IRS Enrolled Agent Exam Unit 4 Questions with Latest Update
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Course
EA - Enrolled Agent
Institution
EA - Enrolled Agent
Debby broke her leg in a car accident in 2014 and was unable to work for three months. She received an accident settlement of $13,000 from her insurance company. during this time, she received $7,500 of sick pay from her employer. In addition, she received $5,000 from the accident policy she had pu...
IRS Enrolled Agent Exam Unit 4
Questions with Latest Update
Debby broke her leg in a car accident in 2014 and was unable to work for three months.
She received an accident settlement of $13,000 from her insurance company. during
this time, she received $7,500 of sick pay from her employer. In addition, she received
$5,000 from the accident policy she had purchased herself. How much of this income is
taxable to Debby?
A. $5,000
B. $7,500
C. $12,500
D. $18,000 - Answer-B. Only Debby's sick pay is taxable as wages. Sick pay from an
employer is taxable like wages and is therefore included in Debby's gross income.
Settlements for personal injuries from an accident are not taxable. If a taxpayer pays the
full cost of an accident insurance plan, the benefits for personal injury or illness are not
included in income. If the employer pays the cost of an accident insurance plan, the
amounts are taxable to the employee.
Income was constructively received in 2014 in each of the following situations except:
A. Wages were deposited in the taxpayer's bank account on December 26, 2014, but
were not withdrawn by the taxpayer until January 3, 2015.
B. A taxpayer was informed his check for services rendered was available on December
15, 2014. The taxpayer did not pick up the check until January 30, 2015.
C. A taxpayer received a check by mail on December 31, 2014, but did not deposit the
check until January 5, 2015.
D. A taxpayer's home was sold on December 28, 2014. The payment was not received
by her until January 2, 2015, when the escrow company released the funds. - Answer-
D. A taxpayer does not need physical possession of income in order to have
constructive receipt. However, income is not considered constructively received if the
taxpayer cannot access the funds because of restrictions. Since the taxpayer's control
of the receipt of the funds in the escrow account was substantially limited until the
transaction had closed, the taxpayer did not constructively receive the income until the
following year.
Marisol received the following income and fringe benefits in 2014:
Wages -- $30,000
End of year bonus -- 2,000
Parking pass per month -- 90
Employer contributions to her 401(k) plan -- 900
FMV free gym on her employer's premises -- 500
How much income must Marisol report on her 2014 tax return?
A. $30,000
B. $32,000
C. $32,500
, D. $34,480 - Answer-B. Only the wages and the bonus are taxable ($30,000 + $2,000).
The parking pass is a notaxable transportation benefit, and the employer contributions
are not taxable until Marisol withdraws the money from her retirement account. Marisol
does not have to report the use of the gym because it is on the employer's premises
and therefore not taxable.
Which of the following tip income is exempt from federal income tax?
A. Tips of less than $20 per month
B. Noncash tips
C. Tips not reported to the employer
D. All tips are taxable - Answer-D. All tip income is subject to federal income tax,
whether cash or noncash. An individual who receives less than $20 per month of tips
while working one job does not have to report the tip income to his employer, but the
income is still subject to federal income tax and must be reported on the taxpayer's
Form 1040.
Chaz is a naval officer who was injured while serving in a combat zone. He was later
awarded Veterans Affairs (VA) disability benefits. How are these payments reported on
Chaz's tax return?
A. 100% of the disability benefits may be excluded from income.
B. Up to 50% of the disability benefits may be excluded from income.
C. 100% of the disability benefits may be excluded from income for enlisted personnel
but not for officers.
D. The disability benefits are taxable. - Answer-A. VA Disability compensation is exempt
from taxation, if the veteran was terminated through separation or discharged under
honorable conditions. The VA does not issue form W-2, Form 1099-R, or any other tax-
related document for veterans' disability benefits.
Which of the following fringe benefits is taxable (or partially taxable) to the employee?
A. Health insurance covered by 100% by the employer
B. Employer-provided parking at $275 per month
C. Group term life insurance coverage of $50,000
D. Employer contributions to an employee's 401(k) plan. - Answer-B. Employer-provided
parking is an excludable benefit of up to $250 per month. Therefore, the amount above
$250 ($275-$250 = $25) is taxable to the employee.
What is adjusted gross income?
A. The sum of all sources of taxable income that the taxpayer receives during the year.
B. The amount of earned income a taxpayer receives during the year.
C. Another term for taxable income.
D. Gross income minus certain allowable deductions or adjustments, calculated before
exemptions and the standard deduction or itemized deductions are taken. - Answer-
Adjustable gross income (AGI) is gross income (the sum of all income subject to
taxation that the taxpayer receives during the year) minus certain allowable deductions
or adjustments. AGI is calculated before exemptions and the standard deduction or
itemized deductions are taken.
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