Pub 54

1. As a U.S. citizen or resident alien, your worldwide income generally is subject to U.S. income tax, regardless of where you are living.

True False

2. An individual who is not a citizen or national of the United States and who meets either the green card test or the substantial presence test for the calendar year.

A. A permanent resident.
B. A resident alien.
C. A U.S. citizen.
D. A temporary resident.

3. To be considered a resident alien an individual must meet which test (s)?

A. No test is needed as long as the individual has U.S. income.
B. Either the green card test or the substantial presence test.
C. The substantial presence test only.
D. The green card test only.

4. You are considered a U.S. resident if you meet the substantial presence test for the calendar year. To meet this test, you must be physically present in the United States on at least

A. 31 days during the current year.
B. 183 days during the current year and the 2 preceding years.
C. Counting all the days of physical presence in the current year, but only 3 days of presence in the first preceding year, and only 1/6 the number of days in the second preceding year.
D. Only A and B above.

5. Juan was physically present in the United States on 120 days in each 2008, 2009, and 2010. To determine if Juan meets the substantial presence test for 2010, count the full 120 days of presence in 2010, 40 days in 2009 (1/3 of 120) and 20 days in 2008 (1/6 of 120). As a result

A. Juan is considered a resident under the substantial presence test for 2010.
B. Juan is not considered a resident under the substantial presence test for 2010.
C. Juan's total for the 3-year period was 183 days so he is not considered a resident under the substantial presence test for 2010.
D. None of the above.

6. If you are a U.S. citizen or resident alien, the rules for filing income, estate, and gift tax returns and for paying estimated tax are generally the same whether you are in the United States or abroad.

True False

7. Your income, filing status, and age generally determine whether you must file an income tax return. If you are single, age 27, you must file an income tax return if your income from worldwide sources is at least

A. $9,350.
B. $11,500.
C. $8,950.
D. $10,750.

8. You must make all federal income tax determinations in your functional currency. The U.S. dollar is the functional currency for all taxpayers except some qualified business units (QBUs). A QBU is a separate and clearly identified unit of a trade or business that maintains separate books and records. Even if you have a QBU, you functional currency is the dollar if

A. You conduct the business in U.S. dollars and the principal place of business is located in the United States.
B. You choose to or are required to use the U.S. dollar as your functional currency.
C. The business books and records are not kept in the currency of the economic environment in which a significant part of the business activities are conducted.
D. Any of the above.

9. Make all income tax determinations in your functional currency. Use the exchange rate prevailing when you receive, pay, or accrue the item. If there is more than one exchange rate, 

A. Use the rate that is higher and more advantageous.
B. Use the rate that was previously approved by the IRS.
C. Use the rate that most properly reflects your income.
D. Either A or B are correct.

10. If your functional currency is not the U.S. dollar, make all income tax determinations in your functional currency. At the end of the year,

A. Report your income in your currency and write in red ink "Used my currency" across the top of the first page of your return.
B. Translate the results, such as income or loss, into U.S. dollars to report on your income tax return.
C. Postpone the reporting of the income until functional currency can be determined.
D. None of the above.

11. If, because of restrictions in a foreign country, your income is not readily convertible into U.S. dollars or into other money or property that is readily convertible into U.S. dollars or into other money or property that is readily convertible into U.S. dollars, your income is "blocked" or "deferrable" income. You can

A. Report the income and pay your federal income tax with U.S. dollars that you have in the United States or in some other country.
B. Postpone the reporting of the income until it becomes unblocked.
C. Use the one that most properly reflects your income.
D. Either A or B above.

12. If you choose to postpone the reporting of foreign income that is blocked, you must file an information return with your tax return. For this information return, you should use

A. Form 673.
B. Form 2555 or Form 2555-EZ.
C. Another Form 1040 labeled "Report of Deferrable Foreign Income, pursuant to Rev. Rul. 74-351".
D. All of the above.

13. If you choose to postpone reporting blocked income and in a later year you wish to begin including it in gross income although it is still blocked, you

A. Must figure the amount you can pay to the IRS in nonconvertible foreign currency.
B. Should check to see whether that income is still blocked.
C. Must file Form 2555  or Form 2555-EZ.
D. Must obtain the permission of the IRS to do so.

14. Returns with a foreign address cannot be e-filed.

True False

15. If, at the end of the tax year, you are married and one spouse is a U.S. citizen, or resident alien and the other is a nonresident alien, you can choose to treat the nonresident as a U.S. resident. If you make this choice, 

A. You and your spouse are treated, for income tax purposes, as residents for all tax years that the choice is in effect.
B. You must file a joint income tax return for the year you make the choice.
C. Neither of you can claim tax treaty benefits as a resident of a foreign country for a tax year for which the choice is in effect.
D. All of the above.

16. If you do not choose to treat your non-resident alien spouse as a U.S. resident, you may be able to use the

A. Single filing status.
B. Head of Household filing status.
C. Married filing jointly filing status.
D. Any of the above.

17. Sarah Jimenez, a U.S. citizen, is married to Arcadio, a non-resident alien. Sarah and Arcadio make the choice to treat Arcadio as a resident alien by attaching a statement to their joint return. Sarah and Arcadio must report their worldwide income for the year they make the choice and for all later years unless the choice is ended or suspended. For the year they make the choice, Sarah and Arcadio

A. Must file separate returns.
B. Can file either joint or separate returns.
C. Must file a joint return.
D. None of the above.

18. If you choose to treat your non-resident alien spouse as a U.S. resident attach a statement, signed by both spouses to your joint return for the first tax year for which the choice applies. The statement should contain

A. A declaration that one spouse was a non-resident alien and the other spouse a U.S. citizen or resident alien on the last day of your tax year.
B. A declaration that you choose to be treated as U.S. residents for the entire tax year.
C. The name, address, and social security number (or individual taxpayer identification number) of each spouse.
D. All of the above.

19. The choice to be treated as a resident alien does not apply to any later tax year if neither of you is a U.S. citizen or resident alien at any time during the later tax year.

True False

20. Once made, the choice to be treated as a resident applies to all later years and cannot be suspended.

True False

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46. Members of the Armed Forces receive many different types of pay and allowances which are always excluded from gross income.

True False

47. If you are a U.S. citizen with income from sources outside the United States (foreign income), you must report all of that income on your tax return, unless

A. You reside outside the United States.
B. You do not receive a Form W-2 or Form 1099.
C. The amounts that the U.S. law allows you to exclude.
D. This income is unearned income such as interest, dividends, capital gains, pensions, rents or royalties.

48. Certain taxpayers can exclude income earned in foreign countries. For 2010, this exclusion amount can be as much as $91,500. The foreign earned income exclusion applies to

A. The wages and salaries of military and civilian employees of the U.S. government.
B. Those who work at United States Armed Forces exchanges.
C. Armed Forces motion picture services, and similar personnel.
D. None of the above.

49. Residents of American Samoa may be able to exclude income from American Samoa, and this possession exclusion applies to wages and salaries of military employees of the U.S. Government.

True False

50. The pay you earn as a member of the Armed Forces may be subject to community property laws depending on

A. Your marital status.
B. Your domicile.
C. The nature of the payment.
D. All of the above.

51. Community property rules apply to married persons whose domicile during the tax year was in a community property state. The rules may affect your tax liability if you

A. File separate return.
B. Are divorced during the year.
C. Either A or B above.
D. File Married Filing Jointly.

52. Active duty military pay is subject to community property laws.

True False

53. To deduct moving expenses, you generally must meet certain time and distance tests unless you are member of the Armed Forces on active duty and you move because of a permanent change of station. A permanent change of station is

A. A move from your home to your first post of active duty.
B. A move from one permanent post of duty to another.
C. A move from your last post of duty to your home or to a nearer point in the United States.
D. All of the above.

54. If you move because of a permanent change of station, you can deduct the reasonable unreimbursed expenses of moving you and members of your household. You can deduct expenses for

A. Moving household goods and personal effects.
B. Travel.
C. Both A and B above.
D. Moving household goods, travel and entertainment.

55. If you are an enlisted member, warrant officer, or commissioned warrant officer, you can exclude amounts from your income such as

A. Active duty pay earned in any month you served in a Combat Zone.
B. Awards for suggestions, inventions, or scientific achievements you are entitled to because of a submissions you made in a month you served in a Combat Zone.
C. A reenlistment bonus if the voluntary extension or reenlistment occurs in a month you served in a Combat Zone.
D. Any of the above.

56. The following types of military qualify as service in a Combat Zone.

A. Presence in a Combat Zone while on leave from a duty station located outside the Combat Zone.
B. Passage over or through a Combat Zone during a trip between two points that are outside a Combat Zone.
C. Presence in a combat zone solely for your personal convenience.
D. None of the above.

57. Military service outside a combat zone is considered to be performed in a combat zone if

A. The Department of Defense designates that the service is in direct support of military operations in the combat zone.
B. The service qualifies you for special military pay for duty subject to hostile file or imminent danger.
C. Both A and B above.
D. The pay is verifiable by reference to military pay records.

58. For tax purposes, an alien is an individual who is not a U.S. citizen. An alien is in one of three categories: resident, nonresident, or dual-status. The following is a true statement regarding alien status.

A. Aliens who are in the United States only because of military assignments and who have a home outside the United States are resident aliens.
B. Placement in the correct category is crucial in determining what income to report and what forms to file.
C. Under peacetime enlistment rules, you can enlist in the Armed Forces no matter if you have not been admitted to the United States for Permanent residence.
D. Most members of the Armed Forces are either U.S. citizens, resident aliens or nonresident aliens.

59. A nonresident alien spouse can be treated as a resident alien if

A. One spouse is a U.S. citizen or resident alien at the end of the tax year.
B. That spouse is living together with the nonresident alien at the end of the tax year.
C. The nonresident alien chooses to be treated as a nonresident alien.
D. All of the above.

60. To treat a nonresident alien spouse as resident alien both you and your spouse must sign a statement and attach it to your joint return for the first tax year for which the choice applies with

A. A declaration that one spouse was a nonresident alien and the other was a U.S. citizen or resident alien on the last day of the year.
B. A declaration that both spouses choose to be treated as U.S. residents for the entire tax year.
C. The name, address, and taxpayer identification number of each spouse.
D. All of the above.

61. If you are an alien who does not meet the requirements to a resident alien, you are a nonresident alien. If you are required to file a federal tax return, you must file

A. Form 1040.
B. Form 1040NR (or 1040NR-EZ).
C. Form 1040EZ.
D. You cannot file a tax return.

62. If you are a member of the U.S. Armed Forces on a permanent duty assignment overseas, you are not traveling away from home. Therefore,

A. You cannot deduct your expenses for meals and lodging while at your permanent duty station.
B. You can deduct your expenses for meals and lodging if you have to maintain a home in the United States for your family members who are not allowed to accompany you overseas.
C. You have a home aboard ship for travel expense purposes.
D. You can deduct expenses for personal travel, such as visits to family while on furlough, leave, or liberty.

63. Transportation expenses include the ordinary and necessary costs of

A. Getting from one workplace to another when you are not away from home.
B. Going to a business meeting away from your regular workplace.
C. Getting from your home to a temporary workplace when you have a regular place of work.
D. All of the above

64. A meeting of an Armed Forces reserve unit is a second place of business if the meeting is

A. Held on a day on which you do not work at your regular job.
B. Held on a day on which you work at your regular job.
C. Held in a temporary location and you do not have one or more regular places of work.
D. Held at a temporary location inside your metropolitan area.

65. The tax liability can be forgiven, or if already paid, refunded, if a member of the U.S. Forces dies

A. While in active service in a combat zone.
B. From wounds, disease, or other injury received in a combat zone.
C. From wounds or injury incurred in a terrorist or military action.
D. Any of the above.

66. If a member of the Armed Forces dies, a surviving spouse or personal representative handles duties such as filing any tax returns and claims for refund of withheld or estimated tax.

True False

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21. In general, U.S. social security and Medicare taxes do not apply to wages for services you perform as an employee outside of the United States unless

A. You perform the services on or in connection with an American vessel or aircraft and either you entered into your employment contract in the U.S. or the vessel or aircraft touches at a U.S. port while you are employed on it.
B. You are working in one of the countries with which the U.S. has entered into a bi-national social security agreement.
C. You are working for a U.S. employer or you are working for a foreign affiliate of an American employer under a voluntary agreement entered into between the U.S. employer on the U.S. Treasury Department.
D. Any of the above.

22. A U.S. employer includes

A. The U.S. government or any of its instrumentalities.
B. A partnership of which at least two-thirds of the partners are U.S. residents.
C. A trust of which all the trustees are U.S. residents.
D. Any of the above.

23. You are employed on an offshore oil rig in the territorial waters of a foreign country and work a 28-day on/28-day off schedule. You return to your family residence in the United States during your off periods. As a result,

A. You can claim the foreign earned income exclusion.
B. You can claim the foreign housing exclusion or deduction.
C. You cannot claim either of the exclusions or the housing deductions.
D. None of the above.

24. You are not considered a bona fide resident of a foreign country if you make a statement to the authorities of that country that you are not a resident of that country, and

A. The authorities hold that you are not subject to their income tax laws as a resident.
B. The authorities have not made a final decision on your status.
C. The authorities have an international agreement that will not itself prevent you from being a bona fide resident of a foreign country.
D. Either A and B above.

25. This is the general area of your main place of business, employment, or post of duty, regardless of where you maintain your family home. It is also the place where you are permanently or indefinitely engaged to work as an employee or a self-employed individual.

A. Your residence.
B. Your tax home.
C. Your country.
D. None of the above.

26. You are in business abroad as a consultant and qualify for the foreign earned income exclusion. Your foreign earned income is $95,000, your business deductions total $27,000 and your net profit is $68,000.

A. You don't need to pay self-employment tax on all of your net profit because the income from abroad is an amount you can exclude. 
B. You must pay self-employment tax on all of your net profit, including the amount you can exclude from income.
C. You must pay self-employment tax on all of your net profit, except on the amount you can exclude from income.
D. None of the above.

27. If you are present in a foreign country in violation of U.S. law, you will not be treated as a bona fide resident of a foreign country or as physically present in a foreign country while you are in violation of law.

True False

28. Foreign earned income includes the following amounts.

A. The value of meals an lodging that you exclude from your income because it was furnished for the convenience of your employer.
B. Pension or annuity payments you receive, including social security benefits.
C. Pay you receive as an employee of the U.S. government.
D. None of the above.

29. The foreign earned income exclusion is voluntary. You can choose the exclusion by completing the appropriate parts of Form 2555. Your initial choice of the exclusion on Form 2555 (or Form 2555-EZ) generally must be made with 

A. A return filed by the due date (including any extensions).
B. A return amending a timely-filed return.
C. A return filed within 1 year from the original due date of the return (determined without regard to any extensions).
D. Any of the above.

30. You can take either a credit or a deduction for income taxes paid to a foreign country or a U.S. possession.

True False

31. U.S. Citizens and resident aliens living outside the United States are not allowed the same deductions as citizens and residents living in the United States.

True False

32. You can claim an exemption for your nonresident alien spouse on your separate tax return                                         

A. Provided your spouse has no gross income for U.S. tax purposes.
B. Provided your spouse is a dependent of another U.S. taxpayer.
C. Provided your spouse has gross income for U.S. tax purposes and is not the dependent of another U.S. taxpayer.
D. Provided that your spouse is a resident of Canada, Mexico or the United States.

33. I you make contributions directly to a foreign church or other foreign charitable organization, you generally cannot deduct them unless they are to   

A. Canadian Organizations
B. Israeli Organizations
C. Mexican Organizations
D. Any of the above.

34. If you choose to exclude foreign earned income or housing amounts, you cannot deduct, exclude, or claim a credit for

A. Personal exemptions.
B. Any item that can be allocated to or charged against the excluded amounts.
C. Medical expenses.
D. Real estate taxes on your personal residence.

35. Contributions to your individual retirement arrangements (IRAs) that are traditional IRAs or Roth IRAs are generally limited to the lesser of $5,000 ($6,000 if 50 or older in 2010) or your compensation that is includable in your gross income for the tax year. In determining compensation for this purpose,

A. Do not take into account amounts you exclude under either the foreign earned income exclusion or the foreign housing exclusion.
B. Do not reduce your compensation by the foreign housing deduction.
C. Both A and B above.
D. Take into account amounts you exclude under either the foreign earned income exclusion or the foreign housing exclusion.

36. Instead of taking the foreign tax credit, you can deduct foreign income taxes as an itemized deduction on Schedule A (Form 1040). You can deduct only foreign income taxes paid on income that is subject to U.S. tax. You cannot deduct foreign taxes paid on earnings you exclude from tax under

A. The foreign earned income exclusion.
B. The foreign housing exclusion.
C. The possession exclusion.
D. Any of the above.

37. If you have itemized deductions related to excluded income, enter on Schedule A (Form 1040),

A. Only the part not related to excluded income.
B. Only the part that is related to excluded income.
C. None of your deductions.
D. None of the above.

38. The United States has tax treaties or conventions with many countries. Under these treaties and conventions, citizens and residents of the United States who are subject to taxes imposed by the foreign country are      

A. Available to U.S. citizens who do not reside in the United States.
B. Entitled to certain credits, deductions, exemptions, and deductions in the rate of taxes of those foreign countries.
C. Exempt from a treaty country's income tax.
D. Denied treaty benefits.

39. The credits, deductions, exemptions, reductions in rate, and other benefits provided by tax treaties are subject to conditions and various restrictions.

True False

40. I am a U.S. citizen and have no taxable income from the United States, but I have substantial income from a foreign source. Am I required to file a U.S. income tax return?

A. Yes. All U.S. citizens and resident aliens are subject to U.S. tax on their worldwide income.
B. No. U.S. citizens are only subject to U.S. tax on their U.S. income.
C. No. You are only obligated to pay taxes to the foreign country to avoid double taxable.
D. No. You are not obligated to pay unless you qualify under a tax treaty.

41. Rosa is a U.S. citizen. She has lived abroad for a number of years and recently realized that she should have been filing U.S. income tax returns. How does she correct this oversight in not having filed returns for these years?

A. File only the current year tax return.
B. File only the tax returns for the previous three years.
C. File the late returns as soon as possible, stating her reason for filing late.
D. Contact the IRS immediately to let them know that she is out of the country and that she is not obligated to file.

42. Jim is going abroad this year and expects to qualify for the foreign earned income exclusion. What form is he required to use?

A. No special form is required, just file Form 1040.
B. He should file Form 2555 by the due date of his return.
C. No action is needed since he will qualify for the foreign earned income exclusion.
D. None of the above.

43. Lupe's company pays her foreign income tax on her foreign earnings. Is this taxable compensation?

A. Yes. The amount is compensation for services performed.
B. The tax paid by her company should be reported on Form 1040, line 7.   
C. The tax paid by her company should be reported on Form 2555 (or Form 2555-EZ).
D. All of the above.

44. Resident aliens who are citizens or nationals of a country with which the United States has an income tax treaty in effect cannot qualify under the bona fide residency test.

True False

45. Can I claim a foreign tax credit even though I do not itemize deductions?

A. Yes. You can claim the foreign tax credit even though you do not itemize deductions.
B. No. You must itemize your deductions in order to claim the credit.
C. No. Customs duties, like federal excise taxes are not deductible.
D. No. The IRS representatives are not authorized to allow your credit.

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67. If the decedent's tax liability is forgiven, the personal representative should

A. File Form 1040 if a tax return has not been filed for the tax year.
B. File Form 1040X if a tax return has not been filed for each year to be forgiven.
C. Properly identify the return as the type of military service.
D. All of the above.

68. The following document must accompany all returns and claims for refund in regards to claims for military forgiveness of debt.

A. Form 1310.
B. A certification from the Department of Defense or the Department of State.
C. Both A and B above.
D. A certification that includes the representatives name and social security number.

69. Generally, you must sign your tax return. However, if you are overseas or incapacitated, you can

A. Grant a power of attorney to an agent to file and sign your return.
B. Have your spouse trace your signature on the return.
C. Sign the blank Form 1040 (or applicable forms) early enough so that it can filed by the due date.
D. Any of the above.

70. The deadline for filing tax returns, paying taxes, filing claims of refund, and taking other actions with the IRS is automatically extended if

A. You serve in the Armed Forces on deployment outside the United States in your permanent duty station.
B. You serve in the Armed Forces in a combat zone or you have qualifying service outside of a combat zone.
C. You served in the Armed Forces (period).
D. Any of the above.

71. Deadlines are not extended if you are serving in a combat zone or a contingency operation in support of the Armed Forces, such as to the Red Cross personnel.

True False