IRS Special Enrollment Examination (SEE) — Enrolled Agent — Questions and Answers

Question 1: Under Circular 230, a practitioner who charges an 'unconscionable fee' is subject to:

Automatic suspension for 60 days
Discipline under §10.51 for disreputable conduct (Correct answer)
A refund obligation to the client imposed by the IRS
A civil penalty equal to three times the excess fee

Correct answer: Discipline under §10.51 for disreputable conduct

Charging an unconscionable fee is listed as disreputable conduct under Circular 230 §10.51(a)(18), exposing the practitioner to disciplinary action.

Question 2: A power of attorney filed with the IRS on Form 2848 authorizes a representative to do all of the following EXCEPT:

Sign a consent to extend the statute of limitations
Sign the taxpayer's original tax return (Correct answer)
Receive and inspect confidential tax information
Execute a closing agreement on behalf of the taxpayer

Correct answer: Sign the taxpayer's original tax return

A Form 2848 power of attorney does not authorize a representative to sign an original tax return unless the taxpayer has a physical or mental impairment.

Question 3: Under Circular 230, which of the following is a practitioner required to do when a client provides information the practitioner knows to be false?

Correct the information without notifying the client
Withdraw from the engagement after notifying the client of the conflict
Submit the information but attach a disclosure statement
Refuse to use the information and advise the client accordingly (Correct answer)

Correct answer: Refuse to use the information and advise the client accordingly

A practitioner must not submit documents containing information the practitioner knows to be false, and must advise the client that the information cannot be used as presented.

Question 4: According to Treasury Department Circular No. 230, which of the following is a primary component of a practitioner's due diligence responsibility when preparing a tax return?

Requiring the client to sign a statement accepting all liability for potential penalties.
Making reasonable inquiries if information provided by the client appears to be incorrect, inconsistent, or incomplete. (Correct answer)
Guaranteeing that the IRS will not select the return for an audit.
Personally auditing all of the client's financial records for the year.

Correct answer: Making reasonable inquiries if information provided by the client appears to be incorrect, inconsistent, or incomplete.

Circular 230, Section 10.22, requires practitioners to exercise due diligence. This standard includes the responsibility to make reasonable inquiries when client-furnished information seems questionable. It does not require a full audit, guarantee an outcome, or shift all liability in the manner described.

Question 5: What does the IRS's 'Agent Mentoring Program' pair experienced Revenue Agents with new agents to accomplish?

To accelerate new agents' development through guided case work, knowledge transfer, and professional coaching (Correct answer)
To reduce the IRS audit workload by delegating cases to trainees
To train experienced agents on new software platforms
To formally evaluate new agents for potential termination

Correct answer: To accelerate new agents' development through guided case work, knowledge transfer, and professional coaching

The mentoring program pairs new Revenue Agents with seasoned professionals who guide them through complex cases and help them develop the skills needed for independent work.

Question 6: Under Circular 230, a practitioner must, at a minimum, exercise which of the following standards when providing written tax advice?

Realistic possibility of success standard
Reasonable practitioner standard, considering all relevant facts and law (Correct answer)
Substantial authority standard in all cases
More likely than not standard for all tax positions

Correct answer: Reasonable practitioner standard, considering all relevant facts and law

For written tax advice under Circular 230 §10.37, a practitioner must apply a reasonable practitioner standard, basing the advice on a reasonable analysis of the relevant facts and applicable law.

Question 7: A donor contributes appreciated stock (basis $10,000, FMV $40,000) held more than one year to a public charity. What is the maximum deduction assuming the donor meets the AGI limit?

$10,000
$40,000 (Correct answer)
$30,000
$20,000

Correct answer: $40,000

A donor contributing long-term capital gain property to a public charity may deduct the full fair market value, not the cost basis.

Question 8: What is the purpose of a Schedule K-1 issued by an S corporation?

To report each shareholder's pro-rata share of income, deductions, and credits (Correct answer)
To report employee wages paid by the S corporation
To report the corporation's total tax liability
To calculate the corporation's estimated tax payments

Correct answer: To report each shareholder's pro-rata share of income, deductions, and credits

Schedule K-1 (Form 1120-S) is provided to each shareholder and reports their allocable share of the S corporation's income, losses, deductions, and credits.

Question 9: Which of the following is a key requirement for a business to be eligible to elect S Corporation status?

It cannot have more than 100 shareholders. (Correct answer)
It must be a publicly traded company.
At least one shareholder must be a non-resident alien.
It must have more than one class of stock.

Correct answer: It cannot have more than 100 shareholders.

To qualify for S Corporation status, a corporation can have no more than 100 shareholders. It is also restricted to having only one class of stock, and shareholders must be U.S. citizens or residents; non-resident aliens are not permitted to be shareholders.

Question 10: A Form 2848 is generally valid until:

December 31 of the year it was signed
The taxpayer or representative revokes it, or it expires by its own terms (Correct answer)
Three years from the date of filing
The IRS revokes it

Correct answer: The taxpayer or representative revokes it, or it expires by its own terms

A Form 2848 remains valid until it is revoked by the taxpayer, the representative withdraws, or the authorization expires according to its own stated terms.

Question 11: When a return is rejected through MeF with an error code, how long does the taxpayer typically have to correct and resubmit to still be considered timely filed?

24 hours
5 calendar days (Correct answer)
30 days
10 business days

Correct answer: 5 calendar days

Taxpayers generally have 5 calendar days after the filing deadline to correct and resubmit a rejected electronic return without penalty.

Question 12: Which of the following statements about the Taxpayer Advocate Service (TAS) is correct regarding representation?

Only attorneys may represent taxpayers before the TAS
TAS only accepts cases where the taxpayer has already paid the disputed tax
Representatives must file a separate authorization form specific to TAS
Any individual, including unenrolled preparers, may represent taxpayers before the TAS (Correct answer)

Correct answer: Any individual, including unenrolled preparers, may represent taxpayers before the TAS

The TAS allows any individual, including unenrolled return preparers, to represent taxpayers, making it more accessible than other IRS functions.

Question 13: A partnership purchases land for $200,000. The land is distributed to a partner when its FMV is $250,000. What is the partner's basis in the land?

$250,000 (FMV at distribution)
$200,000 (partnership's original cost)
$0, as distributed property takes a zero basis
The partnership's adjusted basis in the land at time of distribution (Correct answer)

Correct answer: The partnership's adjusted basis in the land at time of distribution

Under IRC §732, a partner's basis in distributed property equals the partnership's adjusted basis in that property, not its fair market value.

Question 14: A taxpayer is single with no dependents. They have $5,000 in gambling winnings and no other income. Must they file?

Yes, because gross income exceeds the $14,600 filing threshold
Yes, because gambling winnings always require a return
No, gambling winnings under $10,000 are not reportable
No, because $5,000 is below the single filing threshold of $14,600 (Correct answer)

Correct answer: No, because $5,000 is below the single filing threshold of $14,600

Since $5,000 is below the 2024 single filing threshold of $14,600, no return is required, though taxes may have been withheld.

Question 15: A taxpayer wants to authorize their enrolled agent to receive their tax refund check. Which additional form must be filed with the IRS?

Form 1310
Form 8879
Form 8821
Form 2848 with the specific authority noted (Correct answer)

Correct answer: Form 2848 with the specific authority noted

The authority to receive a refund check must be specifically stated on Form 2848; it is not automatically granted and requires explicit notation in the acts authorized section.

Question 16: Under the passive activity rules, which type of income CAN offset passive activity losses?

Portfolio income (dividends and interest)
Passive activity income from other activities (Correct answer)
Active business income from a sole proprietorship
W-2 wages from an employer

Correct answer: Passive activity income from other activities

Passive activity losses can only offset passive activity income; they cannot offset active income (wages, self-employment) or portfolio income (dividends, interest).

Question 17: A C Corporation's primary disadvantage regarding taxation is which of the following?

Double taxation of corporate profits and shareholder dividends (Correct answer)
Limitations on the number and type of shareholders
Pass-through taxation of profits and losses
The requirement to file Form 1120-S annually

Correct answer: Double taxation of corporate profits and shareholder dividends

C Corporations are subject to double taxation. The corporation pays income tax on its profits (Form 1120), and then shareholders pay income tax on the dividends they receive from those after-tax profits. S Corporations, not C Corporations, have pass-through taxation and limitations on shareholders. Form 1120-S is filed by S Corporations.

Question 18: A business pays $50,000 for a 5-year covenant not to compete when acquiring another business. How is this amount treated for tax purposes?

Capitalized and amortized over 5 years matching the covenant term
Deducted immediately as a business expense
Capitalized and amortized over 15 years under IRC §197 (Correct answer)
Non-deductible as a capital expenditure with no recovery

Correct answer: Capitalized and amortized over 15 years under IRC §197

A covenant not to compete acquired in connection with a business acquisition is an IRC §197 intangible and must be amortized over 15 years, regardless of the covenant's actual term.

Question 19: A partnership makes a guaranteed payment to a partner for services rendered. How is this payment treated by the receiving partner?

As a capital gain
As a tax-free return of capital
As ordinary income subject to self-employment tax (Correct answer)
As a dividend taxed at preferential rates

Correct answer: As ordinary income subject to self-employment tax

Guaranteed payments to partners for services are treated as ordinary income to the recipient and are generally subject to self-employment tax.

Question 20: A corporation uses the accrual method of accounting. When can it deduct a business expense?

When all events have occurred that fix the liability and the amount can be determined with reasonable accuracy (Correct answer)
When the expense is paid in cash
When the expense is approved by management
When the check is written

Correct answer: When all events have occurred that fix the liability and the amount can be determined with reasonable accuracy

Under the accrual method, a deduction is allowable when the all-events test is met and economic performance has occurred.

Question 21: Which of the following is NOT a recognized category of individuals who may practice before the IRS under Circular 230?

Enrolled retirement plan agents (for retirement plan matters)
Enrolled agents
Financial advisors holding the CFP designation (Correct answer)
Enrolled actuaries (for actuarial matters)

Correct answer: Financial advisors holding the CFP designation

CFP (Certified Financial Planner) is not a recognized credential under Circular 230 that grants IRS practice rights; only enrolled agents, CPAs, attorneys, enrolled actuaries, and enrolled retirement plan agents are listed.

Question 22: Which of the following is NOT a qualifying distribution for purposes of a private foundation's 5% minimum distribution requirement?

Investment in for-profit securities to earn income for the foundation (Correct answer)
Direct charitable activities conducted by the foundation itself
Program-related investments in low-income housing
Grants to public charities for their charitable programs

Correct answer: Investment in for-profit securities to earn income for the foundation

Investments in for-profit securities for income purposes are not qualifying distributions; qualifying distributions must be made directly for exempt purposes.

Question 23: What is the maximum amount of student loan interest a taxpayer may deduct per year?

$5,000
$1,000
$4,000
$2,500 (Correct answer)

Correct answer: $2,500

Taxpayers may deduct up to $2,500 in student loan interest paid during the year, subject to income phase-outs.

Question 24: What quality review process does the IRS require VITA sites to perform on completed tax returns?

IRS district manager approval for each return
Random sampling by the site's partner organization
Supervisory sign-off by a licensed CPA
Peer review by another certified volunteer before the return is filed (Correct answer)

Correct answer: Peer review by another certified volunteer before the return is filed

VITA sites must have a second certified volunteer review each completed return for accuracy before it is filed or given to the taxpayer.

Question 25: A taxpayer received a Form 1099-NEC showing $800 in nonemployee compensation. Do they have a filing obligation?

Only if they also have W-2 wages
No, because 1099-NEC is not considered self-employment
Yes, because net self-employment earnings exceed the $400 threshold (Correct answer)
No, 1099-NEC income under $1,000 is exempt

Correct answer: Yes, because net self-employment earnings exceed the $400 threshold

Nonemployee compensation reported on Form 1099-NEC is generally self-employment income, and net earnings of $400 or more require filing.

Question 26: What term describes a private foundation that converts to a public charity status by meeting the public support test for five consecutive years?

Automatic reclassification
Termination by distribution to a public charity or by becoming a public charity (Correct answer)
Conversion election
Sunset clause termination

Correct answer: Termination by distribution to a public charity or by becoming a public charity

A private foundation can terminate its private foundation status by distributing all assets to a public charity or by qualifying as a public charity under the public support test for 60 months.

Question 27: Which depreciation method generally produces the largest deduction in the first year for 5-year MACRS property?

150% declining balance
200% declining balance (Correct answer)
Straight-line
Units of production

Correct answer: 200% declining balance

The 200% declining balance method (double declining balance) produces the highest first-year depreciation for MACRS 5-year property before switching to straight-line.

Question 28: A practitioner subject to a Circular 230 proceeding receives a complaint from the OPR. What is the practitioner's right in this situation?

The practitioner must accept the OPR's determination without appeal
The practitioner must immediately cease all IRS representation
The practitioner may only respond through an attorney
The practitioner is entitled to a conference and the opportunity to present a defense (Correct answer)

Correct answer: The practitioner is entitled to a conference and the opportunity to present a defense

Under Circular 230, a practitioner accused of misconduct is entitled to notice of the charges, a conference with the OPR, and an opportunity to present a defense before any sanction is imposed.

Question 29: The Office of Professional Responsibility (OPR) has jurisdiction over which of the following practitioners?

Only enrolled agents and enrolled actuaries
All individuals who practice before the IRS, including attorneys, CPAs, and enrolled agents (Correct answer)
Only unenrolled return preparers
Only tax professionals who have been previously sanctioned

Correct answer: All individuals who practice before the IRS, including attorneys, CPAs, and enrolled agents

The OPR has jurisdiction over all practitioners who practice before the IRS, including enrolled agents, CPAs, attorneys, enrolled actuaries, and enrolled retirement plan agents.

Question 30: What is the maximum Section 199A qualified business income (QBI) deduction percentage for eligible taxpayers?

20% of QBI (Correct answer)
50% of QBI
25% of QBI
10% of QBI

Correct answer: 20% of QBI

Eligible taxpayers may deduct up to 20% of their qualified business income from pass-through entities under IRC §199A, subject to limitations.

Question 31: What is the excise tax rate imposed on excess benefit transactions on the disqualified person who received the benefit?

50%
25% (Correct answer)
35%
10%

Correct answer: 25%

The initial excise tax on the disqualified person who received the excess benefit is 25% of the excess benefit amount.

Question 32: A taxpayer's marital status for filing purposes is determined on what day of the year?

The last day of the tax year, December 31st (Correct answer)
January 1st of the tax year
The day the tax return is filed
The taxpayer's wedding anniversary

Correct answer: The last day of the tax year, December 31st

The IRS determines a taxpayer's marital status as of the last day of the tax year, which for most individuals is December 31st. If you are unmarried or legally separated under a decree of divorce or separate maintenance on December 31st, you are considered unmarried for the entire year.

Question 33: A taxpayer contributes $3,000 to a Health Savings Account (HSA). This contribution is treated as:

A business expense on Schedule C
An above-the-line deduction reducing AGI (Correct answer)
An itemized deduction only if medical expenses exceed 7.5% of AGI
A nonrefundable tax credit

Correct answer: An above-the-line deduction reducing AGI

HSA contributions by the taxpayer (not through payroll) are an above-the-line deduction, reducing AGI directly.

Question 34: Which of the following would constitute 'disreputable conduct' under Circular 230 §10.51?

Declining to represent a client whose case is too complex
Charging a higher fee than the client expected
Willfully assisting a client in evading federal tax (Correct answer)
Filing a return one day late due to a postal error

Correct answer: Willfully assisting a client in evading federal tax

Willfully assisting, counseling, or encouraging tax evasion is explicitly listed as disreputable conduct under Circular 230 §10.51(a)(4).

Question 35: In the context of IRS Enrolled Agent CE requirements, what topic must be included in continuing education every year?

Corporate tax restructuring
International tax treaties
State and local tax law
Ethics (professional responsibility) (Correct answer)

Correct answer: Ethics (professional responsibility)

Enrolled Agents must complete at least 2 hours of ethics/professional responsibility CE each year as part of their ongoing requirements.

Question 36: Under which of the following circumstances is a practitioner, governed by Circular 230, generally prohibited from charging a contingent fee?

For services related to an IRS examination of an original return.
For services connected to a claim for a credit or refund filed in response to a formal notice of examination.
For services rendered in connection with a judicial proceeding under the Internal Revenue Code.
For services in connection with preparing an original tax return. (Correct answer)

Correct answer: For services in connection with preparing an original tax return.

Circular 230, Section 10.27, generally prohibits practitioners from charging a contingent fee for preparing an original tax return. The exceptions to this rule typically involve situations where the IRS is already challenging a return or the matter is in court.

Question 37: What is the tax treatment of organizational costs (e.g., legal fees to incorporate) under IRC §248?

Deduct over the life of the corporation as determined by management
Deduct up to $5,000 in the first year; amortize the remainder over 180 months (Correct answer)
Capitalize permanently with no deduction allowed
Deduct all costs immediately in the year incurred

Correct answer: Deduct up to $5,000 in the first year; amortize the remainder over 180 months

Under IRC §248, corporations may immediately deduct up to $5,000 of organizational costs (phased out dollar-for-dollar over $50,000), with remaining costs amortized over 180 months.

Question 38: A practitioner who knowingly gives false or misleading information to the IRS in connection with a tax matter is subject to:

Disciplinary action under Circular 230 and possible criminal prosecution (Correct answer)
A mandatory ethics continuing education requirement
Suspension from practice for no more than 30 days
A civil penalty only, up to $1,000

Correct answer: Disciplinary action under Circular 230 and possible criminal prosecution

Providing false or misleading information to the IRS violates Circular 230 §10.51 and may also constitute a criminal offense under 18 U.S.C. §1001.

Question 39: An employer provides an employee with a company car for both business and personal use. How is the personal use value treated?

Excluded if the car is used more than 50% for business
Deductible by the employee on Schedule A
Excluded from income as a working condition fringe benefit
Included in the employee's gross income as a taxable fringe benefit (Correct answer)

Correct answer: Included in the employee's gross income as a taxable fringe benefit

The fair market value of personal use of an employer-provided vehicle must be included in the employee's gross income as a taxable fringe benefit.

Question 40: Which form must a charitable organization file to notify the IRS of its intent to operate as a 501(c)(4) social welfare organization?

Form 1023
Form 8832
Form 990-N
Form 1024-A (Correct answer)

Correct answer: Form 1024-A

Form 1024-A is used by organizations seeking recognition as a 501(c)(4) social welfare organization.

Question 41: The Lifetime Learning Credit is worth what percentage of qualified education expenses?

25%
10%
20% (Correct answer)
100%

Correct answer: 20%

The Lifetime Learning Credit equals 20% of up to $10,000 in qualified education expenses, for a maximum of $2,000.

Question 42: Under IRC §1231, when a business sells depreciable property used in a trade or business held more than one year at a gain, how is the gain generally treated?

As short-term capital gain
As long-term capital gain (subject to depreciation recapture rules) (Correct answer)
As ordinary income
As a tax-free exchange

Correct answer: As long-term capital gain (subject to depreciation recapture rules)

Section 1231 gains are generally treated as long-term capital gains, but depreciation recapture under §1245 or §1250 may convert some or all of the gain to ordinary income.

Question 43: Which of the following is a requirement for maintaining 501(c)(3) status?

The organization must primarily engage in activities that further its charitable purpose. (Correct answer)
The organization must distribute profits to shareholders.
The organization must operate internationally.
The organization must pay federal income tax on all income.

Correct answer: The organization must primarily engage in activities that further its charitable purpose.

To maintain 501(c)(3) status, an organization must primarily operate for charitable, educational, religious, or scientific purposes, among others. This means its activities must consistently further its tax-exempt mission. Distributing profits to shareholders, operating internationally, or paying federal income tax on all income are contrary to or not requirements for this specific tax-exempt status.

Question 44: Which of the following forms of advertising or solicitation by a tax practitioner would be a violation of the rules in Circular 230?

"We offer a free 30-minute consultation for all new business clients."
"Our firm has specialized in partnership taxation for over 25 years."
"As a former IRS agent, I have the inside knowledge to get you the best possible outcome." (Correct answer)
"Fees for individual tax return preparation start at $300."

Correct answer: "As a former IRS agent, I have the inside knowledge to get you the best possible outcome."

Circular 230, Section 10.30, prohibits any form of public communication containing a false, fraudulent, or misleading statement or claim. Claiming that former IRS employment provides an unfair advantage or guarantees a better outcome is considered misleading.

Question 45: What is the fraud penalty percentage applied to the portion of underpayment attributable to civil fraud?

50%
100%
75% (Correct answer)
20%

Correct answer: 75%

The civil fraud penalty under IRC Section 6663 is 75% of the underpayment attributable to fraud.

Question 46: A practitioner receives a subpoena demanding client records. The practitioner believes the records are protected by attorney-client privilege. Under Circular 230 and federal law, privileged tax advice communications with non-attorney practitioners are:

Protected only if the client signs a privilege assertion form
Protected only under the federally authorized tax practitioner privilege under IRC §7525 (Correct answer)
Not protected under any privilege doctrine
Fully protected under common law attorney-client privilege

Correct answer: Protected only under the federally authorized tax practitioner privilege under IRC §7525

IRC §7525 extends a limited privilege to confidential tax advice communications between taxpayers and federally authorized tax practitioners in non-criminal proceedings.

Question 47: Under the at-risk rules, a partner can only deduct losses up to the amount the partner has at risk. Which of the following increases a partner's at-risk amount?

The partner's share of partnership liabilities for which no partner bears economic risk of loss
Distributions received from the partnership
The partner's share of nonrecourse liabilities secured by real property
Cash contributions to the partnership (Correct answer)

Correct answer: Cash contributions to the partnership

Cash contributions increase a partner's at-risk amount, while certain nonrecourse liabilities and distributions decrease or do not increase it.

Question 48: Under Circular 230 §10.35, a practitioner who provides a 'covered opinion' must ensure the opinion:

Is provided free of charge to avoid the appearance of a contingent fee arrangement
Is filed with the IRS within 30 days of delivery to the client
Is reviewed by a second practitioner before delivery to the client
Considers all relevant facts, applies the law to those facts, and reaches a conclusion (Correct answer)

Correct answer: Considers all relevant facts, applies the law to those facts, and reaches a conclusion

A covered opinion under Circular 230 §10.35 must consider all relevant facts, correctly apply the law, and reach a reasoned conclusion as to the likely tax treatment.

Question 49: A taxpayer contributes appreciated stock worth $50,000 (basis $10,000) to a public charity. What is the maximum deduction allowed (assuming 30% AGI limit applies and AGI is $100,000)?

$30,000 (30% of AGI) (Correct answer)
$10,000 (basis only)
$50,000 (fair market value)
$40,000 (excess basis carry forward)

Correct answer: $30,000 (30% of AGI)

Contributions of long-term appreciated capital gain property to public charities are deductible at FMV but limited to 30% of AGI ($30,000); excess carries forward 5 years.

Question 50: Which of the following is considered a self-dealing transaction between a private foundation and a disqualified person?

Lending money from the foundation to a board member at below-market interest (Correct answer)
The foundation hiring an independent contractor for maintenance
A board member donating appreciated stock to the foundation
A disqualified person making a grant to the foundation

Correct answer: Lending money from the foundation to a board member at below-market interest

Self-dealing includes any loan between a private foundation and a disqualified person, even if at below-market rates, with limited exceptions.

Question 51: Which of the following types of income does NOT count toward the gross income filing threshold?

Self-employment net earnings over $400
Taxable interest
Wages from a part-time job
Tax-exempt municipal bond interest (Correct answer)

Correct answer: Tax-exempt municipal bond interest

Tax-exempt interest, such as from municipal bonds, is excluded from gross income and does not count toward the filing requirement threshold.

Question 52: A small business with 15 full-time employees wants to hire a new employee who is a qualified veteran. Which tax credit is specifically designed to incentivize hiring individuals from targeted groups, including certain veterans?

Small Business Health Care Tax Credit
Work Opportunity Tax Credit (WOTC) (Correct answer)
New Markets Tax Credit (NMTC)
Research and Development (R&D) Credit

Correct answer: Work Opportunity Tax Credit (WOTC)

The Work Opportunity Tax Credit (WOTC) is a federal tax credit available to employers for hiring and employing individuals from certain targeted groups who have consistently faced significant barriers to employment, including specific categories of veterans. The other credits listed target different business activities, such as innovation (R&D), providing health insurance, or investing in low-income communities.

Question 53: During an IRS collection action, an enrolled agent representing the taxpayer learns that the revenue officer plans to levy the client's bank account. What is the EA's most immediate option to protect the client?

Contact the IRS Commissioner's office directly
Request a Collection Due Process (CDP) hearing if the client has not already had one (Correct answer)
File a Tax Court petition to automatically stop the levy
File for bankruptcy on behalf of the client

Correct answer: Request a Collection Due Process (CDP) hearing if the client has not already had one

Filing a timely request for a Collection Due Process hearing under IRC §6330 will suspend the levy while the case is reviewed by the IRS Appeals Office.

Question 54: Which of the following is the proper procedure when an enrolled agent wishes to withdraw from representing a client during an IRS examination?

File a written notice of withdrawal with the examining agent (Correct answer)
Notify the IRS by telephone and confirm within 30 days in writing
Simply stop responding to IRS correspondence
File a new Form 2848 naming a substitute representative

Correct answer: File a written notice of withdrawal with the examining agent

To withdraw from representation, the enrolled agent should provide written notice to the IRS office handling the matter and inform the client of the withdrawal.

Question 55: A corporation's tax year ends June 30. When must it file its Form 1120 (without extension)?

August 15
October 15
July 15
September 15 (Correct answer)

Correct answer: September 15

A corporation with a June 30 fiscal year-end must file Form 1120 by the 15th day of the 3rd month after the year-end closes, which is September 15.

Question 56: A taxpayer pays for childcare for their 10-year-old child so they can work. Which of the following is a requirement for the care provider to allow the taxpayer to claim the Child and Dependent Care Credit?

The provider cannot be the taxpayer's 17-year-old child. (Correct answer)
The provider must be the taxpayer's spouse if they are not working.
The provider can be the child's non-custodial parent.
The provider must be a licensed daycare facility.

Correct answer: The provider cannot be the taxpayer's 17-year-old child.

To claim the Child and Dependent Care Credit, the care provider cannot be the taxpayer's spouse, the parent of the qualifying child, someone the taxpayer can claim as a dependent, or the taxpayer's child who is under age 19 at the end of the year.

Question 57: What form does a partnership use to report its income, deductions, and credits to the IRS?

Form 1065 (Correct answer)
Form 1120
Form 1120-S
Schedule C of Form 1040

Correct answer: Form 1065

Partnerships file Form 1065 (U.S. Return of Partnership Income) as an information return, with each partner receiving a Schedule K-1.

Question 58: An enrolled agent represents a client in an audit. During the audit, the IRS agent asks the enrolled agent to produce records that may be protected by attorney-client privilege. The enrolled agent should:

Refuse to produce any records and terminate the audit
Assert attorney-client privilege on behalf of the client
Assert the federally authorized tax practitioner privilege if applicable and consult with the client (Correct answer)
Produce all records immediately to cooperate with the IRS

Correct answer: Assert the federally authorized tax practitioner privilege if applicable and consult with the client

Under IRC §7525, a limited privilege applies to confidential communications between enrolled agents and their clients for non-criminal tax advice; the EA should assert this privilege if applicable and consult the client.

Question 59: Which business entity provides limited liability to all owners AND avoids double taxation without making an S corporation election?

Limited liability company (LLC) taxed as a partnership (Correct answer)
C corporation
Sole proprietorship
General partnership

Correct answer: Limited liability company (LLC) taxed as a partnership

A multi-member LLC taxed as a partnership provides all members with limited liability protection while income passes through to members, avoiding entity-level tax.

Question 60: A taxpayer files as Head of Household. Which of the following is a requirement to qualify for this filing status?

The taxpayer must be unmarried and pay more than half the cost of maintaining a home for a qualifying person (Correct answer)
The qualifying person must be a child under age 13
The taxpayer must be divorced or legally separated
The taxpayer must have earned income exceeding $25,000

Correct answer: The taxpayer must be unmarried and pay more than half the cost of maintaining a home for a qualifying person

Head of Household requires the taxpayer to be unmarried (or considered unmarried) and to have paid more than half the costs of maintaining a home for a qualifying person for more than half the year.

Question 61: Which of the following best describes 'practice before the IRS' under Circular 230?

Only representing taxpayers in U.S. Tax Court proceedings
Only appearing in person at an IRS office on behalf of a taxpayer
Only preparing and signing tax returns for compensation
All matters connected with a presentation to the IRS relating to a taxpayer's rights, privileges, or liabilities (Correct answer)

Correct answer: All matters connected with a presentation to the IRS relating to a taxpayer's rights, privileges, or liabilities

Practice before the IRS includes all matters connected with presentation to the IRS, including preparing documents, filing them, and communicating with the IRS on behalf of a taxpayer.

Question 62: A married couple files jointly. One spouse has a long-term capital loss of $10,000 and the other has a long-term capital gain of $6,000. What is the net capital loss deductible against ordinary income in 2023?

$10,000
$4,000 net loss, all deductible
$3,000, with $1,000 carried forward (Correct answer)
$3,000, with $4,000 never deductible

Correct answer: $3,000, with $1,000 carried forward

Net capital losses are deductible against ordinary income up to $3,000 per year; the remaining $1,000 net loss carries forward to the next tax year.

Question 63: Which of the following is a practitioner required to do when an IRS officer requests the identity of a client for whom the practitioner filed a return?

Provide the client's identity because tax return preparer information is not privileged (Correct answer)
Refuse on grounds of confidentiality unless the client consents
Request a court order before disclosing any client identity
Notify the client before providing any information

Correct answer: Provide the client's identity because tax return preparer information is not privileged

Under IRC §7525 the federally authorized tax practitioner privilege does not protect client identity, which must be disclosed when properly requested.

Question 64: Which tool in the IRS e-Services suite is used specifically to verify taxpayer identities and prevent fraudulent refunds?

Identity Protection PIN (IP PIN) system (Correct answer)
CAF Number Registry
EFTPS Verification Tool
Secure Access Digital Identity (SADI)

Correct answer: Identity Protection PIN (IP PIN) system

The IP PIN system assigns a unique six-digit number to taxpayers to prevent identity thieves from filing fraudulent returns using their SSN.

Question 65: Under what circumstances may an unenrolled return preparer represent a taxpayer before the IRS?

Before examination officers for returns the preparer prepared and signed, for tax years after December 31, 2015, if in the Annual Filing Season Program (Correct answer)
In any IRS proceeding if the taxpayer provides a signed statement
Only before the Taxpayer Advocate Service for any issue
For any examination as long as the taxpayer is present

Correct answer: Before examination officers for returns the preparer prepared and signed, for tax years after December 31, 2015, if in the Annual Filing Season Program

Unenrolled return preparers who hold an Annual Filing Season Program (AFSP) record of completion may represent taxpayers before revenue agents and customer service representatives for returns they prepared and signed.

Question 66: Which of the following acts requires SPECIFIC authorization on Form 2848 and is NOT automatically granted?

Requesting transcripts of the taxpayer's account
Signing a protest letter to the Appeals Office
Substituting or adding another representative (Correct answer)
Receiving copies of IRS notices and communications

Correct answer: Substituting or adding another representative

The authority to substitute or add another representative must be specifically granted in the acts authorized section of Form 2848 and is not automatically included.

Question 67: A practitioner who is a former IRS employee must comply with which of the following restrictions?

The practitioner may never represent any taxpayer before the IRS
The practitioner may not represent a taxpayer in a matter the practitioner participated personally and substantially while at the IRS (Correct answer)
The practitioner must disclose former IRS employment on all IRS filings for 10 years
The practitioner must wait five years before representing any taxpayer in any matter

Correct answer: The practitioner may not represent a taxpayer in a matter the practitioner participated personally and substantially while at the IRS

Under Circular 230, former government employees are subject to 'revolving door' restrictions that prohibit representing parties in specific matters they personally and substantially participated in while employed by the IRS.

Question 68: Which of the following actions would allow a previously disbarred practitioner to be reinstated under Circular 230?

Filing a petition for reinstatement after at least five years and demonstrating fitness to practice (Correct answer)
Obtaining a letter of support from a sitting U.S. Senator
Passing a new enrolled agent examination automatically restores practice rights
Completing 120 hours of continuing education within one year of disbarment

Correct answer: Filing a petition for reinstatement after at least five years and demonstrating fitness to practice

Circular 230 §10.81 allows a disbarred practitioner to petition for reinstatement after five years by showing rehabilitation and fitness to practice before the IRS.

Question 69: Which of the following entities is subject to the accumulated earnings tax?

Sole proprietorships
Partnerships
S corporations
C corporations that accumulate earnings beyond reasonable business needs (Correct answer)

Correct answer: C corporations that accumulate earnings beyond reasonable business needs

The accumulated earnings tax applies to C corporations that retain earnings in excess of reasonable business needs to avoid shareholder-level dividend taxation.

Question 70: A sole proprietor reports business income and expenses on which schedule attached to Form 1040?

Schedule A
Schedule C (Correct answer)
Schedule D
Schedule B

Correct answer: Schedule C

Sole proprietors report business profit or loss on Schedule C (Profit or Loss from Business), which is attached to their individual Form 1040.

Question 71: A 501(c)(3) organization that provides more than what percentage of its services to private interests risks losing its tax-exempt status due to private benefit?

More than 15%
More than 20%
More than 5% (Correct answer)
More than 10%

Correct answer: More than 5%

Private benefit beyond an insubstantial amount (generally more than 5%) can jeopardize a 501(c)(3) organization's tax-exempt status.

Question 72: Under what authority may the IRS disbar a practitioner from practice before the IRS?

With approval from the relevant state licensing board
Only with approval from the U.S. Tax Court
Under Circular 230, through an administrative proceeding initiated by the OPR (Correct answer)
Only through a criminal conviction in federal court

Correct answer: Under Circular 230, through an administrative proceeding initiated by the OPR

The IRS has independent authority under Circular 230 (31 CFR Part 10) to disbar or suspend practitioners through an administrative proceeding without requiring court action.

Question 73: Which of the following education credits can be claimed for graduate school expenses?

American Opportunity Tax Credit
Lifetime Learning Credit (Correct answer)
Tuition and Fees Deduction
Hope Credit

Correct answer: Lifetime Learning Credit

The Lifetime Learning Credit applies to graduate and professional degree courses, unlike the AOTC which is limited to the first four years.

Question 74: What is the corporate tax rate for C corporations under current law?

21% (Correct answer)
25%
28%
35%

Correct answer: 21%

The Tax Cuts and Jobs Act of 2017 established a flat 21% corporate income tax rate for C corporations.

Question 75: Under the uniform capitalization rules (UNICAP) of IRC §263A, which businesses are generally required to capitalize direct and indirect costs into inventory?

Resellers with average annual gross receipts exceeding $29 million and all producers (Correct answer)
Businesses that use the cash method of accounting
Only publicly traded corporations
All businesses regardless of size

Correct answer: Resellers with average annual gross receipts exceeding $29 million and all producers

IRC §263A generally requires producers of real or personal property and resellers with gross receipts exceeding the small business threshold to capitalize costs into inventory.

Question 76: Which IRS notice is typically the first contact in an automated underreporter (AUR) case and proposes a change to a tax return?

CP75
CP2000
CP2501 (Correct answer)
Letter 2030

Correct answer: CP2501

CP2501 is typically the initial IRS contact in an AUR case, informing the taxpayer that income or payment information doesn't match and requesting clarification.

Question 77: An S corporation has a net loss for the year. How is this loss treated by a shareholder?

It is automatically deductible against the shareholder's W-2 wages
It is carried forward at the corporate level only
It passes through to shareholders and is deductible up to their basis in stock and debt (Correct answer)
It is permanently lost and cannot be deducted

Correct answer: It passes through to shareholders and is deductible up to their basis in stock and debt

S corporation losses pass through to shareholders but are limited to each shareholder's adjusted basis in stock and any debt owed by the corporation to the shareholder.

Question 78: A taxpayer receives employer-provided health insurance worth $8,000. How is this treated for federal income tax purposes?

Excluded from gross income under Section 106 (Correct answer)
Taxable above a $5,000 annual threshold
Taxable only if the plan is self-insured
Fully taxable as additional compensation

Correct answer: Excluded from gross income under Section 106

Employer-paid health insurance premiums are excluded from an employee's gross income under IRC Section 106.

Question 79: The Modified Accelerated Cost Recovery System (MACRS) is the required depreciation method for most tangible business property placed in service after 1986. Which of the following is a key characteristic of MACRS?

It allows for larger depreciation deductions in the earlier years of an asset's life. (Correct answer)
It requires the use of the straight-line method for all asset classes.
Salvage value must be subtracted from the asset's basis before calculating depreciation.
It always uses the actual market value of the asset at the end of each year.

Correct answer: It allows for larger depreciation deductions in the earlier years of an asset's life.

MACRS is an accelerated depreciation system, meaning it allows businesses to take larger tax deductions in the early years of an asset's life and smaller ones in later years. It does not require the straight-line method for all assets and specifically prescribes depreciation periods and methods. Unlike other methods, salvage value is not considered under MACRS.

Question 80: Which of the following triggers ordinary income recognition under IRC §1245 depreciation recapture?

Sale of land used in a business
Sale of depreciable personal property at a gain to the extent of depreciation previously taken (Correct answer)
Sale of a capital asset not used in a business
Casualty loss on business inventory

Correct answer: Sale of depreciable personal property at a gain to the extent of depreciation previously taken

IRC §1245 recaptures depreciation previously deducted on personal property as ordinary income to the extent of the gain, overriding the more favorable §1231 treatment.

Question 81: If the IRS sends a statutory notice of deficiency to a taxpayer, the taxpayer's representative must file a Tax Court petition within what time period to preserve the taxpayer's right to contest the deficiency without first paying the tax?

60 days from the date of the notice
30 days from the date of the notice
6 months from the date of the notice
90 days from the date of the notice (150 days if addressed outside the U.S.) (Correct answer)

Correct answer: 90 days from the date of the notice (150 days if addressed outside the U.S.)

A taxpayer must file a petition in U.S. Tax Court within 90 days of the statutory notice of deficiency (150 days if the notice is addressed to a person outside the United States) to contest the deficiency before paying.

Question 82: Which disciplinary sanction under Circular 230 allows a practitioner to continue practicing before the IRS while under corrective measures?

Suspension
Censure (Correct answer)
Criminal referral
Disbarment

Correct answer: Censure

Censure is a public reprimand that does not restrict the practitioner's right to practice before the IRS, unlike suspension or disbarment.

Question 83: A taxpayer pays $8,000 in mortgage interest and $3,500 in state income taxes. The standard deduction is $13,850 (single). What is the most beneficial filing approach?

Take the standard deduction of $13,850 (Correct answer)
Always itemize regardless of amount
Split deductions between standard and itemized
Itemize deductions for $11,500 total

Correct answer: Take the standard deduction of $13,850

Taxpayers should choose the higher of itemized vs. standard deduction; $13,850 exceeds $11,500 here.

Question 84: The Child Tax Credit in 2023 is worth up to how much per qualifying child under age 17?

$3,600
$2,000 (Correct answer)
$1,000
$500

Correct answer: $2,000

The Child Tax Credit is $2,000 per qualifying child under 17 for tax year 2023.

Question 85: A calendar-year C corporation must file its annual tax return by which deadline (without extension)?

April 15 (3½ months after year-end) (Correct answer)
March 15 (2½ months after year-end)
April 15
March 15

Correct answer: April 15 (3½ months after year-end)

C corporations with a December 31 year-end must file Form 1120 by April 15 (the 15th day of the 4th month after the tax year ends).

Question 86: A C corporation donates appreciated stock (basis $5,000, FMV $15,000) to a qualified charity. What is the maximum deduction?

$10,000 (the appreciation amount)
$15,000 (fair market value)
$15,000 but limited to 10% of taxable income (Correct answer)
$5,000 (basis only)

Correct answer: $15,000 but limited to 10% of taxable income

C corporations may generally deduct the fair market value of appreciated capital gain property donated to charity, but the deduction is limited to 10% of corporate taxable income.

Question 87: Under Circular 230, solicitation by a practitioner is prohibited if it is:

Targeted to a specific industry or profession
Distributed more than once in a calendar year
Sent via email to former clients
False, misleading, or deceptive (Correct answer)

Correct answer: False, misleading, or deceptive

Circular 230 §10.30 prohibits solicitations that are false, misleading, or deceptive; truthful and non-deceptive advertising and solicitation is generally permitted.

Question 88: A taxpayer sells their primary residence after living there for 18 months. What is the maximum capital gains exclusion available?

$250,000 — prorated for partial ownership
$0 — no exclusion applies
$500,000 — full exclusion applies
$125,000 — prorated for time lived there (Correct answer)

Correct answer: $125,000 — prorated for time lived there

The $250,000 exclusion ($500,000 MFJ) is prorated when the taxpayer fails to meet the full 2-year requirement due to a qualifying unforeseen circumstance.

Question 89: A business owner drives 12,000 business miles and 3,000 personal miles in their vehicle. Using the standard mileage rate, which miles are deductible?

Only the 3,000 personal miles
The miles must be prorated based on total vehicle cost
All 15,000 miles
Only the 12,000 business miles (Correct answer)

Correct answer: Only the 12,000 business miles

Only the 12,000 business miles are deductible using the standard mileage rate; personal use miles are never deductible.

Question 90: What technology standard does the IRS MeF system use to transmit tax return data between software vendors and the IRS?

PDF/A archival format
CSV flat file format
XML (Extensible Markup Language) (Correct answer)
EDI (Electronic Data Interchange)

Correct answer: XML (Extensible Markup Language)

MeF uses XML-based schemas to transmit structured tax return data between authorized software providers and the IRS.

Question 91: The American Opportunity Tax Credit provides up to how much per eligible student per year?

$1,000
$4,000
$2,000
$2,500 (Correct answer)

Correct answer: $2,500

The AOTC provides up to $2,500 per student for qualified education expenses in the first four years of higher education.

Question 92: Under Circular 230, a practitioner who discovers that a client made an error on a prior year return must:

File an amended return on behalf of the client without further discussion
Withdraw from representation if the client refuses to correct the error
Immediately notify the IRS of the error without client consent
Promptly advise the client of the error and the potential consequences (Correct answer)

Correct answer: Promptly advise the client of the error and the potential consequences

Circular 230 §10.21 requires the practitioner to promptly advise the client of the noncompliance, error, or omission and the consequences, but does not require the practitioner to notify the IRS.

Question 93: What is the deadline for a new organization (other than a church) to file Form 1023 to be recognized as a 501(c)(3) from its date of formation?

27 months (Correct answer)
12 months
18 months
36 months

Correct answer: 27 months

Organizations must file Form 1023 within 27 months of formation to have their tax-exempt status recognized retroactively to the date of formation.

Question 94: When a shareholder's S corporation stock basis is reduced to zero by losses, what happens to any additional losses?

They convert to capital losses deductible against capital gains
They are carried back two years and forward 20 years at the corporate level
They reduce the shareholder's basis in any loans made to the S corporation (Correct answer)
They are permanently disallowed

Correct answer: They reduce the shareholder's basis in any loans made to the S corporation

After stock basis is reduced to zero, additional S corporation losses reduce the shareholder's basis in any direct loans made to the corporation, but not below zero.

Question 95: When must a practitioner provide a written disclosure for a 'covered opinion' under Circular 230?

Only when the IRS specifically requests a written opinion
Only when the opinion is provided to a publicly traded company
Whenever the practitioner charges more than $500 for tax advice
When the written advice concerns a listed transaction or a principal purpose transaction (Correct answer)

Correct answer: When the written advice concerns a listed transaction or a principal purpose transaction

Circular 230 §10.37 requires specific disclosures when written advice addresses listed transactions or tax avoidance transactions where tax benefits are a principal purpose.

Question 96: Which of the following business expenses is generally only 50% deductible for tax purposes?

Business-related travel expenses, such as airfare
Salaries and wages paid to employees
Meals with clients and for employees during travel (Correct answer)
Premiums for employee health insurance

Correct answer: Meals with clients and for employees during travel

Under current IRS rules, the deduction for business-related meals is generally limited to 50% of the actual cost. This applies to meals with clients and meals consumed by employees while traveling for business. Employee salaries, health insurance premiums, and travel costs like airfare are typically 100% deductible.

Question 97: Which of the following is NOT a qualifying expense for the Section 179 deduction?

Office furniture
Machinery used in manufacturing
Inventory held for sale (Correct answer)
Computer equipment

Correct answer: Inventory held for sale

Inventory held for sale is specifically excluded from Section 179 expensing, which applies to depreciable business property.

Question 98: For purposes of the Earned Income Tax Credit, which type of income is NOT considered earned income?

Alimony received under a pre-2019 divorce decree (Correct answer)
W-2 wages from part-time employment
Taxable scholarship used for living expenses
Net profit from self-employment

Correct answer: Alimony received under a pre-2019 divorce decree

Alimony received under pre-2019 agreements is taxable income but not earned income for EITC purposes; scholarships not used for qualifying expenses may count.

Question 99: Which basis does the IRS use to reconstruct income when a taxpayer has no books or records during an audit?

Industry standard benchmarking only
Prior year averaging
Indirect methods such as bank deposits or net worth analysis (Correct answer)
Standard deduction method

Correct answer: Indirect methods such as bank deposits or net worth analysis

When records are unavailable, the IRS may use indirect methods like the bank deposit method or net worth method to reconstruct a taxpayer's income.

Question 100: Under Circular 230, a practitioner who is the subject of a disciplinary proceeding has the right to:

Appeal directly to the U.S. Tax Court
Receive a written complaint, respond in writing, and request a hearing (Correct answer)
Demand that the OPR director personally conduct the hearing
Have the proceeding resolved within 30 days

Correct answer: Receive a written complaint, respond in writing, and request a hearing

Due process in Circular 230 disciplinary proceedings requires written notice of charges, an opportunity to respond, and the right to a hearing before an administrative law judge.

IRS Special Enrollment Examination (SEE) — Enrolled Agent

The IRS Special Enrollment Examination (SEE) tests mastery of individual and business taxation, deductions, credits, filing requirements, and representation before the IRS. Passing all three parts earns the Enrolled Agent (EA) designation, the highest credential awarded by the IRS to tax professionals.

100

Questions

210 min

Time Limit

72%

To Pass

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