# Presentation: 326674

## Lesson 1

**Taxpayer Identification Numbers and Exemptions**

**Notes:**
This lesson contains information for all courses and has been updated for tax year 2007. 

 References:
Form 1040, Form 1040A, and Form 1040EZ and applicable instructions
Form W-7 and Form W-7A, Application for Taxpayer Identification Number 
Form SS-4, Application for Social Security Card 
Form 2120, Multiple Support Declaration
Form 8332, Release of Claim of Exemption for Child of Divorced or Separated Parents 
Publication 4012, Volunteer Resource Guide
Publication 17, Income Tax Guide for Individuals
 Additional References:
Publication 501, Exemptions, Standard Deduction, and Filing Information
Publication 555, Community Property

Progress to the next slide.

## Objectives

- Explain the importance of the taxpayer identification number (TIN)
- Identify the three types of taxpayer identification numbers (TINs)
- Define the terms “personal’’ and “dependency’’ exemption
- Apply the dependency exemption
-  	tests for qualifying child/relative

**Notes:**
State the objectives and provide highlights of what will be discussed under each objective. For example:
Taxpayer Identification Numbers (TINs). All taxpayers and dependents on a return (Form 1040, 1040A, or Form 1040EZ) must have a taxpayer identification number. Returns that do not have TINs will incur processing delays.
Three types of TINs. State the three types of TINs,--SSN, ITIN, ATIN—that will be discussed.
Exemptions. Share the two types—personal and dependency—that will be discussed and explain that each allowable exemption reduces a taxpayer’s taxable income by $3,400 this year. 
Dependency tests. Advise the students to make sure that they apply the rules for the dependency tests.
Show the students a completed Form 13614 in Publication 678 and discuss the information in the text.
Tell the students that worksheets are available to assist them in applying the dependency tax law. 

Progress to the next slide.

## Form 13614–Intake and Interview Sheet: Part I

**Notes:**
Use Form 13614, Intake and Interview Sheet, to engage the taxpayer in preparing an accurate return.
Use the Intake Sheet as a starting point for comprehensive interaction with the taxpayer, in combination with all of the source documents provided by the taxpayer, to ensure quality and accuracy on each return.
Confirm each item on Form 13614 (or similar tool used at your site) to make sure you and the taxpayer have considered all of the necessary information to ensure that all of the questions and issues have been addressed. If items are incorrect or incomplete, revisit the issue and make corrections to the return, as needed.
Ensure the accurate reporting of the taxpayer’s information by confirming the name, date of birth, and taxpayer identification number. If filing a joint return, include the spouse’s information.
Refer students to Determination of Residency Status in the Volunteer Resource Guide, TAB A (Who Must File/Which Form to File) to determine if they should continue to assist the taxpayer or refer him or her to the site coordinator.
Students should understand that they should not try to assist nonresident alien taxpayers unless they have been trained and certified in preparing tax returns such as Form 8843, Form 1040NR, or Form 1040NR-EZ.

Progress to the next slide.

## Form 13614–Intake and Interview Sheet: Part II

**Notes:**
Ensure the accurate reporting of the taxpayer’s dependency information by completing columns (a) thru (g) for each person listed on the return as a dependent. A taxpayer’s return cannot be prepared without this information.

Progress to the next slide.

## Form 13614–Intake and Interview Sheet: Part III

**Notes:**
Probe to ensure that the taxpayer is entitled to claim the dependency exemption for individuals listed on the return.

Progress to the next slide.

## Taxpayer Identification Numbers

- The Taxpayer Will Need
- TINs – What Are They?
- TINs – Who Needs One?
- TINs – How to Obtain Them

**Notes:**
Read the PowerPoint slide and test the students’ knowledge by seeking their responses to the questions. For example:
The taxpayer will need. Restate the critical documents that taxpayers need to bring with them using Form 13614 in Publication 4012 or the text. Note: Using the form in Publication 4012 will make the students aware of where they can find the information at the tax preparation site.
TINs—What are they? Restate the three types of TINs.
TINs—Who needs one? Ask individual students when each type of TIN is required. 
TINs—How to obtain them. Ask students which government agency issues SSNs and which agency issues ITINs and ATINs. Which forms are required to request ITINs and ATINs? 
Teach from pages 1-2 and 1-3.
Emphasize the need for filing returns with correct TINs and the advantages of looking at the taxpayer’s actual documentation from the IRS and/or the Social Security Administration (SSA). For example, social security card(s) are from the SSA and ITIN/ATIN documents are from the IRS.
Discuss the Social Security Cards and Determining the Last Name of Taxpayer to Use in Tax Preparation Software chart in the Volunteer Resource Guide, TAB 1 (Starting TaxWise). 

Progress to the next slide.

## Individual Taxpayer Identification Numbers

- Who Needs an ITIN?
- Assisting Taxpayers without an ITIN
- Assisting Taxpayers with an ITIN

**Notes:**
Teach from pages 1-4 and 1-5.
Test the students’ knowledge—ask them the purpose of the ITIN.
Discuss critical points on pages 1-4.
A tax return is required regardless of immigration status unless the taxpayer meets 1 of 4 exceptions (see Form W-7 or Form W-7SP).
Supporting documentation for an ITIN.
IRS is the source of ITINs.
Discuss critical points on page 1-5.
Do not electronically file returns that require an ITIN to be issued by the IRS.
You may assist the taxpayer with his or her return.
ITINs are nine-digit numbers with the fourth and fifth digits in the range of 70-89.
Temporary ITIN numbers are required for TaxWise.
ITIN acceptance agents.
Summarize by having students read the Alerts and Potential Pitfalls aloud on pages 1-2 through 1-4. You may provide additional insights.
Use the Potential Pitfall on page 1-5 to begin discussions on SSN/ITIN mismatches.

Progress to the next slide.

## Individual Taxpayer Identification Numbers

- SSN/ITIN Mismatches
- ITIN Resources for Volunteers

**Notes:**
Teach from page 1-6.
Read the slide.
Ask the students to name some of the reporting documents that contain SSN/ITIN information.
Discuss the SSN/ITIN mismatch information on page 1-6.
Emphasize that returns with SSN/ITIN mismatches can be filed electronically.
Discuss the Incorrect SSN/ITIN Usage Alert on page 1-6.
Ask the student to state the key messages in the narrative.
Provide insights into the resources available to the volunteers.

Progress to the next slide.

## Summing Up Taxpayer Identification Numbers

- Required Supporting Documentation
- TINs – SSNs, ATINs, ITINs
- ITIN/SSN Mismatches
- ITIN Support

**Notes:**
Summarize this topic by recapping critical points.
Refer to page 1-6.

Progress to the next slide. 

## Exemptions 

- Personal Exemptions
- Dependency Exemptions
- $3,400 each for Tax Year 2007

**Notes:**
Restate the objectives on page 1-1 as they relate to this topic:
Define the terms “personal” and “dependency” exemption.
Apply the tests to determine whether an individual can be claimed as a dependent on a taxpayer’s tax return. 
Advise students that an exemption reduces the taxpayer’s taxable income and, for tax year 2007, each exemption is worth $3,400. You may refer to the phaseout for certain adjusted gross incomes (if you like).
Discuss the meaning of the Potential Pitfall on page 1-7.
Explain that this is one of the key areas where tax law is applied incorrectly.
Define the two types of exemptions—personal and dependency.

Progress to the next slide.

## Personal Exemptions

** **Taxpayer Exemption
-  Exemption for a Spouse
** **

**Notes:**
Read the information on the slide.
Discuss personal exemptions in detail using the information in the text on pages 1-7 and 1-8.
Go over the interview tips for personal exemptions and ask the students if they have any questions. Refer to Interview Tips for the Personal Exemption chart in the Volunteer Resource Guide, TAB C (Personal Exemptions/Dependency). Key points:
Establish if the taxpayer was considered married on 12/31/2007.
State or local laws determine the validity of a marriage.
If the taxpayer’s spouse died during the year and the taxpayer did not remarry by 12/31/2007, the taxpayer can generally claim the deceased spouse’s personal exemption. 

Progress to the next slide.

## Dependency Exemptions

- Qualifying Child
- Qualifying Relative

**Notes:**
Read the information on this slide and emphasize the following under each topic:
A dependent is either a qualifying child or qualifying relative.
Note: Obtain a copy of the latest Publication 501 or Publication 17 for additional information on this topic.
Inform students that a taxpayer’s spouse is never the taxpayer’s dependent (even if he or she has no income or does not provide family support).
Ask students how exemptions impact the taxpayer’s taxable income.
Progress to the next slide.

## Tax Year 2007 Dependency Tests 

- Qualifying Child
- Tie-Breaker Rule
- Qualifying Relative
- The Dependent Worksheets

**Notes:**
Ask the students to refer to pages 1-8 through 1-10.
	Note: All of the tests will be discussed in detail. 
Introduce the Qualifying Child Dependency Tests on page 1-9 and the critical narrative points.
Discuss the tiebreaker rule.
Introduce the Qualifying Relative Dependency Tests on page 1-10, and the critical narrative points.
Introduce all three pages of Exhibits 1, 2, and 3 on pages 1-12 through 1-14. 
	Note: The “Definitions and Special Rules” are in alphabetical order.
Read the title of each step in the exhibits (especially Steps 1 and 4).
Point out that Step 3—Child Tax Credit will be discussed later in Lesson 6, Child Tax Credit.
Inform the students that the exhibits are drafts of the worksheets from Form 1040 instruction booklet. They should use the worksheets in the applicable Form 1040 or Form 1040A instruction booklet at the tax preparation site. Dependents are not claimed on Form 1040EZ.
Make sure to explain the significance of the words “AND” and “OR” used in the worksheet. 

Progress to the next slide.

##  Tax Year 2007 Dependency Test Qualifying Child 

- Qualifying Child
- – Relationship Test
- – Age Test
- – Residence Test
- – Support Test
- - Special Test for Qualifying Child of More Than one Person

**Notes:**
Ask the students to look at Step 1 on page 1-12.
Show the students where each test for qualifying child is shown in Step 1.
Explain that support will be discussed in detail later. 
Encourage students (especially returning students) to obtain a copy of Publication 501 for more details about the dependency tax law. 
Fully discuss the meaning of each test (using the Definitions and Special Rules reference in the narrative of each test).
	Note: You may teach from the Interview Tips instead of the worksheet. Refer to Interview Tips for the Personal Exemption chart in the Volunteer Resource Guide, TAB C (Exemptions/Dependency).

Progress to the next slide.

## Tax Year 2007 Dependency Test Qualifying Relative 

- Qualifying Relative
- – Not a Qualifying Child Test
- – Member of Household or Relationship Test
- – Gross Income Test
- – Support Test

**Notes:**
Refer to page 1-10. 
Read the information on this slide and show the students where each test for a qualifying relative is shown in Step 4.
Point out how the words “AND” and “OR” are used in the worksheet. 
Discuss each test in detail using the information in the exhibit.
Gross income is discussed on page 1-11.

Progress to the next slide.

## Tax Year 2007 Dependency Test Overview of the Rules

- Dependents on more than one return
- Joint Returns and Dependents
- Residency Requirement
- Dependent – Qualifying Child
- Dependent – Qualifying Relative

**Notes:**
Refer to pages 1-14 and 1-15. 
Read the information on this slide.
Discuss the information in detail using Exhibit 3 and the Overview of the Rules for Claiming an Exemption for a Dependent chart in the Volunteer Resource Guide, TAB C (Exemptions/Dependency).
Close by discussing gross income information on page 1-15.

Progress to the next slide.

## Tax Year 2007 Dependency Support Test

- A qualifying child must not have provided more than half of his or her own support
- The taxpayer must provide more than half of the support of a qualifying relative

**Notes:**
Refer to pages 1-15 and 1-16.
Read the information on the slide.
Introduce the expenses included in support. 

Progress to the next slide.

## Support Test 

- Sources of Support
-  The individual’s contributions
-  The taxpayer’s contributions
-  State contributions

**Notes:**
Teach from page 1-16.
Discuss information in detail regarding sources of support.

Progress to the next slide.

## Determining Support

- Worksheet for Determining Support
- What’s Included
- What’s Not included

**Notes:**
Read the information on the slide.
Introduce Exhibit 4, Worksheet for Determining Support. 
Show the students how the exhibit can be used to determine what’s included and what’s not included in support.
Allow the students to complete the exercises.

Progress to the next slide.

## Support Exceptions

- Multiple Support
- Custodial and Noncustodial Parents

**Notes:**
Teach from pages 1-19 through 1-21.
Read the slide and define the terms.
Teach from the text.
Go over the examples with the class. 
Discuss the tiebreaker rule again: If more than one person claims the same qualifying child on their return, the IRS will apply the tiebreaker rule.
Share: Specific documentation will be required to determine who will be allowed to claim the exemption if more than one individual claims the same qualifying relative.

Progress to the next slide.

## Form 8158 Quality Review Sheet

**  **

**Notes:**
Use Form 8158, Quality Review Sheet, or an approved alternative form to review all returns prepared.
Apply the quality review tools in combination with the Intake and Interview Sheet and all the source documents to the returns you prepare to ensure quality and accuracy for every taxpayer.
Consider each box in the Quality Review Sheet which applies to the taxpayer’s situation to confirm that all the necessary questions and issues have been addressed.
If items are incorrect or incomplete, revisit the issue and make corrections to the return, as needed.
To ensure accurate reporting, verify that the dependency exemption information matches the Intake Sheet.
To ensure accurate reporting, verify that the names and taxpayer identification numbers match the Intake Sheet and supporting documents.

Progress to the next slide.

## Tax Year 2007 Tools for Determining Dependency

- Tools for Determining Personal and Dependency Exemptions
- Claiming the Exemption on the return
- Apply what you have learned

**Notes:**
Refer to the Interview Tips for Personal Exemptions chart in the Volunteer Resource Guide, TAB C (Exemptions/Dependency).
Go over each interview tip (especially those with footnotes and notes).
Show the students where the tips are located in Publication 4012 for this topic.
Teach the information on page 1-21—Exemption Section of the Return.
Allow the students time to complete and discuss the exercises on page 1-23.
Encourage the students to use the interview tips to complete the exercises (where possible).
Discuss the answers to the exercises.

Progress to the next slide.

## Summing Up Exemptions

- Exemptions impact taxable income
- Use the Dependency Tools

**Notes:**
 Summarize this lesson using the information on page 1-26.

Progress to the next slide for the Military/International course; others go to Lesson 2.

## Military Matters

- Explain how to obtain an SSN for children born abroad
- Determine whether an individual is a nonresident alien or a resident alien
- Determine if an exemption can be claimed for a nonresident spouse
- Determine if an individual can be claimed as a dependent

**Notes:**
Refer to page M-1-1.
References:
Publication 3, Armed Forces’ Tax Guide
Form 1040NR, U.S. Nonresident Alien Income Tax Return 
Publication 519, U.S. Tax Guide for Aliens
State the objectives.
Teach from the text.

Progress to the next slide. 

## Children Born Abroad

- Must have a Tax Identification Number to be claimed as a dependent

**Notes:**
Refer to page M-1-1.
Review the “Children Born Abroad Obtaining an SSN” section of the student text.
Stress that each dependent must have a Tax Identification Number.

Progress to the next slide.

## Determining Residency Status

- Resident
- Nonresident
- Dual Status

**Notes:**
Refer to page M-1-2.
Discuss the three types of residency statuses for aliens.
Tell students that Publication 519 is a good resource for further information on determining residency.

Progress to the next slide.

## Residency Status Tests

- Green Card
- Substantial Presence

**Notes:**
Refer to pages M-1-2 through M-1-4.
Teach from the text.
Optional Guided Question: When a green card has been issued, what is the residency status? (Resident alien)
Allow the students to review Example 1.
Discuss with the students.

Progress to the next slide.

## Exceptions to the Substantial Presence Test

- Commuter
- Short stay
- Medical condition
- Exempt individual

**Notes:**
Refer to pages M-1-5 through M-1-6.
Teach from the text.
Inform the students that these exceptions do not occur very often on military returns.

Progress to the next slide.

##  Residency Status

- Part-Year Resident
- Enlistees as Resident Aliens
- Choices – Nonresident Spouse
- Dual-Status Aliens
- Undocumented Aliens

**Notes:**
 Refer to pages M-1-6 through M-1-8.
 Teach from the text.
 Discuss key points about the information on the slides.

Progress to the next slide.

## Exemptions

- Foreign Spouse
- Married Filing Separately

**Notes:**
Refer to page M-1-9.
Teach from the text.

Progress to the next slide.

## Dependents – Armed Forces Members

- Claiming a Dependent
- Citizen and Residency Test

**Notes:**
Refer to pages M-1-9 through M-1-11.
Teach from the text.

Progress to the next slide.

## Summing Up This Military Segment

- Resident or Nonresident
- Personal Exemptions
- Dependents

**Notes:**
 Refer to page M-1-11.
 Review the summary points with the class.
 Solicit questions/concerns from the class.

Progress to the next lesson.