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Enrolled Agent Practice Exam
Questions Part 1 Questions and
Answers 100% Pass
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. - ✔✔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.
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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. - ✔✔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 - ✔✔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.
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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% - ✔✔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. -
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✔✔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. - ✔✔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.
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