A taxpayer's filing status for the year is generally determined as of:

The date of the taxpayer's most recent pay period

Which of the following is generally EXCLUDED from a taxpayer's gross income?

A cash gift received from a relative

Interest earned on a bank savings account

Net profit from a sole proprietorship

Property sold for a gain after being held for more than one year generally receives:

Long-term capital gain treatment at favorable rates

Ordinary income treatment at the taxpayer's marginal rate

No tax because it was held over a year

Treatment as a nondeductible personal expense

When a taxpayer has a net capital loss for the year, the tax law generally allows:

A limited amount of the net loss to offset ordinary income, with the excess carried forward

The entire net loss to offset ordinary income with no limit

No deduction for capital losses under any circumstances

The loss to be carried back three years automatically

A general partnership reports its income to the IRS by:

Filing an information return (Form 1065) and issuing Schedule K-1s to partners

Paying entity-level income tax on Form 1120

Reporting all income on the managing partner's Schedule C

The standard system used to depreciate most tangible business property placed in service today is:

The Modified Accelerated Cost Recovery System (MACRS)

Straight-line over the property's entire physical life

Amortization over 15 years for all assets

An employer's obligations for employee wages include:

Withholding income and FICA taxes, paying the matching employer FICA share, and remitting FUTA

Withholding only federal income tax and nothing else

Paying the entire Social Security tax with no employee share

Issuing a Schedule K-1 to each employee

Treasury Circular 230 governs:

The rules of practice before the IRS by enrolled agents and other practitioners

The calculation of the standard deduction

The depreciation of business assets

The interest rate on tax refunds

Which form authorizes a practitioner to represent a taxpayer and act on the taxpayer's behalf before the IRS?

Form 2848, Power of Attorney and Declaration of Representative

Form 8821, Tax Information Authorization

Form W-9, Request for Taxpayer Identification Number

Form 941, Employer's Quarterly Federal Tax Return

Under Circular 230, when a practitioner discovers an error or omission on a client's return, the practitioner must:

Promptly advise the client of the error and its consequences

Immediately amend the return without telling the client

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IRS Enrolled Agent Exam (SEE) Practice Test

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1. Part 1: Individuals
A taxpayer's filing status for the year is generally determined as of:
- a.The first day of the tax year
- b.The date the return is filed
- c.The last day of the tax year
- d.The date of the taxpayer's most recent pay period
Answer: c
Explanation: Filing status (single, married, head of household, etc.) is generally determined by the taxpayer's marital and household situation on the last day of the tax year, December 31 for calendar-year taxpayers. A special rule treats a taxpayer whose spouse died during the year as married for that year.
2. Part 1: Individuals
Which of the following is generally EXCLUDED from a taxpayer's gross income?
- a.A cash gift received from a relative
- b.Wages reported on a Form W-2
- c.Interest earned on a bank savings account
- d.Net profit from a sole proprietorship
Answer: a
Explanation: Gifts received are excluded from the recipient's gross income (any tax consequence falls on the donor through gift tax rules). Wages, taxable interest, and business profit are all includible in gross income.
3. Part 1: Individuals
Property sold for a gain after being held for more than one year generally receives:
- a.Ordinary income treatment at the taxpayer's marginal rate
- b.Long-term capital gain treatment at favorable rates
- c.No tax because it was held over a year
- d.Treatment as a nondeductible personal expense
Answer: b
Explanation: A holding period of more than one year produces long-term capital gain, generally taxed at preferential rates lower than ordinary rates. A holding period of one year or less produces short-term gain taxed as ordinary income.
4. Part 1: Individuals
When a taxpayer has a net capital loss for the year, the tax law generally allows:
- a.A limited amount of the net loss to offset ordinary income, with the excess carried forward
- b.The entire net loss to offset ordinary income with no limit
- c.No deduction for capital losses under any circumstances
- d.The loss to be carried back three years automatically
Answer: a
Explanation: Capital losses first offset capital gains; a limited amount of any remaining net capital loss may offset ordinary income each year, and the unused excess carries forward to future years. The annual offset against ordinary income is capped.
5. Part 2: Businesses
A general partnership reports its income to the IRS by:
- a.Paying entity-level income tax on Form 1120
- b.Reporting all income on the managing partner's Schedule C
- c.Filing an information return (Form 1065) and issuing Schedule K-1s to partners
- d.Not filing any federal return
Answer: c
Explanation: A partnership is a pass-through entity that files an information return, Form 1065, and issues each partner a Schedule K-1 reporting their share of income and deductions. The partners, not the partnership, pay the tax on that income.
6. Part 2: Businesses
The standard system used to depreciate most tangible business property placed in service today is:
- a.Straight-line over the property's entire physical life
- b.The cash method
- c.Amortization over 15 years for all assets
- d.The Modified Accelerated Cost Recovery System (MACRS)
Answer: d
Explanation: MACRS is the standard depreciation system for most tangible business property, assigning assets to recovery classes with prescribed methods and periods. Provisions such as Section 179 expensing and bonus depreciation can accelerate the write-off within limits.
7. Part 2: Businesses
An employer's obligations for employee wages include:
- a.Withholding income and FICA taxes, paying the matching employer FICA share, and remitting FUTA
- b.Withholding only federal income tax and nothing else
- c.Paying the entire Social Security tax with no employee share
- d.Issuing a Schedule K-1 to each employee
Answer: a
Explanation: Employers must withhold income tax and the employee share of Social Security and Medicare (FICA), pay the matching employer FICA share, and remit federal unemployment (FUTA) tax, reporting on returns such as Form 941 and Forms W-2. Employees receive a W-2, not a K-1.
8. Part 3: Representation, Practices & Procedures
Treasury Circular 230 governs:
- a.The calculation of the standard deduction
- b.The depreciation of business assets
- c.The rules of practice before the IRS by enrolled agents and other practitioners
- d.The interest rate on tax refunds
Answer: c
Explanation: Circular 230 sets the ethical and professional standards for practitioners, including enrolled agents, attorneys, and CPAs, who practice before the IRS. It covers due diligence, fees, conflicts of interest, and grounds for sanctions.
9. Part 3: Representation, Practices & Procedures
Which form authorizes a practitioner to represent a taxpayer and act on the taxpayer's behalf before the IRS?
- a.Form 8821, Tax Information Authorization
- b.Form 2848, Power of Attorney and Declaration of Representative
- c.Form W-9, Request for Taxpayer Identification Number
- d.Form 941, Employer's Quarterly Federal Tax Return
Answer: b
Explanation: Form 2848 grants a power of attorney, authorizing the practitioner to represent the taxpayer and act on their behalf. Form 8821 only allows a person to receive and inspect confidential tax information; it does not authorize representation.
10. Part 3: Representation, Practices & Procedures
Under Circular 230, when a practitioner discovers an error or omission on a client's return, the practitioner must:
- a.Promptly advise the client of the error and its consequences
- b.Immediately amend the return without telling the client
- c.Report the client to the IRS
- d.Ignore it unless the IRS asks
Answer: a
Explanation: Circular 230 requires a practitioner who learns of an error or omission to promptly advise the client of it and of the consequences under the law. The practitioner cannot correct the return without the client's consent, but must inform the client.