IRS Enrolled Agent Exam Unit 5 Exam Questions with Complete Solutions
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Course
EA - Enrolled Agent
Institution
EA - Enrolled Agent
A taxpayer must generally have held stock for _____ in order for his dividend income to be considered for qualified dividends.
A. More than 30 days during the 121-day period that begins 60 days before the ex-dividend date.
B. More than 60 days during the 121-day period that begins 60 days before...
IRS Enrolled Agent Exam Unit 5 Exam
Questions with Complete Solutions
A taxpayer must generally have held stock for _____ in order for his dividend income to
be considered for qualified dividends.
A. More than 30 days during the 121-day period that begins 60 days before the ex-
dividend date.
B. More than 60 days during the 121-day period that begins 60 days before the ex-
dividend date.
C. More than 120 days.
D. More than one year. - Answer-B. A taxpayer must generally have held stock for more
than 60 days during the 121-day period that begins 60 days before the ex-dividend
date. The ex-dividend date is the date following the declaration of a dividend. When
figuring the holding period for qualified dividends, the taxpayer may count the number of
days he held the stock and include the day he disposed of the stock. The date the
taxpayer acquires the stock is not included in the holding period. A longer holding period
may apply for dividends paid on preferred stock.
Which of the following dividends are reported as interest income on a taxpayer's return?
A. Stock dividends
B. Dividends earned on deposits in credit unions.
C. Preferred dividends
D. Qualified dividends - Answer-B. The dividends earned on deposits in credit unions
are reported and taxed as interest income.
Six years ago, Derrick bought a US Series EE savings bond and decided to report the
interest earned each year until maturity. This year, he bought another Series EE
savings bond. How should Derrick report the interest on this new bond?
A. He must wait until the second bond matures to report all the interest earned at that
time.
B. He must report the interest earned, as long as he makes the election on a timely filed
return.
C. He can use either method to report interest earned, as long as he makes the election
on a timely filed return.
D. This type of interest is now exempt from federal income tax. - Answer-B. Savings
bond owners must use the same interest-reporting method for all the Series EE and
Series I bonds they own.
Alec received a Form 1099-DIV from his brokerage firm showing that he earned $1,200
of ordinary dividends in 2015. How should this income be handled on Alec's tax return?
A. He must report the dividend income on Schedule B, but it is not taxable.
B. He must report the dividend income on Schedule B. It is taxable as ordinary income.
C. He can report the dividend income on page one of his Form 1040. It is taxable as
ordinary income.
, D. HE does not have to report the dividend income until he sells the stock from the
corporations that distributed the dividends. - Answer-C. Ordinary dividends are taxable
as ordinary income in the year they are earned. Only amounts over $1,500 must be
reported on Schedule B, so Alec can report the $1,200 of dividend income directly on
page one of his Form 1040.
In 2015, Remy had the following transactions from which she earned interest:
*Interest of $700 from a certificate of deposit that matured in September.
*Upon maturity of the first CD, she invested the proceeds in a second certificate with a
maturity in March 2016. As of December 31, 2015, this certificate had accrued interest
of $400.
*She loaned $2,000 to a family member who repaid the loan and related interest of
$120 with a check dated December 31, 2015, which Remy received on January 4,
2016.
What is the amount of taxable interest income that Remy must report for 2015?
A. $1,100
B. $1,220
C. $820
D. $700 - Answer-D. The interest earned on the first certificate was received upon
maturity, and was therefore taxable in 2015. The accrued interest on the second
certificate would have been subject to penalty if the certificate had been redeemed prior
to maturity, and the accrued interest was therefore not taxable. Remy did not have
constructive receipt of the interest paid on the loan until 2016, and so it was not taxable
in 2015.
Nondividend distributions are:
A. Considered a return of capital
B. Never taxable
C. Always taxable as ordinary income
D. Both A and B - Answer-A. Nondividend distributions are not paid out of a
corporation's earnings and profits. They are considered a recovery or return of capital
and therefore are generally not taxable. However, these distributions reduce the
taxpayer's basis. Once basis is reduced to zero, any additional distributions are taxed
as capital gains.
Anand opened a savings account at his local bank and deposited $800. He received a
$15 calculator as a gift for opening the account and he earned $20 of interest in 2015.
Anand also received $100 of municipal bond interest in his mutual funds account. How
much taxable interest income must Anand report on his Form 1040?
A. $15
B. $20
C. $35
D. $135 - Answer-C. A gift for opening a bank account is taxed as interest income. If no
other interest is credited to Anand during the year, the Form 1099-INT he receives will
include the fair market value of the calculator and show a total of $35 of interest for the
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