Q1. All of the following income items are federally taxable EXCEPT:

A $16,000 distribution from a public pension plan.

Income in the amount of $12,000 from an illegal activity.

A wedding gift from a non-relative in the amount of $10,000.

Interest on a certificate of deposit in the amount of $550.

Q2. Which taxpayer(s) will be required to file a 2020 federal income tax return? None of the individuals are blind.

Patrick (58) has gross income of $18,900. He will file as head of household.

Beatrice (68) has gross income of $19,150. She will file as head of household.

Mark (71) and Darius (62) are married and have gross income of $25,500. They lived together all year and will file a joint return.

Michael (72) and Dee (68) are married and have gross income of $26,950. They lived together all year and will file a joint return.

Q3. Failure to meet the due diligence requirements when determining eligibility for the Child Tax Credit, Earned Income Tax Credit, American Opportunity Tax Credit, and head of household filing status could result in a penalty for a return filed in 2021 for Tax Year 2020 of:

$50, per return, assessed towards the taxpayer.

$500, per return, assessed towards the tax preparer.

$520, per return, assessed towards the taxpayer.

$530, for each item on each return, assessed towards the tax preparer.

Q4. Pamelia (21) is a full-time undergraduate student pursuing an accounting degree at her state university. During the year, she received a $6,500, unrestricted scholarship, reported to her on Form 1098-T rather than Form W-2. She spent $5,500 of the scholarship funds on her current-year tuition, and she applied the rest to room and board. Pamelia also had income from a part-time job, and she is required to file a 2020 tax return. How does she report the scholarship on her Form 1040?

None of Pamelia's scholarship is included in her taxable income or reported on her return.

She should enter "SCH" and $1,000 on the dotted line next to line 1 of Form 1040.

She should enter "SCH" and $1,000 on the dotted line next to line 4 of Schedule 1 (Form 1040).

She should enter "SCH" and $6,500 on the dotted line next to line 8 of Schedule 1 (Form 1040).

Q5. Keith (54) has not yet reached the minimum retirement age. However, he suffers from a debilitating illness and retired on disability in 2020. While he was working, his employer paid for his disability policy with pre-tax dollars. How are Keith's disability pension benefits reported on his tax return?

Keith's disability pension benefits are neither taxable nor reportable.

As wages on line 1 of Form 1040.

As pension income on line 4d of Form 1040.

As other income on line 8 of Schedule 1 (Form 1040).