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

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

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

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 2: How does the IRS's Tax Exempt/Government Entities (TE/GE) division approach employee training differently from other IRS divisions?

TE/GE training emphasizes exempt organization law, pension rules, and government entity compliance rather than individual or corporate income tax (Correct answer)
TE/GE relies entirely on private-sector trainers
TE/GE only offers online self-paced courses
TE/GE employees do not require CPE

Correct answer: TE/GE training emphasizes exempt organization law, pension rules, and government entity compliance rather than individual or corporate income tax

TE/GE employee training focuses on specialized areas like nonprofit law, retirement plan rules, and tax-exempt bond compliance unique to that division.

Question 3: A taxpayer receives a distribution from a Health Savings Account (HSA) used to pay non-qualified expenses before age 65. What is the tax treatment?

Included in income only, no additional penalty
Subject to a 10% early withdrawal penalty only
Included in income and subject to a 20% additional tax (Correct answer)
Excluded from income because HSA funds are always tax-free

Correct answer: Included in income and subject to a 20% additional tax

Non-qualified HSA distributions are included in gross income and subject to an additional 20% penalty tax (unless the taxpayer is age 65 or older, disabled, or deceased).

Question 4: 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
Capitalized and amortized over 15 years under IRC §197 (Correct answer)
Non-deductible as a capital expenditure with no recovery
Deducted immediately as a business expense

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 5: Which IRS notice informs a taxpayer that their return has been selected for examination?

CP2000
CP503
Letter 2205 (Correct answer)
Letter 531

Correct answer: Letter 2205

IRS Letter 2205 is the initial contact letter notifying a taxpayer their return has been selected for examination.

Question 6: Which statement about Married Filing Separately (MFS) is correct?

MFS always results in a lower combined tax than MFJ
MFS filers are eligible for the Earned Income Credit
MFS allows one spouse to deduct the other's losses
MFS filers generally face higher tax rates than MFJ filers (Correct answer)

Correct answer: MFS filers generally face higher tax rates than MFJ filers

Married Filing Separately typically results in higher tax rates and disqualifies taxpayers from many credits, making it generally less favorable than MFJ.

Question 7: Which of the following is a practitioner required to do under Circular 230 regarding fees?

Obtain client approval for any fee above $1,000
Not charge contingent fees for original tax returns (Correct answer)
Charge no more than the IRS-published fee schedule
Provide a written fee agreement for all engagements exceeding $500

Correct answer: Not charge contingent fees for original tax returns

Circular 230 prohibits practitioners from charging contingent fees for preparing original tax returns or amended returns when there is no pending IRS examination.

Question 8: An unenrolled return preparer, who holds a valid Annual Filing Season Program Record of Completion, has limited practice rights. This preparer may represent a taxpayer for a return they prepared and signed before which of the following?

An attorney in the Office of Chief Counsel.
A Revenue Agent during an examination of the return. (Correct answer)
A Revenue Officer concerning collection activities.
An Appeals Officer regarding a disputed liability.

Correct answer: A Revenue Agent during an examination of the return.

An unenrolled return preparer with limited practice rights can only represent taxpayers before revenue agents, customer service representatives, and similar IRS employees during an examination of the return they prepared. They are not permitted to represent clients before Appeals, Collections (Revenue Officers), or Counsel.

Question 9: A married couple filing jointly has an AGI of $250,000. They paid $15,000 in state and local taxes (SALT). How much can they deduct on Schedule A?

$10,000 — the SALT deduction cap under TCJA (Correct answer)
$15,000 — the full amount paid
$12,500 — 50% of SALT is allowed for MFJ filers
$5,000 — limited because income exceeds $200,000

Correct answer: $10,000 — the SALT deduction cap under TCJA

The Tax Cuts and Jobs Act (TCJA) capped the SALT deduction at $10,000 ($5,000 for married filing separately) regardless of actual taxes paid.

Question 10: The Office of Professional Responsibility (OPR) has jurisdiction over which of the following practitioners?

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

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 11: 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 12: Which of the following best describes the 'enrolled retirement plan agent' (ERPA) designation?

A CPA who has completed additional tax court training
A practitioner enrolled specifically to practice before the IRS regarding retirement plan matters (Correct answer)
An agent licensed to practice in all areas before the IRS
An IRS employee authorized to audit retirement plans

Correct answer: A practitioner enrolled specifically to practice before the IRS regarding retirement plan matters

ERPAs are practitioners who have passed the ERPA Special Enrollment Examination and are authorized to represent clients before the IRS on retirement-plan-related matters.

Question 13: What is the self-employment tax rate applied to net self-employment income up to the Social Security wage base?

2.9%
15.3% (Correct answer)
12.4%
7.65%

Correct answer: 15.3%

The self-employment tax rate is 15.3% (12.4% for Social Security + 2.9% for Medicare) on net self-employment income up to the Social Security wage base.

Question 14: What is the annual capital loss deduction limit against ordinary income for an individual taxpayer?

$3,000 (Correct answer)
$1,500
$5,000
Unlimited

Correct answer: $3,000

Individuals may deduct up to $3,000 of net capital losses against ordinary income per year; excess losses carry forward.

Question 15: The IRS Office of Professional Responsibility (OPR) has jurisdiction over which of the following?

Only practitioners who appear in Tax Court
All tax return preparers regardless of credential
Only enrolled agents
Attorneys, CPAs, enrolled agents, and enrolled retirement plan agents practicing before the IRS (Correct answer)

Correct answer: Attorneys, CPAs, enrolled agents, and enrolled retirement plan agents practicing before the IRS

OPR enforces Circular 230 standards for all practitioners who practice before the IRS, including attorneys, CPAs, enrolled agents, and enrolled retirement plan agents.

Question 16: 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 long-term capital gain (subject to depreciation recapture rules) (Correct answer)
As short-term capital gain
As a tax-free exchange
As ordinary income

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 17: A C corporation pays a dividend to its individual shareholders. How is this dividend taxed at the individual level?

It is only taxable if the dividend exceeds the shareholder's basis
It is taxed as ordinary income at regular rates
It is tax-free because the corporation already paid tax on the income
It is taxed as a qualified dividend at preferential capital gains rates (Correct answer)

Correct answer: It is taxed as a qualified dividend at preferential capital gains rates

Qualified dividends received by individual shareholders from domestic C corporations are generally taxed at the preferential long-term capital gains rates (0%, 15%, or 20%).

Question 18: A small retail business began the year with an inventory valued at $50,000. During the year, it purchased an additional $120,000 worth of goods for resale. At the end of the year, its remaining inventory was valued at $40,000. What is the Cost of Goods Sold (COGS) for the year?

$110,000
$130,000 (Correct answer)
$120,000
$210,000

Correct answer: $130,000

The formula for Cost of Goods Sold (COGS) is: Beginning Inventory + Purchases - Ending Inventory. In this scenario, it is calculated as $50,000 + $120,000 - $40,000 = $130,000. This amount represents the direct cost of the merchandise sold during the year and is a crucial deduction for determining the business's gross profit.

Question 19: A practitioner who knowingly gives false or misleading information to the IRS in connection with a tax matter is subject to:

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

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

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

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 21: What is the American Opportunity Tax Credit (AOTC) and who qualifies?

A fully refundable $2,000 credit for any post-secondary education expenses
A credit up to $2,500 per eligible student for the first four years of post-secondary education (Correct answer)
A $2,500 deduction for tuition and fees for graduate students
A credit up to $2,000 for lifetime learning expenses available at any education level

Correct answer: A credit up to $2,500 per eligible student for the first four years of post-secondary education

The AOTC provides up to $2,500 per eligible student for qualified education expenses during the first four years of higher education, with 40% refundable.

Question 22: A tax preparer signs a return as a paid preparer but deliberately understates a client's tax liability to generate a larger refund. Under IRC §6694, the preparer faces a penalty if the understatement is due to:

An unreasonable position or willful/reckless conduct (Correct answer)
Reasonable cause and good faith
A clerical error discovered after filing
The client's failure to disclose all income

Correct answer: An unreasonable position or willful/reckless conduct

IRC §6694 imposes penalties on preparers for understatements due to unreasonable positions (§6694(a)) or willful/reckless conduct (§6694(b)).

Question 23: Under what circumstances may an unenrolled return preparer represent a taxpayer before the IRS?

Only before the Taxpayer Advocate Service for any issue
For any examination as long as the taxpayer is present
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

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

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

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 25: An enrolled agent is representing a client whose case has been assigned to the IRS Independent Office of Appeals. What is a key advantage of the Appeals process?

Appeals officers can only reduce penalties, not tax owed
The taxpayer waives the right to Tax Court by entering Appeals
Appeals must resolve the case within 90 days
Appeals provides an informal forum to resolve disputes without litigation, considering hazards of litigation (Correct answer)

Correct answer: Appeals provides an informal forum to resolve disputes without litigation, considering hazards of litigation

The IRS Appeals Office provides an independent review forum where cases can be settled based on the hazards of litigation, often avoiding costly and time-consuming court proceedings.

Question 26: 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 is entitled to a conference and the opportunity to present a defense (Correct answer)
The practitioner must immediately cease all IRS representation
The practitioner must accept the OPR's determination without appeal
The practitioner may only respond through an attorney

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 27: 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
Excluded from income as a working condition fringe benefit
Deductible by the employee on Schedule A
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 28: Which of the following triggers ordinary income recognition under IRC §1245 depreciation recapture?

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

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 29: 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?

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

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 30: A taxpayer receives employer-provided group-term life insurance coverage of $75,000. What amount of coverage is excludable from the employee's gross income?

None; it is fully taxable
Up to $100,000
All $75,000
Up to $50,000 (Correct answer)

Correct answer: Up to $50,000

Under IRC §79, the cost of the first $50,000 of employer-provided group-term life insurance is excluded from the employee's gross income; coverage above $50,000 creates imputed income.

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.

Questions

35 min

Time Limit

72%

To Pass

Checking for saved progress...

Exam Rules

You can skip questions and return to them later
Flag questions for review before submitting
No feedback shown until you submit the entire exam
Unanswered questions count as wrong — answer everything
10 pretest questions are mixed in and don't affect your score
Timer auto-submits when time runs out
Your progress is auto-saved every 30 seconds