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Enrolled Agent Practice Exam Questions Part 1.
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Enrolled Agent Practice Exam Questions Part 1.
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Enrolled Agent Practice Exam QuestionsPart 1
Which of the following is income in respect of a decedent?
A) Cash received from a grandmother's estate.
B) Royalties received on the deceased father's published book; the right to receive
these royalties was distributed from the father's estate.
C) Certificate of deposit received as a gift.
D) Both cash received from a grandmother's estate and royalties received on the
deceased father's published book; the right to receive these royalties was distributed
from the father's estate. - ANS-B) Royalties received on the deceased father's published
book; the right to receive these royalties was distributed from the father's estate.
Income in respect of a decedent is the amount that is earned by the taxpayer but not
received prior to his or her death nor accrued prior to his or her death if on the accrual
method, so it is not included in the decedent's final return. Income in respect of a
decedent is included in the recipient's (e.g., the estate's) income in the year received or
accrued.
Which of the following recipients of money must include the funds received in his total
income?
A) A car pool driver who is given moneterm-0y by his passengers for highway tolls.
B) An elected official who is given money by a real estate developer to influence his
vote.
C) A homeowner who is given a subsidy by a public utility for the purchase of a new hot
water heater.
D) A taxpayer who inherits one hundred silver dollars in a bequest. - ANS-B) An elected
official who is given money by a real estate developer to influence his vote.
A bribe is income. In fact, all income from illegal activities, such as money from dealing
illegal drugs, must be included on a taxpayer's 1040, either on Line 8 (from Schedule 1)
or on Schedule C. Monies received from car pool passengers are reimbursements. A
subsidy paid by a public utility for energy conservation is excluded from income. A
bequest is also excluded from income even if the bequest is cash.
Minnie's tax return shows the following income:
-$800 wages
-$6,490 unemployment compensation
-$1,000 alimony received under the terms of a divorce decree finalized before 2019
-$8,000 rental income from apartment buildings she owns
,What is Minnie's earned income for the purpose of determining how much she can
contribute to an IRA?
A) $800
B) $7,290
C) $1,800
D) $16,290 - ANS-C) $800
Generally, compensation is the amount earned from working. Compensation includes
wages, salaries, tips, professional fees, bonuses, and other amounts individuals receive
for providing personal services. For IRA purposes, compensation includes amounts
considered taxable alimony and nontaxable combat pay.
Minnie's earned income for the purpose of determining how much she can contribute to
an IRA is $1,800. Only wages of $800 and taxable alimony of $1,000 count as
compensation for IRA purposes, so they set the limit for the allowable contribution
amount.
Qualified dividends are subject to one of three maximum tax rates. Which three tax
rates are used for qualified dividends?
A) 15% / 25% / 37%
B) 0% / 15% / 20%
C) 15% / 28% / 37%
D) 18% / 20% / 25% - ANS-B) 0% / 15% / 20%
Qualified dividends are subject to the same 0%, 15% or 20% maximum tax rate that
applies to net capital gain. Qualified dividends are subject to the 20% tax rate if the
regular tax rate that would apply is 37%.
Qualified business income (QBI) is:
A) the amount of qualified items of income and gain from a qualified trade or business.
B) the net amount of qualified items of income, gain, deduction and loss from a qualified
trade or business.
C) the amount of qualified items of income and gain from a qualified trade or business,
only to the extent included in taxable income.
D) the net amount of qualified items of income, gain, deduction and loss from a qualified
trade or business, only to the extent included or allowed in the determination of taxable
income for the year. - ANS-D) the net amount of qualified items of income, gain,
deduction and loss from a qualified trade or business, only to the extent included or
allowed in the determination of taxable income for the year.
Qualified business income (QBI) is the net amount of qualified items of income, gain,
deduction and loss from a qualified trade or business. Qualified items of gain or loss are
,taken into account to determine QBI or qualified business loss only to the extent
included or allowed in the determination of taxable income for the year.
Exception: Disallowed losses or deductions allowed in the taxable year are generally
taken into account for purposes of computing QBI except to the extent the losses or
deductions were disallowed, suspended, limited, or carried over from taxable years
ending before January 1, 2018
Lucille bought a house in 2000 and lived in it until she sold it in 2020. She had a gain of
$300,000 from the sale of her house. Shortly after the sale, she married Michael, who
coincidentally also sold his primary residence in 2020 after ten years of ownership. He
had a gain of $100,000 from the sale of his home. Can Lucille and Michael exclude their
entire gains from their income?
A) Yes, because they are married.
B) Yes, because they each met the use and ownership tests independently.
C) No, because they were not married when they sold their houses.
D) No, because they cannot exclude more than $250,000 for Lucille's home. - ANS-D)
No, because they cannot exclude more than $250,000 for Lucille's home.
The $500,000 maximum exclusion for certain joint returns does not apply because
Lucille and Michael do not jointly meet the use test for the same home. The ownership
and use tests are met independently (for their own homes). The maximum exclusion
that can be claimed by the couple is the total of the maximum exclusions that each
spouse would qualify for if not married and the amounts were figured separately. They
cannot exclude the entire gain of $300,000 on Lucille's home as a result, as the
exclusion for that home is limited to $250,000.
Taxpayers who are married and file a joint return for the year can exclude up to
$500,000 of the gain on the sale of a main home if all of the following are true:
-Either spouse meets the ownership test.
-Both meet the use test.
-During the 2-year period ending on the date of the sale, neither you nor your spouse
excluded gain from the sale of another home.
If either spouse does not satisfy all these requirements, the maximum exclusion that
can be claimed by the couple is the total of the maximum exclusions that each spouse
would qualify for if not married and the amounts were figured separately. For this
purpose, each spouse is treated as owning the property during the period that either
spouse owned the property.
Which of the following is true regarding a nonbusiness bad debt?
A) It is deductible as a short-term capital loss.
B) It is not deductible.
C) It is deductible only if you itemize.
, D) It is deductible as a long-term capital loss. - ANS-A) It is deductible as a short-term
capital loss.
All non-business bad debts are short term capital losses and are claimed on Form 8949.
The amount of time the money has been owed to you does not matter.
Elton declared bankruptcy in the current year. Included in the liabilities discharged in the
bankruptcy was a $15,000 personal loan Elton had received from his friend, Edward,
two years ago. How would Edward treat this for tax purposes?
A) Ordinary loss on Form 4797
B) Long-term capital loss on Schedule D
C) Short-term capital loss on Schedule D
D) Investment expense subject to 2% miscellaneous itemized deduction limitation -
ANS-C) Short-term capital loss on Schedule D
All non-business bad debts are short term capital losses and are claimed on Schedule
D. The amount of time the money has been owed to you does not matter.
Form 4137 requires that:
A) All employers are represented on separate lines.
B) All tips are included.
C) The current social security and Medicare tax rate is used.
D) All of the above. - ANS-D) All of the above.
Use Form 4137 only to figure the social security and Medicare tax owed on tips you did
not report to your employer. Including any allocated tips shown on your Form(s) W-2
that you must report as income.
Complete a separate line for each employer.
Indicate all tips on the form, including tips already reported.
Scholarships and fellowships awarded to degree candidates are not taxable unless they
are used for:
A) Tuition
B) Room and board
C) Books
D) Supplies required for the course of study - ANS-B) Room and board
For degree candidates; scholarships and fellowships are considered taxable income to
the extent the proceeds are used for room, board or travel.
How do non-deductible contributions to an IRA affect the taxpayer's basis in the IRA?
A) Non-deductible contributions increase basis.
B) Non-deductible contributions have no effect on basis.
C) Non-deductible contributions decrease basis.
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