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

Question 1: What is a Charitable Remainder Trust (CRT) and what tax benefits does it provide?

A trust providing income to the donor for a term, with remainder to charity, generating a partial charitable deduction (Correct answer)
A trust allowing tax-free sale of any assets
A trust that donates all income to charity with no tax benefit
A trust exempt from all taxes during its term

Correct answer: A trust providing income to the donor for a term, with remainder to charity, generating a partial charitable deduction

A CRT provides income to the donor (or other beneficiaries) for life or a term, with remainder passing to charity, generating an upfront charitable deduction equal to the present value of the remainder interest.

Question 2: A tax consultant discovers that a client's requested tax position is technically legal but clearly abusive. Under professional standards, the consultant should:

Report the client to the IRS immediately
Automatically prepare the return with the position as requested
Advise the client of the risks, the ethical concerns, and consider whether to continue the engagement if the client insists (Correct answer)
Refuse all further engagement without discussion

Correct answer: Advise the client of the risks, the ethical concerns, and consider whether to continue the engagement if the client insists

Professional standards require the practitioner to advise the client fully of the risks and ethical dimensions of an abusive position; if the client insists on proceeding, the practitioner may need to withdraw from the engagement.

Question 3: A business buys $50,000 of qualifying equipment. Which provision allows immediate expensing rather than multi-year depreciation?

Section 1202 exclusion
Section 179 deduction (Correct answer)
Section 199A deduction
Section 121 exclusion

Correct answer: Section 179 deduction

Section 179 lets a business expense qualifying equipment immediately up to annual limits instead of depreciating it.

Question 4: What is the trust fund recovery penalty (TFRP) and who can be held personally liable?

A penalty only applicable to corporations, not individuals
A penalty equal to 100% of unpaid payroll taxes imposed on responsible persons who willfully fail to pay (Correct answer)
A 25% penalty on all withheld taxes
A fine imposed on banks holding employer trust funds

Correct answer: A penalty equal to 100% of unpaid payroll taxes imposed on responsible persons who willfully fail to pay

The TFRP equals 100% of unpaid payroll taxes and can be assessed personally against any responsible person who willfully fails to collect or pay over trust fund taxes.

Question 5: The marital deduction allows an unlimited transfer of assets between spouses. Which requirement must be met for the receiving spouse?

Must be a US citizen (Correct answer)
Must be named in a will
Must be over age 21
Must have independent income

Correct answer: Must be a US citizen

The unlimited marital deduction requires the recipient spouse to be a US citizen; transfers to non-citizen spouses are subject to annual limits and require a Qualified Domestic Trust (QDOT) for full deferral.

Question 6: Which form reports nonemployee compensation paid to an independent contractor?

Form 1099-INT
Form W-2
Form 1099-MISC
Form 1099-NEC (Correct answer)

Correct answer: Form 1099-NEC

Form 1099-NEC reports nonemployee compensation of $600 or more to contractors.

Question 7: What is the standard of 'independence' required of CPAs when performing an audit engagement, and does this apply to tax consulting services?

Independence is optional for all private company engagements
Independence is required for all CPA services including tax consulting
Independence in fact and appearance is required for attest (audit/review) services but generally not for tax consulting (Correct answer)
Independence rules only apply to government auditors

Correct answer: Independence in fact and appearance is required for attest (audit/review) services but generally not for tax consulting

AICPA rules require independence in fact and appearance for attest services (audits, reviews, compilations with reports), but tax consulting and advisory services do not have the same independence requirements.

Question 8: Under IRC Section 1031, like-kind exchanges allow deferral of gain on which type of property?

Personal property only
Any property regardless of use
Real property held for business or investment purposes (Correct answer)
Publicly traded securities

Correct answer: Real property held for business or investment purposes

Post-TCJA, Section 1031 like-kind exchanges are limited to real property held for productive use in a trade or business or for investment.

Question 9: A taxpayer paid $4,000 in qualified college tuition. Which education credit might apply?

Adoption Credit
American Opportunity Tax Credit (Correct answer)
Earned Income Tax Credit
Saver's Credit

Correct answer: American Opportunity Tax Credit

The American Opportunity Tax Credit applies to qualified higher education expenses for eligible students.

Question 10: What is a Grantor Retained Annuity Trust (GRAT) primarily used for?

Providing income to charity
Funding education accounts
Avoiding probate on real estate
Transferring asset appreciation to heirs with minimal gift tax (Correct answer)

Correct answer: Transferring asset appreciation to heirs with minimal gift tax

A GRAT transfers appreciation above the IRS hurdle rate (Section 7520 rate) to heirs free of gift tax, making it effective when assets are expected to grow substantially.

Question 11: Which of the following is an 'above-the-line' deduction that reduces adjusted gross income?

Medical expenses
Student loan interest (Correct answer)
Home mortgage interest
Charitable contributions

Correct answer: Student loan interest

Student loan interest (up to $2,500) is an above-the-line deduction that reduces AGI and can be claimed without itemizing deductions.

Question 12: The federal gift tax return is filed on which form?

Form 706
Form 1041
Form 709 (Correct answer)
Schedule D of Form 1040

Correct answer: Form 709

Form 709 (United States Gift and Generation-Skipping Transfer Tax Return) is filed to report taxable gifts and gifts that reduce the lifetime exemption.

Question 13: The U.S. federal income tax system is described as 'progressive' because what happens as income rises?

Rates decrease
Only a single rate applies
The rate stays flat
Marginal tax rates increase (Correct answer)

Correct answer: Marginal tax rates increase

A progressive system applies higher marginal rates to higher brackets of income.

Question 14: Which depreciation method allows a business to take larger deductions in the early years of an asset's life?

Modified Accelerated Cost Recovery System (MACRS) (Correct answer)
Straight-line depreciation
Sum-of-the-years-digits only
Units of production

Correct answer: Modified Accelerated Cost Recovery System (MACRS)

MACRS is the standard depreciation system in the US that accelerates deductions by applying higher percentages in earlier years.

Question 15: Which type of IRA offers tax-free qualified withdrawals in retirement?

Traditional IRA
SEP IRA
SIMPLE IRA
Roth IRA (Correct answer)

Correct answer: Roth IRA

Roth IRA qualified distributions are tax-free because contributions were made with after-tax dollars.

Question 16: For the 2025 tax year, what is the standard deduction for a single filer under age 65?

$27,700
$15,000 (Correct answer)
$14,600
$13,850

Correct answer: $15,000

The 2025 standard deduction for single filers is $15,000.

Question 17: Under the qualified business income (QBI) deduction, eligible pass-through business owners may deduct up to what percentage of their qualified business income?

25%
10%
15%
20% (Correct answer)

Correct answer: 20%

The QBI deduction under IRC Section 199A allows eligible taxpayers to deduct up to 20% of their qualified business income from pass-through entities.

Question 18: Which business structure is most tax-efficient for a highly profitable small business expecting to reinvest most earnings?

C Corporation (taking advantage of 21% flat rate) (Correct answer)
Single-member LLC taxed as disregarded entity
S Corporation
Sole proprietorship

Correct answer: C Corporation (taking advantage of 21% flat rate)

For businesses retaining significant earnings, a C Corporation's flat 21% tax rate may be lower than individual rates that would apply to pass-through income.

Question 19: The profit is subject to the following conditions if you sell your old Chevrolet for more than you paid:

Without taxes
Buyer's tax
Capital gain tax (Correct answer)

Correct answer: Capital gain tax

When you sell an asset, such as a car, for more than you originally paid for it, the profit you realize from that sale is considered a capital gain. This gain is subject to capital gains tax, which is a tax levied on the profit from the sale of investments or other non-inventory assets. The amount of tax depends on how long you owned the asset.

Question 20: Indirect taxes include which of the following?

Income tax
Value added tax (Correct answer)
Corporation tax
Inheritance tax

Correct answer: Value added tax

Indirect taxes are collected by an intermediary from the person who ultimately bears the economic burden of the tax, meaning the tax is passed on to the consumer. Value Added Tax (VAT) is a prime example, as it's levied on goods and services at each stage of production and distribution but is ultimately paid by the end consumer. In contrast, corporation tax, inheritance tax, and income tax are generally considered direct taxes because they are levied directly on the income or wealth of individuals or corporations.

Question 21: Which retirement account requires minimum distributions starting at age 73 under current law?

Traditional IRA (Correct answer)
Health Savings Account
Roth IRA during the owner's lifetime
Roth 401(k) after rollover to Roth IRA

Correct answer: Traditional IRA

Traditional IRAs require RMDs beginning at age 73 under the SECURE 2.0 Act.

Question 22: The generation-skipping transfer (GST) tax is designed to prevent:

Double taxation of income
Gift taxes on direct transfers to grandchildren
Trusts from lasting more than one generation
Avoidance of estate taxes by skipping a generation of beneficiaries (Correct answer)

Correct answer: Avoidance of estate taxes by skipping a generation of beneficiaries

The GST tax applies to transfers to skip persons (generally grandchildren or below) to prevent wealthy families from avoiding estate tax at each generational level.

Question 23: What is a 'covered opinion' under Circular 230, and what is its significance?

An oral opinion rendered during an IRS audit
Any written legal advice about taxes
A formal written tax opinion on listed transactions or principal-purpose transactions subject to enhanced standards (Correct answer)
A standard engagement letter

Correct answer: A formal written tax opinion on listed transactions or principal-purpose transactions subject to enhanced standards

A covered opinion is written advice on listed transactions or principal-purpose transactions that must comply with Circular 230's enhanced requirements for thoroughness, disclosure, and standards of review.

Question 24: What does AGI stand for on a federal tax return?

Annual Gross Income
Adjusted Gross Income (Correct answer)
Average Gross Income
Aggregate Gross Income

Correct answer: Adjusted Gross Income

AGI is Adjusted Gross Income, gross income minus specific above-the-line adjustments.

Question 25: What is the maximum American Opportunity Tax Credit (AOTC) available per eligible student per year?

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

Correct answer: $2,500

The AOTC provides a maximum credit of $2,500 per eligible student for the first four years of higher education, with 40% of the credit being refundable.

Question 26: Tax preparers must retain a completed copy of each prepared return or claim for refund for how long?

1 year
3 years (Correct answer)
5 years
7 years

Correct answer: 3 years

Under IRC Section 6107, tax return preparers must retain a completed copy of each return or claim for refund (or a list of taxpayers) for 3 years from the later of the return due date or filing date.

Question 27: What is a 'captive insurance company' and what tax benefit does it provide?

State-required liability insurance for businesses
A foreign insurance company for offshore accounts
An insurer owned by the insured to create deductible premiums (Correct answer)
A group health plan for employees

Correct answer: An insurer owned by the insured to create deductible premiums

A captive insurance company is an insurer controlled by its insured that allows businesses to pay deductible premiums to their own captive for legitimate business risks.

Question 28: What is 'portability' in the context of estate taxes?

The ability to transfer assets across state lines tax-free
Carrying forward unused charitable deductions
The right to move retirement accounts without tax
A deceased spouse's unused estate tax exemption can be transferred to the surviving spouse (Correct answer)

Correct answer: A deceased spouse's unused estate tax exemption can be transferred to the surviving spouse

Portability allows the executor of a deceased spouse's estate to elect to transfer any unused estate tax exemption to the surviving spouse, effectively doubling the couple's total exemption.

Question 29: What is the primary tax advantage of using a Health Savings Account (HSA) for a self-employed tax consultant?

Credits reduce tax dollar for dollar
Triple tax advantage: deductible contributions, tax-free growth, and tax-free qualified withdrawals (Correct answer)
Contributions are matched by the IRS
No contribution limits apply

Correct answer: Triple tax advantage: deductible contributions, tax-free growth, and tax-free qualified withdrawals

HSAs offer a triple tax advantage: contributions are tax-deductible, earnings grow tax-free, and withdrawals for qualified medical expenses are tax-free.

Question 30: What is a 'qualified opportunity zone' investment and what tax benefit does it provide?

An investment allowing deferral and potential exclusion of capital gains (Correct answer)
A deduction for charitable contributions
A retirement account for small business owners
A municipal bond exempt from federal tax

Correct answer: An investment allowing deferral and potential exclusion of capital gains

Qualified Opportunity Zone investments allow taxpayers to defer and potentially reduce capital gains by investing in designated economically distressed communities.

Enrolled Agent Special Enrollment Examination (SEE)

The IRS Special Enrollment Examination (SEE) certifies tax professionals as Enrolled Agents authorized to represent taxpayers before the IRS, covering individual and business income tax, estate and gift tax, tax planning, and professional ethics.

Questions

35 min

Time Limit

70%

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