IRS Enrolled Agent Part 2 Practice Test

Answer choices

1. A. Whether the corporation must make required estimated tax payments rather than waiting until the return is filed.
2. B. Corporations never make estimated tax payments.
3. C. Only shareholders, not C corporations, can be penalized for underpaying estimated tax.
4. D. The corporation can satisfy all estimated-tax requirements by increasing employee withholding on shareholder wages.

Wrong-answer review

• B. Corporations never make estimated tax payments.: Corporations can have estimated-tax obligations.
• C. Only shareholders, not C corporations, can be penalized for underpaying estimated tax.: A corporation itself can incur an estimated-tax underpayment penalty.
• D. The corporation can satisfy all estimated-tax requirements by increasing employee withholding on shareholder wages.: Shareholder wage withholding is not a general substitute for the corporation's own estimated income-tax payments.

Answer choices

1. A. File Form 1099-K because the store received more than $10,000 in currency from a customer during a retail sale.
2. B. File Form 8300 because the business received more than $10,000 in cash in a single trade-or-business transaction.
3. C. File Form 8300 only when the cash payment exceeds $100,000 or is split among multiple related transactions.
4. D. No information return is required because including the sale in gross receipts satisfies all federal reporting obligations.

Answer choices

1. A. All income earned by a 501(c)(3) is automatically exempt.
2. B. An activity is unrelated only if it loses money.
3. C. Any business run by volunteers is automatically unrelated business income.
4. D. It can be an unrelated trade or business because all three UBIT tests are met.

Answer choices

1. A. Treat the portion attributable to unrealized receivables as ordinary income under the hot-asset rules.
2. B. Treat the entire gain as capital gain because the partnership interest itself is a capital asset.
3. C. Treat the unrealized-receivable portion as ordinary only if Jules held the partnership interest for one year or less.
4. D. Ignore the partnership's unrealized receivables because section 751 affects only the buyer's inside basis.

Answer choices

1. A. Form 1065.
2. B. Form 1023.
3. C. Form 2553.
4. D. Form 941.

Answer choices

1. A. Allow section 1031 treatment because both relinquished and replacement assets are equipment used in the business.
2. B. Section 1031 generally applies to qualifying exchanges of real property, not exchanges of equipment or other personal property.
3. C. Allow section 1031 treatment because both assets are held for productive use in a trade or business.
4. D. Allow section 1031 treatment only if the exchanged equipment has equal fair market value, equal remaining useful life, and no cash changes hands.

Answer choices

1. A. Elect S corporation treatment so the jointly owned business no longer has a partnership filing requirement.
2. B. Have one spouse report all income and expenses on a single Schedule C because the spouses file a joint Form 1040.
3. C. Continue filing Form 1065 because a jointly owned unincorporated business is always treated as a partnership for federal tax purposes.
4. D. Each spouse reports a separate share of the business items instead of the venture filing Form 1065 as a partnership.

Answer choices

1. A. Most exempt organizations still have an annual Form 990-series return or notice obligation, subject to exceptions.
2. B. Exempt organizations file Form 1120-S instead of Form 990.
3. C. No federal filing can ever be required after exemption is recognized.
4. D. Every exempt organization files Form 1041.

Answer choices

1. A. As a nondeductible personal expense solely because advertising is discretionary.
2. B. As a charitable contribution.
3. C. As an ordinary and necessary business expense deductible in the business.
4. D. As a shareholder distribution.

Answer choices

1. A. $20,000, because only cash distributions are taxable.
2. B. $70,000, because undistributed income stays tax free inside the S corporation.
3. C. $0, because S corporations pay the shareholder's income tax at the corporate level.
4. D. $90,000.