COMPROK-TAX, Inc. (CTIK). . . . li

Appendix D • PTIN Frequently Asked Questions. . . . . . . . . . . . . . . . . . . . . lxi

Appendix E • IRS e-file Application andParticipation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . lxv

Appendix F • IRS e-services On-line Registration Information . . . . . . . . . . xcix

COMPROSM-TAX, Inc.A TEXAS BASED CORPORATION

WELCOME! ...from the Chairman of theDepartment of Education

Dear Student:

It is with great pleasure and appreciation that COMPROK-TAX, Inc. is able totake this opportunity to welcome you as a student in its On-line FundamentalIndividual Federal Income Tax Course for the year 2016.

This year marks the thirty-forth year that this and similar courses have beenoffered to the general public; and, your participation in it makes us believethat our efforts are not at all being put forth in vain.

To date, more than five thousand different people are certified as taxpreparers in several cities across the country due to the fact that they havecompleted this and/or other courses offered by this company. Many of whom lookforward to the tax-filing season with a great deal of vigor anticipating thefinancial rewards to be gained at that time. In many of those cases, thepreparer works as an associate — though self-employed — with a broker ofCOMPROK-TAX, Inc. In other cases, we have found that some of our strongestcompetitors have gotten their start with this course. Out of this same course,we have been fortunate enough to see students develop into instructors in thisand other areas of the states of California, Florida, Georgia, Illinois,Kentucky, Louisiana, Maryland, Mississippi, New Jersey, North and SouthCarolina, Pennsylvania, Ohio, Tennessee, Texas, Virginia and Washington, DC —teaching the same course material that they were once taught in. Others aresimply better able to manage their personal finances or run their differentbusiness venture(s) because they are now more tax-wise than ever before.

Hopefully, you too will set some goals and achieve them. And, on behalf of thestaff and associates of COMPROK-TAX, Inc., I can say that we certainly hopethat this course will in some way help you in your quest to achieve thosegoals.

Your enrolling in this course says that you believe in us. Well, make nomistake about it. We believe in YOU!

Thank You,

Yusuf A. Muhammad, AFSP, RTRP, CTSEXECUTIVE CONSULTANT CHAIRMAN OF THE DEPARTMENT OF EDUCATION

CTIK

IRS's RELIANCE and MISSION STATEMENTS(To be applied to the Main Text for the course and all IRS publications or parts thereof that are used as material for it)

The explanations and examples in this publication reflect the interpretation by the Internal Revenue Service (IRS) of:

# Tax laws enacted by Congress,

# Treasury regulations, and

# Court decisions.

However, the information given does not cover every situation and is not intended to replace the law or change its meaning.

This publication covers some subjects on which a court may have made a decision more favorable to taxpayers than theinterpretation by the IRS. Until these differing interpretations are resolved by higher court decisions or in some other way, thispublication will continue to present the interpretation by the IRS.

All taxpayers have important rights when working with the IRS. These rights are described in Your Rights as a Taxpayer in theback of Publication 17 (Your Federal Income Tax for Individuals).

The IRS Mission. Provide America’s taxpayers top quality service by helping them understand and meet their tax responsibilitiesand by applying the tax law with integrity and fairness to all.

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ACKNOWLEDGMENTS

I am indeed grateful for the efforts of several people who worked tirelessly through physical labor,sacrifice, or indirect contribution(s) to see to it that this course material got completed. Some of whom, I amcompelled to mention by name or categorically.

Thanks, first, to my dear big brother, J. Harold Washington, who, at the time of this material's firststages of development, somehow found the desire, time and energy to share his knowledge and experience inpublishing and computer software with the little fellow who he seemingly once took pleasure in knockingaround. His days filled with the responsibilities of fathering my niece and nephew, and supervising at an adultlearning center in Albuquerque, NM were no doubt demanding. Yet, in what seems to have been in recordtime, he assembled a great team of typist who worked diligently on this project. The typing of those people andthe graphics work that he produced were nothing short of excellent. Not nearly enough can be saidacknowledging the level of appreciation for his help.

Thanks are definitely in order as well to Silas Anderson, Denise Bingham, Adebukola Oyejobi, andDenise G. White – any other 2016 COMPROK-TAX, Inc. Education Team members, and Frederic J. Zenofor his valuable contributions. The words "beyond the call of duty" are most appropriate when applied to thisCOMPROK-TAX, Inc. team of tax education specialists. Despite their family and personal businessresponsibilities, they have managed to give new definition to the word "duty" by single-handedly raising thestandard of its meaning. Their duties as family members and — in most cases — business owners, tax themwell. Still, without their dedication and sheer human goodness, I am convinced that this work would at best,exist in only a shell of its present form. The nature of their input is too varying to categorize. But, oh howneeded and appreciated it was!

My own humanity would be seriously up for question if I did not mention the many associates ofCOMPROK-TAX, Inc. and others who constantly through encouragement, (either in the distant past or ratherrecently) provided me with the impetus to tackle this job and see it through to its completion.

! To the members of the COMPROK-TAX, Inc. Board of Directors who, from the company's inception,have trusted me with the responsibility of developing this course material and chairing the company’sDepartment of Education,

! To my dear friend, colleague, and co-founder (considered to be the founder) of this great company, Dr.Jackie E. Mayfield — for always working selflessly toward good ends within and without view,

! To those who are or have been members of my brokerage (including our current Chairman of theBoard), Mr. Frederic J. Zeno, mentioned earlier) who continue to show me first-handedly that thesecourses help produce successes,

! To those who through the years have taught or expressed a desire to teach the material — they alwaysseem to give birth to new and good recommendations,

! To my dear children, other relatives, friends, and my beloved wife – Lois E. Muhammad, who at timesfelt a little more distant than was ever even near being true — may the Creator Bless you for yourpatience, understanding and sacrifices,

! And lastly, but certainly not least, to the 5,000-plus students who through this last period of more thanthirty-three years, have brought to the forefront a living testimony that whatever it took to reach thispoint in our development — it was all well worth it, — and to the current and past members of the CTIEducation Team: Silas Anderson, Denise Bingham, Lella Oats Jones, George Matthews, AdebukolaOyejobi, Anita Rice and Denise G. White, thank you, Thank You, THANK YOU!

To you all, thanks.

Sincerely,CHAIRMAN • DEPARTMENT OF EDUCATION • CTI

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ABOUT THIS GUIDE and REFERENCE BINDER

This Student’s Study Guide and Reference Binder (the Reference) is designed as a useful reference and studysupplement as you seek to successfully complete the COMPROK-TAX, Inc. (CTIK) On-line Fundamental Individual Federal Income Tax Course for 2016. When used in conjunction with the main text materialcontaining selected chapters of IRS Publication 17 and supplemental material — including part or all of certainIRS publications, the instructions for certain forms as well as the forms themselves, and information from theJune, 2014 revision of the Regulations Governing Practice before the Internal Revenue Service (TreasuryDepartment Circular No. 230), this material can serve as 1) a reminding stimulation as to why you embarked onsuch a demanded and demanding profession, and 2) a business-development and tracking (or monitoring) sourceto help keep you on tract to success by your own definition.

The most-often-used part of the main text material (selected chapters of IRS Publication 17) is generally laid outin the same order as is the layout of IRS Form 1040. As such, the layout of the course material will follow asimilar format. We have discovered that concentrating on a section of Form 1040 at a time, with references toother sections from time-to-time, is a favored learning format for most students who are learning this type ofmaterial anew or for the first time. The main text material is divided mainly into Parts and Chapters, withsupplemental material in other folders that cover important information now nearly eliminated from or neverincluded in Publication 17. When chapters of the main text are to be discussed, this will be indicated in theCourse Outline portion of the Syllabus found in the Reference along with the schedule of Optional SupplementalSeminars/Workshops, etc. on the second page of it. Some of the most beneficial aspects of the Reference are inthe form of useful entrepreneurial tools contained herein. Later in the Reference, reference will again be madeto these and other items that the Reference contains, along with at least a brief explanation of the usefulness ofeach of these items. Because the Reference is also a study guide, it will and should be utilized a bit morefrequently than you’d probably expect compared to your using it merely as a reference source. It is suggestedthat as you study and prepare for this course, that you consistently seek to make sure that the Reference fully livesup to its full name. Too, it would be wisest to have all of the material that is available to you on-line (preferably,in printed form)each time you attend an on-line session. Whenever part of the material is not specificallyearmarked for use, it should be VIEWED as part of the material that IS actually specifically earmarked for usefor the particular session in question.

The Reference was once divided into two parts; i.e., Volumes I and II. It was later consolidated into one volume;with a frequent need to update it often throughout the duration of the course until it was complete. In otherwords, material that was not needed or useful during the early stages of the course was not issued until the latterpart of the course. Then, it contained much of what it currently contains as well as the complete text of IRSPublication 17, as well as separately-issued test and answer material. The Reference is now streamlined incomparison. However, on an average of weekly, you will be able to access, via email, test material on the subjectmatter to be discussed during the upcoming session. This test (and follow-up answer) material is now accessible separately on-line and readily available for regular review and/or additional reference. This review and referenceprocess is imperative. The tests are designed to focus most often on the exact kind of material that will 1) be usedto lead toward your thorough understanding of fundamental relevant tax law, and 2) reflect the kind of situationsthat you are likely to encounter regularly during a typical tax season in your early stages of development.

You will note that the course outline portion of the Syllabus sometimes has “N/A” by some subject matter in thecolumn headed "Chapter". This means that a chapter of Publication 17 to reference for this subject matter is "notapplicable". When this is the case, supplemental material found in other folders on line or in separate folders ofyour flash drive (if applicable) will likely be used, additional material may be made available to you that you canaccess and bind at a later date, or this topic may merely be discussed orally and/or audio-visually. Your instructorwill always inform you of exactly which of the three (or what combination thereof) will be utilized. As a wordof advice, familiarize yourself with what material is — first of all — contained in the Reference, as well as itslayout. You will find doing so to be a giant step in the right direction as far as making your learning process

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much more easy than it would otherwise be. Secondly, commit to reading every bit of it at least once andstudying it as well.

Worthy of note is the fact that this course is designed to both instruct a participant in the basic skills of federalincome tax preparation and prepare the student to succeed in the income tax business. This having beenmentioned, it is easy to understand the presence and usefulness of information that lends itself toward theachievement of both of these basic objectives.

. KEEPING IN TOUCH • As you interact with your fellow students, on-line relationships are developed. These relationships may prove quite useful eventually and repeatedly. How to reach the person so thatthese benefits can be reaped would then be critical. Also, the instructor’s information is here.

. PROSPECTIVE TAX CLIENTELE FOR THE 2017 PROCESSING YEAR • The likelihood that aperson pursuing a career in tax preparation would enjoy any degree of success would be curtailed withoutproper planning. To set goals, organize, and work to achieve those goals is the only viable option. Thesepages (used effectively) can help make good things happen.

. GLOSSARY • Income tax law appears to sometimes be written in a different language. Definitions (ortranslations) are a must as this new language is being learned. If you learn this information, you arelikely to learn more and quicker than your counterpart who does not.

. TAX REPORTING FORMS FOR 2015 • As is indicated on the page for Preliminary Listings, this is “adetailed explanation of the most-often received income reporting forms for 2015.” Many of these formshave stomped relatively new preparers in the past. They do not have to have the same effect on you.

. APPENDIX A • If you are or should you become an affiliate of CTIK, this information will prove to beindispensable. An ability to reach CTIK corporate officials is, in and of itself, extremely unique.

. APPENDIXES B and C • Having root historical knowledge of your profession and/or industry will addto your comfort and set you apart from many others of your profession’s colleagues. Whether speakingof the tax preparation industry in general or in particular, history has proven itself to be very beneficialas a security for future appropriate direction. That is why a brief history of CTIK is also included here.

. APPENDIX D • Still relatively new enough to a point where the details of which should be shared or re-shared (as the case may be), this updated information on the PTIN and how to obtain one is criticalbecause it is no longer a mere option for a tax preparer who is getting paid to do his/her work to comply.

. APPENDIXES E and F • It’s pretty safe to say that the IRS and those who deal with it are doing thingsas often as possible in an electronic format. This includes even filing the returns as well as keeping andupdating any records having to do with the process. Consider these appendixes your introduction.

The research that you do in the main text will no doubt yield you better results if you make use of the “Index"found at the rear of the IRS Publication 17 portion of your main study text (Publication 17). If at any time youfind yourself reading without understanding a particular word or expression of tax terminology, you shouldimmediately consult your Glossary. It will reduce your likelihood of needing to reread substantially. Obviously,such contemporaneous consultation of the Glossary would enhance your understanding of the word or expressionand your retention of the meaning of the same. It is highly recommended that you get use to it.

If you will be printing your own text material, you may want to obtain at least a 3½” binder to contain your testand answer material in – along with any supplements and updates that may be made available later. There maybe a minor need to update and/or correct material at times. Though every attempt has been made to keep such

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need for updating to a minium, expect it, and know that your suggestions and comments are always encouragedand welcomed.

The following information may prove beneficial to you as you either study the main text or take the various OpenBook Tests on material that it covers. It can either help you in your efforts to develop a workable plan for studyor lift your confidence level as far as classroom participation is concerned, or both.

Î Allow a minimum of approximately 9½ to 10 minutes of reading and study time to each page of readingmaterial that is to be covered in any upcoming session. It may take a shorter time to complete somepages and a slightly longer time to complete others. You may even be fortunate enough to be aspeed/flash reader. Not assuming that you are, however, allowing at least 9½ to 10 minutes per page willallow you to plan study time well. Also, you will readily see just how little time out of each day can bespent getting prepared with no compromise to your readiness for any upcoming session.

For instance, suppose you encounter an upcoming session that has 25 pages of material that will becovered. Let us also assume that you are willing to study during a small period of time during each ofsix days during the week. Twenty-five pages at ten minutes per page would require study time totalingtwo hundred and fifty minutes (25 X 10 = 250). If you strategically distributed the 250 minutes equallybetween the 6 days available, you would study a total of 42 minutes per day. This is only a little morethan one-half hour per day. ...Not at all very demanding, wouldn't you say?

Ï In reading the main text, often times you will be asked to refer to another section of the chapter you arereading, another chapter, or another publication all together. When you are looking up information onthe subject matter in particular, these suggestions may prove to be most useful. However, when you arestudying to get prepared for an upcoming session, it is advisable that you do not veer to material otherthan your Glossary or printed material suggested by your instructor if you can avoid doing so.

Ð In reading, especially your Open Book Test material, you will frequently encounter items such as thosebelow. To their right is how they are appropriately read when you see them.

Ø i.e. .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . that is Ù e.g... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . for example Ú widow(er). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . widow or widower Û is/are. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . is or are Ü s/he. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . she or he Ý he/she. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . he or she Þ item(s). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . item or items

Ñ K Other Points Worth Mentioning

Do not be hesitant to study in groups in class or at one another’s homes when possible.F Call for help. You have many seasoned people who are willing and able to help you.N Take copious notes.® Access and make good use of a Hi-Liter® or ACCENT® pen on your printed material.- Keep your house in order. In other words, DON'T LET YOUR MATERIAL EVER

GET DISORGANIZED!ü Make the meeting of new people in practically any situation an opportunity to increase

your potential clientele.

The symbols above will not be found in any part of the main text or the Reference. They are merely used herefor purposes of placing emphases on these points and aiding you in the process of remembering each of them.

Good luck!

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The COMPROK-TAX, Inc.ON-LINE FUNDAMENTAL INDIVIDUAL FEDERAL INCOME TAX COURSE

For 2016

S Y L L A B U S

The COMPRO-TAX, Inc. Fundamental Individual Federal Income Tax Course is designed to instruct a participant in the basicskills of the preparation of Individual FederalIncome Tax Returns. It is a course that will takeeleven (11) sessions to complete; at which time,and upon successful completion, the studentshould be able to make substantial improvementsto his or her own tax situation, or go beyond thatand enter the business of fundamental taxpreparation for others. In order to enter thebusiness of tax preparation, the student mustobtain competency in the field. This course places focus on the student achieving this goal.

The course combines the student's homestudy with on-line class-room discussions andhelpful, easy-to-follow visual aids. It also offersexperience through a series of simulated taxsituations to aid the confidence-building aspectsof the student's development.

The course, to begin in late Summer ofthe year 2016, will involve a study of 2015 tax law and the major changes for 2016; and willhave as its basic text, selected chapters of the2015 PDF or flash-drive accessible IRSPublication 17 and the COMPROK-TAX, Inc. Student’s Study Guide and Reference Binder for2016. The material for this course is accessibleon-line once the student is properly registered viathe 2016 enrollment process. In addition to thePublication 17 mentioned above, a host ofsupplemental information and businessdevelopment material will also be available. This proprietary information will be able to beprinted by the student as it is made available inPDF format. The course will include weeklyexaminations; and it is recommended that thestudent obtain a simple multi-function calculatorfor quick and accurate figuring, a pencil, a Hi-Liter® or an ACCENT® pen, and a means tokeep all of the material organized. Expectadditional supplemental material to be made partof the study material as the course progresses.

Periodically, during the course,homework assignments may be given as a part ofthe course’s completion. A date and a time forthe assignments to have been completed will alsobe given by the instructor. For successfulcompletion of the course, assignments must becompleted on time. Assignments completed latewill be accepted only at the discretion of theinstructor. A perpetual assignment of reading thematerial to be covered in the upcoming classsession is understood by the student. To successfully complete the course, a student mustread and participate in on-line class discussions,complete assignments, miss no more than three(3) total sessions out of the eleven followingOrientation to be had, (...three consecutive classsession absences will not permit successfulcompletion) and pass the final examination. Successful completion will be acknowledged bythe issuance of a certificate of successfulcompletion by COMPROK-TAX, Inc. If astudent either plans to be absent for a session, oris absent due to an emergency, he or she shouldmake every effort to contact the instructor toinform him or her.

The following two pages constitute acontinuation of this Syllabus. They contain course and tentative seminar schedules and topicsof discussion, and will serve as reference pointsas we move through the course from session tosession. They should be cross-referenced withthe rest of the information as it is referenced sothat the student stays on track with requiredreading and other preparation. Please note thatsome sections of the Course Outline are grayedout. These sections are needed by studentstaking the Comprehensive course or duringsupplemental on-line seminars designed toenhance the student’s overall education. Additionally, there may be info referenced that isnot a part of the main text issued now or later.

This Syllabus is part of the EnrollmentAgreement that references it for 2016.

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S Y L L A B U S (Continued)COURSE OUTLINE FOR 2016

SESSION CHAPTER TOPIC DATE

THE SUBJECTS THAT ARE GRAYED OUT ARE COVERED IN THE COMPREHENSIVE COURSE.

N/A N/A Orientation / /

THE INCOME TAX RETURN

I 1 Filing Information / / 2 Filing Status3 Personal Exemptions and Dependents

N/A Decedents (Supplement No. 1)

INCOME

II 4 Tax Withholding and Estimated Tax / / 5 Wages, Salaries, and Other Earnings6 Tip Income7 Interest Income8 Dividends and Other Distributions

N/A Business Income or (Loss) with Depreciation (Supplement Nos. 2 and 3)

N/A Rental Income and Expenses(More on Depreciation • Supplement No. 3)

III 10 Retirement Plans, Pensions, and Annuities / / 11 Social Security and Equivalent

Railroad Retirement Benefits12 Other Income

GAINS AND LOSSES

N/A Basis of PropertyN/A Sale of PropertyN/A Selling Your HomeN/A Reporting Gains and Losses

ADJUSTMENTS TO INCOME

IV 17 / / N/AN/AN/A19

Individual Retirement Arrangements (IRAs)Health Savings Accounts (Supplement No. 4)Moving Expenses (Fundamental Supplement I)AlimonyEducation-Related Adjustments

STANDARD DEDUCTION AND ITEMIZED DEDUCTIONS

V 20 Standard Deduction / / 21 Medical and Dental Expenses22 Taxes23 Interest Expense24 ContributionsN/A Nonbusiness Casualty and Theft Losses

VI 26 Car Expenses and Other Employee / / Business Expenses

27 Tax Benefits for Work-Related Education28 Miscellaneous DeductionsN/A Limit on Itemized Deductions

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S Y L L A B U S (Continued)COURSE OUTLINE FOR 2016

SESSION CHAPTER TOPIC DATE

FIGURING YOUR TAXES AND CREDITS

VII 30 How to Figure Your Tax / / N/A Tax on Unearned Income of Certain

Children • aka “Kiddie Tax”

32 Child and Dependent Care CreditN/A Credit for the Elderly or the Disabled34 Child Tax Credit35 Education Credits

VIII 36 Earned Income Credit (EIC) / / 38 Other Credits

OTHER NECESSARY INFORMATION

N/A Your Rights as a Taxpayer (Page 263) Forms 8821, 8859 and 2555-EZ

IX 37 / / N/A

(Supplement No. 6) Premium Tax Credit (PTC)Tax Provisions of the Affordable Care Act •

Including Forms 1095(Fundamental Supplement II)

X 1 • pg 17 Form 1040X - Amended U.S. Individual / / Income Tax Return

N/A Regulations Governing Practice Before IRS(Fundamental Supplement III)

TAX LAW UPDATE

N/A 2016 Federal Tax Law Update for the2017 Filing Season

N/A Final Exam Information (A Guide to Studying)

FINAL EXAMINATION

XI ALL Final Examination / / (Questions and a Return)

S U P P L E M E N T A L S E M I N A R S C H E D U L E

SEMINAR I N/A CTIK FOUNDERS’ AWARD BANQUET 10 / 28 / 16

SEMINAR II N/A AFRICAN-AMERICAN CULTURAL & ECONOMIC SUMMIT 10 / 29 / 16

SEMINAR III N/A “LET’S TALK BUSINESS” 12 / 10 / 16

SEMINAR IV N/A FINANCIAL WISDOM SEMINAR 12 /26-28 / 16

SEMINAR V N/A 2017 CTI KICK-OFF WORKSHOP 01 / 14 / 17

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Dates of Classes for the 2016 On-line Fundamental Individual Federal Income Tax Course and Optional Supplemental Seminars/Workshops, etc.

(Supplemental Seminars/Workshops, etc. are Italicized AND in Bold Print.)

SUBJECT SETTING MONDAY TUESDAY WEDNESDAY THURSDAY FRIDAY SATURDAY

Massive Orientation for All Students for the2016 Course* (Given twice on-line)

N/A*Held Tuesday &

Saturday*

08/02/16*Held On-line at7:00 pm Central

Held on Saturday*

Held onSaturday*

Held onSaturday*

09/10/16*Held On-line at

10:00 am Central

Filing Information ! Filing Status !Personal Exemptions and Dependents

Session I 09/19/16 09/20/16 09/21/16 09/22/16 RESERVED 09/24/16

Decedents N/A N/A N/A N/A N/A RESERVED N/A

Tax Withholding and Estimated Tax !Wages, Salaries, and Other Earnings ! TipIncome ! Interest Income ! Dividends andOther Distributions

Session II 09/26/16 09/27/16 09/28/16 09/29/16 RESERVED 10/01/16

Business Income or (Loss) ! Depreciation N/A N/A N/A N/A N/A RESERVED N/A

Rental Income and Expenses ! Depreciation N/A N/A N/A N/A N/A RESERVED N/A

Retirement Plans, Pensions, and Annuities !Social Security and Equivalent RailroadRetirement Benefits ! Other Income

Session III 10/03/16 10/04/16 10/05/16 10/06/16 RESERVED 10/08/16

Basis of Property ! Sale of Property !Selling Your Home ! Reporting Gains andLosses

N/A N/A N/A N/A N/A RESERVED N/A

Individual Retirement Arrangements (IRAs) ! Health Savings Accounts, etc. ! MovingExpenses ! Alimony ! Education-RelatedAdjustments

Session IV 10/10/16 10/11/16 10/12/16 10/13/16 RESERVED 10/15/16

Standard Deduction ! Medical and DentalExpenses ! Taxes ! Interest Expense !Contributions ! Nonbusiness Casualty andTheft Losses

Session V 10/17/16 10/18/16 10/19/16 10/20/16 RESERVED 10/22/16

CTI Founders’ Award and AppreciationBanquet ! African-American Cultural andEconomic Summit (AACES & CTI)

Seminars 1 & 2 of 5COMPRO Event

Center

Held on Friday& Saturday




10/28/16CTI Awards

Banquet

10/29/16AACES

Car Expenses and Other Employee BusinessExpenses ! Tax Benefits for Work-RelatedEducation ! Miscellaneous Deductions !Limit on Itemized Deductions

Session VI 10/31/16 11/01/16 11/02/16 11/03/16 RESERVED 11/05/16

SUBJECT SETTING MONDAY TUESDAY WEDNESDAY THURSDAY FRIDAY SATURDAY

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How to Figure Your Tax ! Tax on UnearnedIncome of Certain Children • aka “KiddieTax” ! Child and Dependent Care Credit !Child Tax Credit ! Education Credits

Session VII 11/07/16 11/08/16 11/09/16 11/10/16 RESERVED 11/12/16

Child and Dependent Care Credit ! Creditfor the Elderly or the Disabled ! Child TaxCredit ! Education Credits

N/A N/A N/A N/A N/A RESERVED N/A

Earned Income Credit ! Premium TaxCredit ! Other Credits

Session VIII 11/14/16 11/15/16 11/16/16 11/17/16 RESERVED 11/19/16

Premium Tax Credit ! Tax Provisions of the

Affordable Care Act (Including Forms 1095)Session IX 11/28/16 11/29/16 11/30/16 12/01/16 RESERVED 12/03/16

"Let's Talk Business"** ! Seminar 3 of 5On-line WebinarSeminar 3 of 5

Held onSaturday

Held onSaturday

Held onSaturday

Held onSaturday

RESERVED 12/10/16**

Form 1040X - Amended U.S. IndividualIncome Tax Return ! RegulationsGoverning Practice before the InternalRevenue Service (Ethics) ! 2016 FederalTax Law Update for the 2017 Filing Season! Final Exam Information (A Guide toStudying)

Session X 12/12/16 12/13/16 12/14/16 12/15/16 RESERVED 12/17/16

FINAL EXAMINATION —Questions and a Return***

Session XI 12/19/16 12/20/16 12/21/16 12/22/16 RESERVED 12/24/16

Kwanzaa Celebration & EducationThis Activity Is Not On-line

Tax Class Week Off

Morning of12/26/16

COMPROEvent Center

No Session No Session No Session RESERVED No Session

CTI Public Finincial Wisdom Seminar !COMPRO Event Center ! Seminar 4 of 5

Seminar 4 of 5COMPRO Event

Center

Day 1 •12/26/16Credit, Finance& Real Estate

Day 2 • 12/27/16Income Tax

Issues

Day 3 • 12/28/16Insurance &Retirement

No Session RESERVED NO Session

FINAL EXAMINATION — Opportunity toRetake if Necessary Questions and a Return***

Session XVIIFINAL EXAM***

01/02/17 01/03/17 01/04/17 01/05/17 RESERVED 01/07/17

2017 COMPRO-TAX, Inc. Kick-OffWorkshop ! COMPRO Event Center

Held on SaturdaySeminar 5 of 5

Held onSaturday

Held onSaturday

Held onSaturday

Held onSaturday

RESERVED 1/14/17

* In some instances, Orientation will be held on the same day of the week and at the same location as the other scheduled sessions. If this is the case with you, your instructor will inform you well prior to such timeand give you the appropriate date, place and time for such Orientation.

** This particular seminar is no longer held in one specific area, such as where you are taking this course; and there has been no arrangement for the class participants to travel to an area where it may be being held. You should know that for 2016, this seminar will be held on-line as a “Webinar®.” The details of this prior to its date will be forthcoming at least via e-mail to all of CTI’s registered affiliates and new students.

*** Any student who needs to retake the final examination should make arrangements to do so at a mutually-convenient time and manner with his or her instructor, which may be held on a date other than what is here.

K E E P I N G I N T O U C H

HOW TO REACH SO-n-SO:

My Main Instructor’s Name is:

His/Her Office Phone No. is: ( ) —

His/Her Alternate Phone No. is: ( ) —

His/Her E-mail Address is:

I was Recruited by:

One/Some of my Fellow Students Is/Are: His/Her E-mail address is:

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My Fellow Student(s) (CONTINUED) His/Her E-mail address is:

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PROSPECTIVE TAX CLIENTELE FOR THE 2017 PROCESSING YEAR

No. CLIENT’S NAME ADDRESS CITY, STATE, ZIP PHN. NO. REFERRER COMMENTS

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G L O S S A R Y

ABATEMENT OF CIVIL PENALTY: A reduction of an assessed civil penalty. The IRS may approve an abatement of a penalty for: IRS error; reasonable cause; administrative andcollection costs not warranting collection of penalty; discharge of penalty in bankruptcy;and the IRS’s acceptance of partial payment of assessed penalty.

ABATEMENT OF INTEREST CASE: A case of disputed interest on tax deficiencies orpayments in which IRS error or delays may have contributed to the assessed interest.

ACCELERATED DEPRECIATION: Any of the various methods of depreciation which when used, causes cost-recovery at a rate faster than the straight-line method. In most cases,the allowable depreciation in the first year using these methods is increased.

ACCEPTANCE LETTER: Correspondence that includes identification numbers that are issued by the IRS to applicants confirming they may participate in IRS e-file as Authorized IRSe-file Providers (Providers).

ACCOUNTABLE REIMBURSEMENT PLAN: Any employment-related plan set up for employees to receive reimbursements for business expenses and not have thosereimbursements included in their income. This way, they will not have to itemize theirdeductions to avoid paying taxes on the money spent on these expenses. Certainrequirements must be met in order for the plan to be a qualified accountable plan.

ACCOUNTING EQUATION: Assets are equal to liabilities plus owners’ equity.ACCOUNTING METHOD/ACCRUAL: A way of accounting for income and expenses where

income is reported when earned and expenses are deducted when incurred.ACCOUNTING METHOD/CASH: A way of accounting for income and deductions where

basically, income is reported when it is constructively received and expenses are deductedwhen actually paid.

ACCOUNTING PERIOD/CALENDAR: The 12-month period from January 1 throughDecember 31, covering individual and business tax returns.

ACCOUNTING PERIOD/FISCAL: Any 12-month period ending on the last day of a month other than December covering individual and business tax returns.

ACCOUNTING TO AN EMPLOYER: The act of submitting to an employer some kind of expense record.

ACCRUAL BASIS OF ACCOUNTING: See "ACCOUNTING METHOD/ACCRUAL."ACKNOWLEDGMENT (ACK): A report generated by the IRS to a Transmitter that indicates

receipt of all transmissions. An ACK Report identifies the returns in each transmissionthat are accepted or rejected for specific reasons.

ADDITIONAL MEDICARE TAX: Beginning in 2013, a 0.9% additional amount of tax thatapplies to Medicare Wages, Railroad Retirement Act compensation, and self-employmentincome over a threshold based on a taxpayer’s filing status.

ADJUSTED BASIS: Basis used to determine gains and loses. It is "BASIS" adjusted byincreases, such as capital expenditures, and decreases, such as depreciation.

ADJUSTED ITEMIZED DEDUCTIONS: The amount by which total itemized deductions (notincluding deductions for medical expenses, investment interest, casualty and theft lossesand gambling losses) exceed a certain amount based on filing status and AGI.

ADJUSTED GROSS INCOME: Often referred to simply as “the line” among tax professionals, this is the total income shown on Form 1040A or Form 1040, reduced by items that show

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up in the adjustments section of either form. Some of these common deductions(adjustments) that reduce the total income down to the Adjusted Gross Income (AGI) areIRA deductions, Moving Expenses, Self-Employed Health Insurance Deduction andPenalty on Early Withdrawal of Savings. There are others. The AGI is used to determinevarious other aspects of the return. Adjustments are frequently referred to as “above theline deductions.”

ADMINISTRATIVE REVIEW PROCESS: The process by which a denied applicant or sanc-tioned Authorized IRS e-file Provider may appeal the IRS’ denial or sanction.

ADOPTION TAXPAYER IDENTIFICATION NUMBER (ATIN): A number that may be applied for and issued to taxpayers in the process of adopting a child who is a U.S. citizenor resident when the child cannot get a social security number until the adoption id final.

ADVANCED EARNED INCOME CREDIT: Payment of an amount of money by an employer based on the employee's claim to be entitled to an earned income credit. As of 2011, theadvanced earned income credit is not available to taxpayers.

AGI: See “ADJUSTED GROSS INCOME.”ALIMONY: Legal payments made in support of a former spouse that are ordered by a decree

of divorce or similar written instrument. The payments must be periodic. They aretaxable to the recipient and deductible as an adjustment to income by the payer.

ALTERNATIVE MINIMUM TAX (AMT): A tax levied on certain taxpayers when tax benefitsreduce regular tax below a certain amount computed on Form 6251.

AMENDED RETURN: A return filed with the IRS baring changes to a return that waspreviously filed. The changes are corrections and are generally filed on Form 1040X.

AMERICAN OPPORTUNITY CREDIT: A credit new for 2010 returns that is a modification of the Hope credit and available at least through 2016. The credit can be up to $2,500 perstudent for the first 4 years of post-secondary education with up to 40% refundable.

AMORTIZATION: A method of cost-recovery of an investment into an intangible asset. It isquite similar to depreciation.

AMOUNT REALIZED: The sum of money or the fair market value of other property or servicesreceived in a sale or exchange of an asset.

AMOUNT RECOGNIZED: The dollar amount of gain reportable and/or subject to tax.ANNUALIZED RATE: A rate for a period of less than 12 months computed as if it was for a

whole year.ANNUITY: A scientific method of liquidating both principal and interest to a person for whom

money is held by a firm, (usually for retirement) so that income can continue throughoutthe person's (Annuitant's) lifetime.

ANNUITY STARTING DATE: The very first day that proceeds from an annuity contract become due and payable to an annuitant.

APPEALS: The Appeals mission is to resolve tax controversies, without litigation, on a basis which is fair and impartial to both the taxpayer and the Federal Government. The AppealsOffice considers cases that involve examination, collection, and penalty issues. Taxpayerswho disagree with the IRS findings in their cases may request an Appeals hearing. Thelocal Appeals Office is separate and independent of the IRS office that proposed the taxadjustment, collection action, or penalty.

APPLICABLE FEDERAL RATE: An interest for determining imputed interest that is fixed bythe Department of the Treasury.

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ARCHER MEDICAL SAVINGS ACCOUNT (MSA): An medical vehicle that links IRA-type savings with high-deductible medical insurance creating a fund to pay unreimbursedmedical expenses.

ASSESSMENT: An action taken by the IRS where tax (including interest and penalties) is leviedand collection processes begin. This may include the seizing of property.

ASSET: Any property, tangible or intangible, that has a determinable value and that can be turned into cash.

AUDIT: An examination of financial records. An IRS examination is called an audit.AUTHORIZED IRS E-FILE PROVIDER (PROVIDER): A firm accepted to participate in IRS

e-file.AUTOMATED CLEARING HOUSE (ACH): A system that administers electronic funds trans-

fers (EFTs) among participating financial institutions. An example of such a transfer isDirect Deposit of a tax refund from IRS into a taxpayer's account at a financial institution.

AUTOMATIC SIX MONTH EXTENSION: The use of Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return, to obtain 6-months ofadditional time beyond the original due date to file a return.

AUTOMATED SUBSTITUTE FOR RETURN PROGRAM: Under this program, the IRS uses information returns from third parties (such as Forms W-2 and 1099) to identify tax returndelinquencies (nonfilers), constructs tax returns for certain nonfilers based on thatthird-party information, and assesses tax, interest, and penalties based on the substitutereturns.

AUTOMATED UNDERREPORTER PROGRAM: Under this program, the IRS uses informa-tion returns from third parties (such as Forms W-2 and 1099) to identify unreportedincome on returns filed by taxpayers.

AWAY FROM HOME TRAVEL: A period of time spent away from the general area of one’stax home. This time must be longer than a usual work day; and, during such time, thetaxpayer must need to get sleep or rest to meet the demands of his/her job or work.

BAD DEBT: An amount owed to a taxpayer that he or she cannot collect.BALLOON: The final payment on a loan that is due in a lump sum.BASIS: An amount of money assigned to an asset from which gain, loss or depreciation for

tax purposes is determined. It is a measure of one's investment in an asset for tax purposes.BARTER: To exchange property or services as pay rather than money for property or services

rendered.BONUS DEPRECIATION: A special first-year amount of depreciation that is 30% (for property

placed in service before May 6, 2003) of the qualifying basis of qualifying equipment andleasehold improvements purchased after September 11, 2001, and before September 10,2006. The additional special allowance depreciation increases the total allowable first-yeardepreciation limit for automobiles as well. For property placed in service after May 5,2003, and at least through 2013, the allowance can be 50% of the qualified property’sdepreciable basis. For qualifying property placed in service after September 8, 2010 andbefore January 1, 2013, this allowance can be as much as 100%. Currently, it is at 50%.

CALENDAR YEAR: A 12-month period beginning January 1st and ending December 31st. CANCELLATION OF DEBT: Usually taxable to the entity who owed the debt, this is a debt that

is eliminated without consideration to the creditor.

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CAPITAL ASSET: Everything owned for personal, pleasure, or investment that is notspecifically excluded.

CAPITAL EXPENDITURE: Any purchase of an asset with a useful life of more than one year,or for additions or improvements that prolong the useful life, increase the value of an assetor adapt an asset to new uses.

CAPITAL GAIN: The excess of the amount realized over the adjusted basis on the sale of acapital asset.

CAPITAL GAIN DEDUCTION: A deduction allowed as a result of a long-term capital gain on returns due prior to the tax reform act of 1986 taking effect. Only 40% of the gain on thistransaction is taxable.

CAPITAL GAIN DISTRIBUTION: A distribution from a mutual fund of a gain realized on the sale of a part of a mutual fund's investment portfolio.

CAPITAL GAIN DIVIDEND: See "CAPITAL GAIN DISTRIBUTION".CAPITALIZE: Treating the cost of improvements and additions made to property as capital

expenditures, thus depreciating the item. The same word is used to express how a businessreceives its initial start-up funds.

CAPITAL LOSS: Loss created as a result of the sale or exchange of a capital asset.CAPITOL LOSS CARRYOVER: A capital loss that is not deducted on the return being done

because it exceeds the limit of $3,000.CASH BASIS OF ACCOUNTING: See "ACCOUNTING METHOD/CASH".CASUALTY AND THEFT LOSS: Losses that reduce the value of an asset or eliminate it all

together, and that are caused by sudden and unexpected incidents. Generally, this loss isfigured as part of a taxpayer’s itemized deductions on Schedule A (Form 1040) and aresubject to substantial limitations. Exceptions exists for business or investment losses.

CHARITABLE CONTRIBUTION: A deduction for the value of assets given to qualifyingorganizations during an accounting period. For individuals, these deductions are taken asa part of total itemized deductions on Schedule A (Form 1040) and may be subject tocertain limits.

CHILD AND DEPENDENT CARE CREDIT: A non-refundable tax credit of up to 35% of theamount paid for the care of qualifying dependents reported on Form 1040 or 1040A.

CHILD SUPPORT: Payments maid by one parent usually to another parent (custodial) for the support of a minor child after a divorce or separation. These payments are not deductibleto the payer nor taxable to the recipient.

CHILD TAX CREDIT: A credit implemented with the enactment of the Taxpayer Relief Act of1998, where generally, $400 per qualifying child ($500 in 2000 and 2001, $600 for 2002,$1,000 for 2003 and 2004. It was scheduled to increase to $1,200 for 2004 but it did nothappen. The credit is allowed to taxpayers with AGIs within certain limits. This creditgenerally reduces tax on Form 1040 or Form 1040A. If there is no tax before this credit,this credit will not apply unless the taxpayer meets certain circumstances and qualifies forthe additional child tax credit which is refundable. The maximum is $1,000 for eachqualifying child for 2015. In general, a qualifying child is a taxpayer’s dependent childwho is under age 17 at the end of the tax year for which a return is being filed. Otherconditions apply.

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CIVIL PENALTIES: The failure to comply with Federal tax laws may result in civil penalties. Civil penalties are generally payable upon notice and demand and are generally assessed,collected, and paid in the same manner as taxes.

COMMON-LAW STATE: State in which the laws governing property rights are based on BritishCommon Law, which states that property and income of each spouse belongs to themseparately.

COMMUNICATIONS TESTING: Required test for all Transmitters using accepted IRS e-filesoftware to assess their transmission capability with the IRS prior to live processing.

COMMUNITY INCOME: Income belonging to each spouse equally regardless of who actuallyearned it, applicable in states that are community property states.

COMMUNITY PROPERTY: Property belonging to each spouse equally after they are married, regardless of who actually acquired the property. States recognizing communityproperty laws are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas,Washington and Wisconsin.

COMMUTING: Traveling from home to work or school and back home.COMPENSATION: Money or property consideration received in exchange for services

rendered.CONDEMNATION: The taking of real property by a government agency for public purposes.

The government agency gives what it considers to be a fair price for the property.CONFIDENTIALITY: Restrictions placed on information access and disclosure, including

means for protecting personal privacy and proprietary information.CONSTRUCTIVE RECEIPT: The point at which income is received by a person where all

restrictions to the income have been removed. The money or property does not have tobe put into one's hands to be constructively received. It does, however, have to be madeavailable to him or her.

CONVENTION: Depreciation terminology which assumes the date an asset was placed in serviceto be either during the middle of the year (half-year), the middle of the quarter (mid-quarter), or at the middle of the month (mid-month) during which it was actually placedin service.

COST RECOVERY: The process of replenishing the expense incurred to obtain a depreciable asset. This is the process in general.

COST RECOVERY (ACRS): Accelerated Cost Recovery System. A method of depreciating recovery property that is faster than traditional methods.

COVERDELL EDUCATION SAVINGS ACCOUNT: Formerly an education IRA, this is a tax-favored savings plan set up to help fund expenses for education for a student beneficiary.

CREDIT: A dollar reduction of income tax liability. Hence, unless it is refundable, it cannot exceed the federal income tax figured on the taxable income of a particular return.

DECLINING BALANCE DEPRECIATION: A method of depreciation applied against the new basis each year. That is, the basis is reduced by prior year's depreciation.

DEDUCTIONS: Expenses allowed as reductions to adjusted gross income. They do not offset tax liability dollar-for-dollar.

DEFERRED GAIN: Common example is the gain realized on the sale or exchange of a principalresidence. It is sometimes not taxed until some future time. It is then said to be"postponed." TRA-1998 dramatically changed this concept.

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DEFINED BENEFIT RETIREMENT PLAN: A retirement plan that does not maintainindividual account balances that reflect the accrued benefits of each plan participant.Instead, the accrued benefit is determined by a formula stated in the plan.

DEFINED CONTRIBUTION RETIREMENT PLAN: A retirement plan that provides an individual account for each participant. Benefits are based solely on amounts contributedto the participant’s account and any earnings on these contributions. Types of definedcontribution plans include profit sharing, stock bonus, money purchases, target benefit,leveraged employee stock ownership plan, and nonleveraged employee stock ownershipplan.

DENIED APPLICANT: An applicant that the IRS does not accept to participate in IRS e-file.An applicant that the IRS denies from participation in IRS e-file has the right to anadministrative review.

DEPENDENCY EXEMPTION: Exemptions allowed that are not for the taxpayer or spouse.DEPENDENT: A person who meets the tests to be either a qualifying child or a qualifying

relative provided by the I.R.C.DEPENDENT CARE CREDIT: A credit that is taken when a taxpayer provides care expenses

to a third party for his or her qualified dependent so that he or she can work, attendschool, or because he or she is disabled. See “CHILD AND DEPENDENT CARECREDIT.”

DEPLETION: Deduction allowed for the exhaustion of natural resources due to extraction and use to produce taxable income.

DEPOSITOR ACCOUNT NUMBER (DAN): The financial institution account to which a DirectDeposit refund is to be routed.

DEPRECIABLE ASSET: Tangible or intangible personal or real property used in business or held to produce taxable income that can be expected to last for more than one year, towear out, become obsolete or otherwise lose value eventually.

DEPRECIATION: A method of recovering cost on a depreciable asset. It is an estimate of decrease in the value of an asset.

DIGITAL SIGNATURE: An electronic signature based upon cryptographic methods of origi-nator authentication, computed by using a set of rules and a set of parameters such thatthe identity of the signer and the integrity of the data can be verified. The digital signaturemust be consistent with Federal Information Processing Standards for digital signaturesadopted by the National Institute for Standards and Technology and includes use of thedigital signature algorithm, the RSA digital signature, and the elliptic curve digitalsignature algorithm to verify and validate digital signatures.

DIRECT DEPOSIT: An electronic transfer of a refund into a taxpayer's financial institutionaccount.

DISASTER INCIDENTS: Reflects events for which the Federal Emergency ManagementAgency designated as major disaster areas and the IRS granted administrative tax relief.

DISCLOSURE AUTHORIZATIONS: Eligible tax practitioners may electronically request authorization to receive a client’s tax account information or to represent the client beforethe IRS. This e-service expedites processing and issues a real-time acknowledgment ofaccepted submissions.

DIVIDEND: Profits distributed to stockholders for shares held in a corporation.

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DUE DILIGENCE: Due Diligence, when used in context with the Earned Income Tax Credit(EITC), refers to requirements that income tax return preparers must follow when preparingreturns or refund claims that involve EITC.EARNED INCOME: Income received in its various forms solely as a result of services rendered.EARNED INCOME CREDIT: A "refundable" credit for payment of taxes allowed by Congress

to those taxpayers meeting certain requirements of filing status, income, and, dependingon the degree of qualification, member(s) of household. This credit is often called EarnedIncome Tax Credit or simply EIC.

EDUCATION IRA: See “COVERDELL EDUCATION SAVINGS ACCOUNT.”EITC RECERTIFICATION: A requirement for a taxpayer previously denied EITC to provide

additional information on Form 8862, Information to Claim Earned Income Tax CreditAfter Disallowance, when they file a similar EITC claim on a subsequent return.

ELECTRONIC FEDERAL TAX PAYMENT SYSTEM (EFTPS): A free service from the U.S.Treasury through which federal taxes may be paid. The taxpayer can pay taxes via theInternet, by phone or through a service provider. After authorization, EFTPSelectronically transfers payments from the authorized bank account to the Treasury’sgeneral account.

ELECTRONIC FILING IDENTIFICATION NUMBER (EFIN): An identification numberassigned by the IRS to accepted applicants for participation in IRS e-file.

ELECTRONIC FILING PERSONAL IDENTIFICATION (PIN): Can be used in lieu of the prior-year adjusted gross income to verify a taxpayer's identify for electronic filing.

ELECTRONIC FUNDS TRANSFER (EFT): The process through which Department of theTreasury transmits Direct Deposit refunds from the government to the taxpayer's accountat a financial institution.

ELECTRONIC FUNDS WITHDRAWAL (EFW): A payment method that allows the taxpayerto authorize the U.S. Treasury to electronically withdraw funds from their checking orsavings account.

ELECTRONIC POSTMARK: The Electronic Postmark is the date and time the Transmitterfirst receives the electronic return on its host computer in the Transmitter's time zone. Thetaxpayer adjusts the time to their time zone to determine timeliness.

ELECTRONIC RETURN ORIGINATOR (ERO): An Authorized IRS e-file Provider thatoriginates the electronic submission of returns to the IRS.

ELECTRONIC SIGNATURE: A method of signing an electronic message that identifies andauthenticates a particular person as the source of the electronic message and indicatessuch person’s approval of the information contained in the electronic message.

ELECTRONIC SIGNATURE PAD: An electronic device with a touch sensitive LCD screenwhich allows users to acquire and register a signature or any other physical signaturecapture device that captures and converts a signature into an electronic format.

EMPLOYEE: A person working for another person or for other people or a corporation underthe control of that person, those persons or that corporation as to what work shall be one,as well as how and when to do it.

ESOP (EMPLOYEE STOCK OWNERSHIP PLAN): An ESOP is essentially a defined contri-bution plan whose funds must be invested primarily in employer securities. An ESOP mayborrow from the employer or use the employer's credit to acquire employer securities.

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ESTATE TAX: A tax imposed heirs of on and assessed on the value of property owned by a decedent at the time of his or her death. A unified estate and gift tax credit eliminates theneed for most taxpayers to actually pay the tax.

ESTIMATED TAX: The amount of tax an individual should pay as an estimated tax liability that will not be paid through withholding.

EXAMINATION: An IRS examination (audit) is a review of an organization's or individual's accounts and financial information to ensure information is being reported correctly,according to the tax laws, to verify the amount of tax reported is accurate.

EXCESS ITEMIZED DEDUCTIONS: The amount by which the total itemized deductions exceed the zero bracket amount. This is not applicable to returns due after 1987.

EXCLUSION: Part of certain types of income received that is not includable in income for tax purposes.

EXEMPTION: An amount of income taken as a reduction to arrive at taxable income. For 2015 returns not filed for dependents, this figure is generally $4,000 for the taxpayer,spouse (if applicable) and for each dependent unless subjected to the phaseout.

EXPECTED RETURN: An amount of regular income that the recipient of an annuity can expect to receive as a result of the amount of money on deposit, the gender, the method ofannuitization, and the guaranteed rate of return.

EXTENSION: See “AUTOMATIC SIX MONTH EXTENSION.”FAIR MARKET VALUE: The price a willing buyer would pay a willing seller of property,

if neither was under compulsion to buy or sell, and both had sufficient informationconcerning the value of the property.

FIDUCIARY: An individual acting on behalf of an estate or trust to manage the property of it.

FIELD EXAMINATIONS: Examinations (audits) generally performed in person by revenueagents, tax compliance officers, tax examiners, and revenue officer examiners. However,some field examination cases may ultimately be conducted through correspondence inorder to better serve the taxpayer.

FINANCE CHARGES: Amounts paid over and above cost that are added for the convenience of paying for property, services or for returning borrowed money on a deferred basis.

FINANCIAL INSTITUTION: For the purpose of Direct Deposit of tax refunds, the IRS definesa financial institution as a state or national bank, savings and loan association, mutualsavings bank or credit union. Only certain financial institutions and certain kinds ofaccounts are eligible to receive Direct Deposits of tax refunds.

FIRST-TIME HOMEBUYER CREDIT: For 2008, a credit in the form of an interest-free loan of up to $7,500 that must be recaptured over a 15-year period in equal installmentsstarting two years after claiming the credit (in 2010). Other qualifications must be met. For 2009, this credit increased to a maximum of $8,000 that may not have to be repayed. Additionally, this credit was modified to include a credit for certain long-time residents.

FISCAL YEAR: A twelve-month period ending on the last day of a month other than December.FOREIGN CORPORATION: A corporation organized under the laws of somewhere other

than the United States or one of its states or territories.

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FOREIGN EARNED INCOME EXCLUSION: An amount that reduces the total income that would otherwise be shown on Form 1040. This is generally an exclusion of income forfederal tax purposes available for qualifying taxpayers who are U.S. citizens or residentaliens (or those treated as resident aliens) with income within certain limits.

FRAUDULENT RETURN: A "fraudulent return" is a return in which the individual is attemp-ting to file using someone’s name or SSN on the return or where the taxpayer is presentingdocuments or information that have no basis in fact.

FREE FILE: Includes two Free File income tax preparation and electronic filing options: (1) All taxpayers could use Free File Fillable Forms, an electronic version of paper returns thatperforms simple mathematical calculations; and (2) Taxpayers with adjusted grossincomes of $58,000 or less could prepare and file their taxes using commercial onlinesoftware provided though a partnership between the Internal Revenue Service and FreeFile Alliance, LLC, a group of private sector tax software companies. The Free FileFillable Forms and Free File commercial online software are both available throughIRS.gov.

GIFT TAX: A tax levied on gifts in excess of a $14,000 exclusion (2013 through 2015) allowedper donee that may be offset by a unified gift and estate tax credit.

GROSS INCOME: All income subject to tax before any deductions or adjustments.GROSS PROFIT: Gross receipts, less any costs of manufacturing or costs of goods sold and/or

operations if applicable.GROSS RECEIPTS: Total business receipts to be reported on Schedule C or Schedule C-EZ

before any reduction attributable to returns and/or allowances or cost of goods sold.GROUP TERM LIFE INSURANCE: Term life insurance protection (insurance for a fixed

period of time) that 1) provides a general death benefit, 2) is provided to a group ofemployees, 3) is provided under a policy carried by the employer, and 4) provides anamount of insurance for each employee based on a formula that prevents individualselection.

HEAD OF HOUSEHOLD: A filing status used by unmarried taxpayers and qualifying marriedtaxpayers who furnish over half the cost of keeping up a home for a qualifying individual.

HEALTH SAVINGS ACCOUNT: Commonly referred to as an “HSA,” this is an account set up exclusively for paying the qualified medical expenses of the account beneficiary or theaccount beneficiary’s spouse or dependents. To the degree it is deductible, it is anadjustment to income on Form 1040 reported using Form 8889.

HOLDING PERIOD: The period of time that an asset is owned that is used to determinewhether the disposition creates a long-term or a short-term transaction.

HOPE: An education-based tax credit on individual returns starting in 1999. For 2009 returns,the credit can be up to $1,800 per student ($3,600 if a student if a student in a Midwesterndisaster area) for the first two years for qualifying education and expenses for post-econdary education, replaced with the American Opportunity Credit as of 2010.

IDENTITY THEFT: Misuse of someone else’s personal information to obtain new accounts orloans or commit other crimes.

IMPUTED INTEREST: Interest considered to be included in principal if that stated is less than that required by law.

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INCLUSION AMOUNT: An amount that reduces the business deduction for payments made on automobiles leased for a minimum of 30 days and lease charges are deducted as abusiness expense. The amount is based on an IRS table found in Publication 463.

INCOME AVERAGING: A usually tax-reducing method of computing taxes in a year when a qualifying lump-sum distribution is reportable on the return of a qualifying person.

INCOME IN RESPECT OF A DECEDENT: Any income that a decedent had a right to receivehad death not occurred that is not includable on the decedent’s final return; but rather,on the return of a beneficiary or the decedent’s estate.

INDIVIDUAL RETIREMENT ARRANGEMENT (Traditional): Often referred to as anIndividual Retirement Account by banks or an Individual Retirement Annuity byinsurance companies, this is a vehicle in which contributions can be made that aredeductible from gross income as an adjustment, provided certain conditions are met. Thecontributions may or may not be deductible due to changes brought about by theTaxpayer Relief Act of 1998 and modified each year. These "arrangements" arecommonly referred to simply as IRAs.

INDIVIDUAL TAXPAYER IDENTIFICATION NUMBER (ITIN): A number issued to an individual by the IRS in leu of a social security number, generally issued to nonresidentsor to resident aliens who do dot have or who do not qualify to obtain a social securitynumber. To obtain an ITIN, complete IRS Form W-7, Application for IRS IndividualIdentification Number.

INFORMATION RETURNS: Taxpayer information from information return forms andschedules is matched to that reported on income tax returns under the AutomatedUnderreporter Program and the Automated Substitute for Return Program. IncludesForms 1042–S (foreign person’s U.S. source income subject to withholding); the Form1098 series (including mortgage interest, student loan interest, and tuition payments); theForm 1099 series (including interest and dividend distributions); the Form 5498 series(including individual retirement arrangement and medical savings account information);Forms W–2 (wage and tax statements); Forms W–2G (certain gambling winnings); andSchedules K–1 (partnership, S corporation, and estate or trust distributions). Informationfrom these forms and schedules is matched to that reported on income tax returns.

INJURED SPOUSE: The spouse whose portion of a joint income tax overpayment was or will be used to offset a tax or nontax debt for which he/she is not liable.

INNOCENT SPOUSE CASE IN APPEALS: A case in which a taxpayer who filed a joint return with a spouse or ex-spouse may apply for relief of tax, interest, and penalties if he/shemeets specific requirements. An Innocent Spouse case in Appeals is one in which thetaxpayer requested and was denied innocent spouse relief by the IRS.

INSTALLMENT METHOD: A method of reporting gains from a sale where all of the proceedsare not received or taxed in the year of the sale.

INTANGIBLE PERSONAL PROPERTY: Personal property that cannot be seen or touched with a value based on the rights had to it.

INTEREST: An amount (usually money, but not necessarily) paid in exchange for the privilegeof using someone's else's money.

INTERNAL REVENUE SERVICE: The division of the U.S. Treasury Dept. which isresponsible for collecting taxes. It is commonly referred to as IRS.

INVENTORY: Stock used in a trade or business held generally for resale.

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INVESTMENT CREDIT: A credit allowed when a purchase has been made of tangibleproperty that is to be used in a trade or business. With the exception of carryovers, it waspractically eliminated in 1986.

INVOLUNTARY CONVERSION: The act of disposing of property that is not controlled by the holder of it, usually due to condemnation, casualty or theft.

IRA: See "INDIVIDUAL RETIREMENT ARRANGEMENT".IRC: Internal Revenue Code.IRS: See "INTERNAL REVENUE SERVICE".IRS e-file: The brand name of the electronic filing method established by the IRS.IRS e-file MARKETING TOOL KIT: A specially designed kit containing professionally deve-

loped material that EROs may customize for use in advertising campaigns andpromotional efforts.

IRS MASTER FILE: A centralized IRS database containing taxpayers' personal return infor-mation.

ITEMIZED DEDUCTIONS: Reductions in the adjusted gross income to arrive at an amount from which only exemptions must be taken to arrive at taxable income. This amount isdeducted rather than the standard deduction by taxpayers who either qualify to or whoshould (possibly, because of a requirement) itemize their deductions.

JOINTLY OWNED PROPERTY: Property owned rightfully by more than one person.JOINT RETURN: A return combining all tax-related information of a husband and a wife.KEOGH PLAN: A retirement plan for self-employed taxpayers that provides tax deductible

contributions, tax deferred accumulation until withdrawal, and tax-favored averaging forlump-sum distributions.

KIDDIE TAX: Tax on investment income of certain minor children that is based on a parent’s rate.

LEGALLY SEPARATED: A married couple forced to live apart under a decree of separate maintenance.

LIFETIME LEARNING CREDIT: An education-based tax credit on individual tax returnsavailable after June 30, 1999, of up to $1,000 per taxpayer (up to $2,000 per taxpayerstarting in the year 2,003, an up to $4,000 if a student in a Midwestern disaster area) forcollege or other continuing education. Other stipulations apply.

LIKE-KIND PROPERTY: Properties that are of the same type used either as an investment or part thereof, or used in a trade or business.

LONG-TERM GAIN (LOSS): Generally, gain or (loss) from the sale or exchange of propertyheld for more than one year. Other stipulations may apply.

LUMP-SUM DISTRIBUTION: Money received totally in one year from a pension or profit-sharing plan funded by an employer.

MACRS: See "MODIFIED ACCELERATED COST RECOVERY SYSTEM".MAKING WORK PAY CREDIT: A credit figured on a taxpayer’s 2010 return if there was

earned income from work and the total AGI did not exceed certain limits. The credit is6.2% of the earned income but cannot exceed $400 ($800 if married filing jointly) Thiscredit is figured using Schedule M unless the taxpayer is filing using Form 1040-EZ. Thiscredit is not available for returns due after December 31, 2011.

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MATERIAL PARTICIPATION TESTS: Rules for making a determination as to whether a taxpayer is an active participant in a business or other income-producing activity forapplying passive loss limits.

MEDICAL SAVINGS ACCOUNT (MSA): See “ARCHER MEDICAL SAVINGS ACCOUNT.”MERCHANDISING BUSINESS: The business of retail trade.MINIMUM TAX: A tax on certain tax preference items. Now, “Alternative Minimum Tax.”MODIFIED ACCELERATED COST RECOVERY SYSTEM: A method of depreciation which

generally applies to all tangible property placed in service after December 31, 1986. Thismethod is often referred to simply as MACRS.

MODIFIED ADJUSTED GROSS INCOME (MAGI): AGI increased by certain items and usedto figure certain deductions and credits.

MONEY PURCHASE RETIREMENT PLAN: A defined contribution retirement plan under which employer contributions are based on a fixed percentage of compensation.Contributions are required every year, regardless of earnings and profits.

MONITORING: Activities the IRS performs in order to ensure that Authorized IRS e-fileProviders are in compliance with the IRS e-file requirements. Monitoring may include,but is not limited to, reviewing IRS e-file submissions, investigating complaints,scrutinizing advertising material, checking signature form submissions and/orrecordkeeping, examining records, observing office procedures and conducting periodicsuitability checks. IRS personnel perform these activities at IRS offices and at the officesof Providers.

MORTGAGE INTEREST (HOME): Generally, any interest paid on a loan that is secured by a taxpayer’s main or second home.

MOVING EXPENSES: An adjustment on Form 1040 that allows certain expenses incurred asa result of a job-related move to be deducted.

MUNICIPAL BONDS: A bond obligation of a state or one of its political subdivisions, the district of Columbia, a possession of the U.S. or one of its political subdivisions, exemptfrom federal income tax.

MUTUAL FUND: A company which shares its income derived from the buying and selling of stocks with those who invest in it. A mutual fund is also called a regulated investmentcompany.

NAME CONTROL: The first four significant letters of a taxpayer's last name that the IRS usesin connection with the taxpayer SSN to identify the taxpayer, spouse and dependents.

NET INVESTMENT INCOME TAX (NIIT): A 3.8% tax on the lesser of net investment incomeor the excess of a taxpayer’s modified adjusted gross income over a threshold amount.

NET OPERATING LOSS: A business or casualty net loss for the year.NEW YORK LIBERTY ZONE: Lower Manhattan South of Canal Street, and on or South

of East Broadway and Grand Street where these intersect with Canal Street. Businessesand property owners in this area (the Liberty Zone) are entitled to special depreciationallowance deductions in the wake of the September 11th attacks.

NOMINEE: One who receives interest or dividends in his/her name but distributes all or part thereof to another entity who should federal income tax on the money.

NONQUALIFYING CORPORATION: Tax exempt corporations, foreign corporations, tax-exempt farmer's cooperatives, and the like, whose dividends under pre-TRA of 1986, didnot qualify for the dividend exclusion.

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NONQUALIFYING DIVIDEND: A dividend that does not qualify for exclusion under pre-TRA of 1986 tax law.

NONTAXABLE RETURNS: Returns filed for entities that generally do not have a tax liability, but pass through any profits and losses to the underlying owners who include these profitsor losses on their income tax returns. These entities include most partnerships and Scorporations, along with nontaxable estate and trusts (fiduciaries), domestic internationalsales corporations, and real estate mortgage investment conduits

NONRECOVERY PROPERTY: Tangible depreciable property held for business or investmentplaced in service before 1981 or otherwise not qualifying as recovery property.

NONRESIDENT ALIEN: An individual who is not a resident and who is not a citizen of the United States.

NONTAXABLE DISTRIBUTION: A return of capital or a tax-free distribution of additional shares of stock or stock rights.

NONTAXABLE EXCHANGE: An exchange involving no taxable gain or loss.NONTAXABLE PENSION: Pension paid from the Social Security Administration, Railroad

Retirement Board, or the Veterans Administration.OFFER IN COMPROMISE: A proposal by a taxpayer to the Federal Government that would

settle a tax liability for payment of less than the full amount owed. Absent specialcircumstances, an offer will not be accepted if the IRS believes the liability can be paid infull as a lump sum or through a payment agreement.

OFFICE OF PROFESSIONAL RESPONSIBILITY CASE IN APPEALS: A tax professional may appeal the findings of the IRS Office of Professional Responsibility (OPR). OPR hasoversight responsibility for tax professionals and investigates allegations of misconductand negligence against attorneys, certified public accountants, enrolled agents, and otherpractitioners representing taxpayers before the IRS. In addition, IRS e-file applicants andproviders may request an administrative review when the applicant is denied participationin IRS e-file or the provider is sanctioned while participating in IRS e-file. For moreinformation see Appeals.

ONLINE E-FILE: A filing option that allows taxpayers to prepare and file tax returns using a personal computer. Online returns can be filed through one of two processes: taxpayerseither complete a tax return on a Website without downloading any software, or taxpayerspurchase and load software onto their personal computers, prepare their returns, andtransmit them to the IRS through an online filing company.

ORDINARY AND NECESSARY: A requirement by law for the deductibility of a businessexpense.

ORDINARY GAIN: Gain realized from the sale or exchange of a non-capital or an ordinary asset.

ORDINARY INCOME: Income taxed at other than a capital gain rate.ORDINARY LOSS: Loss realized from the sale or exchange of a non-capital or an ordinary

asset.ORIGINAL ISSUE DISCOUNT (OID): The difference between the maturity value of a bond

and its pr

2016 on-line fundamental individual federal income...

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