Deck 18: Enrolled-Agent

Question 1

Matt has a certified statement from his optometrist on December 1, 2004, that confirms he can see no better than 20/250. For tax year 2004, which is correct?

A)Matt is not eligible for the higher standard deduction for blindness as he is only partially blind
B)Matt is eligible for the higher standard deduction for blindness in 2004
C)Matt is eligible for the higher standard deduction for blindness in 2005, the first full year of his blindness
D)Matt is not eligible for the higher standard deduction for blindness as he can see better than 20/300

Answer 1

Matt is eligible for the higher standard deduction for blindness in 2004

Question 2

Which of the following statements is true regarding the filing of a Form 4868, Application for an Automatic Extension of Time to File, your 2004 tax return?

A)Interest is not assessed on any income tax due if a Form 4868 is filed
B)Form 4868 provides the taxpayer with an automatic additional 6 month extension to file
C)Even though you file Form 4868, you will owe interest and may be charged a late payment penalty on the amount you owe if you do not pay the tax due by the regular due date
D)A U.S. citizen, who is out of the country on April 15, will be allowed an addition 12 months to file as long as "Out of the Country" is written across the top of Form 4868

Answer 2

Even though you file Form 4868, you will owe interest and may be charged a late payment penalty on the amount you owe if you do not pay the tax due by the regular due date

Question 3

Lisa was married with two dependent children in 2004. Her husband died in April and she did not remarry before the end of 2004. Which filing status should Lisa use for her tax return in 2004?

A)Single
B)Married Filing Jointly
C)Head of Household
D)Qualifying Widow(er) With Dependent Child

Answer 3

Married Filing Jointly

Question 4

There are five tests which must be met for you to claim an exemption for a dependent. Which of the following is not a requirement?

A)Citizen or Resident Test
B)Member of Household or Relationship Test
C)Disability Test
D)Joint Return Test

Question 5

Which statement pertaining to estimated tax payments is not correct?

A)An individual, whose only income is from selfemployment, will have to pay estimated payments
B)If insufficient tax is paid through withholding, estimated payments may be necessary
C)Estimated tax payments are required when the withholding taxes are greater than the overall tax liability
D)Estimated tax is used to pay not only income tax, but self-employment tax and alternative minimum tax as well

Question 6

Mrs) Domino made deductible contributions to traditional individual retirement accounts for several years. Mrs. Domino decides to withdraw $10,000 from one of her accounts in 2004. Mrs. Domino is 61years old. How does this transaction affect Mrs. Domino's 2004 tax return for 2004?

A)Mrs. Domino must report the entire amount of $10,000
B)Mrs. Domino does not have to report anything because she is older than 59½ years
C)Mrs. Domino does not have to report any amount because this was not withdrawn from a Roth IRA
D)Mrs. Domino must report all of the distribution received but can elect to use the 10-year option

Question 7

Randy Lee is an ordained minister of a tax-exempt church. Randy receives a salary plus a housing allowance for rent and utilities. Which of the following statements is correct?

A)Randy must claim as income on his return all of his salary and all of his housing allowance. The salary is subject to income tax and selfemployment tax but his housing allowance is subject to income tax only
B)Randy does not have to report any income received from the church because the church is tax exempt
C)Randy has to pay both income tax and selfemployment tax on his salary, but only selfemployment tax for the housing allowance. The housing allowance is not subject to income tax
D)Randy only has to pay the self-employment tax on both his salary and the housing allowance. Neither is subject to income tax

Question 8

Tom Brown, who is single, owns a rental apartment building property. This is the only rental property that Tom owns. He "actively participates" in this rental activity as he collects the rents and performs ordinary and necessary repairs. In 2004, Tom had a loss of $30,000 on this rental activity and had no reportable passive income. His adjusted gross income, without regard to this rental loss, is $60,000. How much of the rental loss may Tom deduct on his 2004 return?

A)$30,000
B)$25,000
C)$0
D)$6,000

Question 9

Which of the following costs incurred on rental property should be classified as a capital improvement?

A)Replacing a 20-year-old roof
B)Repainting all of the interior walls
C)Refinishing the existing wood floors
D)Replacing a broken window pane

Question 10

The Becks own and operate an assisted-living facility. They provide maid service and meals in a common dining room. Where should they report the income and expenses from this activity?

A)Other Income on Form 1040 and expenses as itemized deductions on Schedule A
B)Income and expenses on Schedule E, Supplemental Income and Loss
C)Income and expenses on Schedule C, Profit or Loss from Business
D)Short-term capital gain on Schedule D

Question 11

A partnership, S corporation or personal service corporation can elect to use a tax year other than its required tax year, if it:

A)Elects a year that meets the deferral period requirement
B)Is not a member of a tiered structure as defined by the regulations
C)Has not previously had an election in effect to use a tax year other than its required tax year
D)All of the above

Question 12

Eric, a cash basis taxpayer, owned 25% of Watson, Inc. stock. Watson, Inc. files a calendar year U.S. Corporate Income Tax Return Form 1120 employing the accrual method of accounting. Eric loaned Watson, Inc. $100,000 at the beginning of 2003. The accrued interest on this loan was $5,000 as of December 31, 2003. Watson,Inc.paid Eric the $5,000 in January of 2004. How should Eric report the interest income and Watson, Inc. report the interest expense from this transaction?

A)Watson, Inc. reports the expense in 2003 and Eric reports the income in 2003
B)Watson, Inc. reports the expense in 2003 and Eric reports the income in 2004
C)Watson, Inc. reports the expense in 2004 and Eric reports the income in 2004
D)None of the above

Question 13

Which of the following transactions qualifies as a likekind exchange?

A)The exchange of a copyright on a novel for a copyright on a song
B)An exchange of the "goodwill or going concern value" of a business for the "goodwill or going concern value" of another business
C)An exchange of land improved with an apartment house for land improved with a store building
D)An exchange of personal property used predominantly in the United States for personal property used predominantly outside the United States

Question 14

Special rules apply to like kind exchanges between related persons. Under these rules, related persons are:

A)The taxpayer and a member of his/her family
B)The taxpayer and a corporation in which the taxpayer has a 25% ownership
C)The taxpayer and a partnership in which the taxpayer directly or indirectly owns a 25% interest in the capital or profits
D)All of the above

Question 15

Which of the following does not qualify as a nontaxable exchange or transfer?

A)A life insurance contract for an annuity contract
B)A general partnership interest for a general partnership interest in the same partnership
C)A transfer of property from an individual to a former spouse, incident to divorce
D)None of the above

Question 16

Mark is an accrual basis taxpayer. He shipped $500 worth of merchandise to Ralph on December 30, 2004. Mark sent Ralph an invoice January 2, 2005 that was payable in 30 days. Ralph mailed his check to Mark on February 2, 2005. Mark deposited the check on February 6, 2005. Mark received and reconciled his bank statement March 3, 2005. When does Mark record the $500 in income?

A)January 2, 2005 because that is when he invoiced Ralph
B)March 3, 2005 because that is when Mark verified that the $500 check had been accepted as a deposit
C)December 30, 2004, the date when he shipped the merchandise to Ralph
D)February 6, 2005 because that is when Mark deposited the check from Ralph

Question 17

Which of the following items are generally included in inventory?

A)Goods for sale that someone else has consigned to you
B)Equipment used in your business to manufacture goods
C)Goods you have sent out on consignment for someone else to sell
D)Goods in transit to you for which title has not yet passed to you

Question 18

Supplemental wages are compensation paid in addition to an employee's regular wages. They do not include payments for:

A)Accumulated sick leave
B)Nondeductible moving expenses
C)Vacation pay
D)Travel reimbursements paid at the Federal Government per diem rate

Question 19

Which of the following fringe benefits for meals is subject to the 50% deduction limit?

A)Meals furnished to your employees at the work site when you operate a restaurant
B)Meals furnished to your employees as part of the expense of a company picnic
C)Meals furnished to your employees at your place of business when more than half of these employees are provided the meals for your convenience
D)Meals furnished to a customer during a business discussion

Question 20

Esther works as a computer programmer for a marketing firm. She performs 40% of her computer programming on a home computer during the weekend (her company is closed on the weekends) so she can take off 2 days during the regular work week. The home computer that Esther works on is identical to the computer she uses at work, and she uses it exclusively for her job related duties. Esther's employer does not require Esther to take work home with her on the weekends-it is Esther's choice. Because she uses the home computer exclusively for business purposes, she can use the following percentage of business usage when computing her yearly depreciation for the computer:

A)100%
B)40%.
C)25%.
D)0%.

Question 21

Bob Moon forms Moon Enterprises LLC (Limited Liability Company) during the year. What form must Moon Enterprises LLC file in order to elect to be taxed as a C corporation?

A)Form 1065 (U. S. Partnership Tax Return)
B)Form 8832 (Entity Classification Election)
C)Form 1120 (U. S. Corporation Income Tax Return)
D)Form 7004 (Application for Extension of time to file for corporations)

Question 22

ABC Corporation is dissolved on July 9, 2004. What is the due date, without extensions, for the filing of the final corporate income tax return?

A)March 15, 2005
B)December 31, 2004
C)October 15, 2004
D)October 9, 2004

Question 23

Croaker, Inc. is a taxable domestic corporation. Dana Corporation, a large manufacturing corporation, owns 15% of Croaker, Inc.'s outstanding stock. In 2004, Dana Corporation received $100,000 in dividends from Croaker, Inc. Dana Corporation received no other dividends in 2004. Dana Corporation may deduct, within certain limits, what percentage of the dividends received?

A)15%
B)70%
C)80%
D)100%

Question 24

York, Inc. directly owns stock of Ajax Corporation. To determine if Ajax Corporation is a member of a controlled group with York, Inc. as the common parent, York, Inc. must own at least what percentage of the voting and total value of the Ajax Corporation stock?

A)51%
B)75%
C)80%
D)100%

Question 25

The Lux Corporation incurred $10,000 in start-up costs when it opened for business in 2004. What is the minimum period over which these expenses can be recovered?

A)12 months
B)36 months
C)60 months
D)120 months

Question 26

Corporations generally must make estimated tax payments if they expect their estimated tax (income tax less credits) to be equal to or more than:

A)$1
B)$500
C)$600
D)$1,000

Question 27

A corporate payer of an individual shareholder dividend does not have the taxpayer identification number for that shareholder. What backup withholding percentage rate must the corporate payer use for this shareholder's dividend payments?

A)15%
B)28%
C)35%
D)39%

Question 28

The board of directors of Walden Corporation authorized a year end distribution to its three shareholders. Each distribution would be equal in value but the shareholder could choose to receive the distribution in cash or corporate stock. If a shareholder chose to receive corporate stock, the distribution should be treated as:

A)A tax free distribution of stock
B)A distribution of property
C)A like-kind exchange
D)None of the above

Question 29

In 2000, Mark purchased 100 shares of Roman, Inc. for $10 per share. In 2004 Roman, Inc. completely liquidated and distributed $8,000 to Mark. Mark must report income from this distribution as:

A)Ordinary other income
B)Dividends
C)Capital gains
D)Return of capital

Question 30

A fiduciary representing a dissolving corporation may file a request for prompt assessment of tax. Generally, this request reduces the time allowed for assessment to:

A)12 months
B)18 months
C)24 months
D)30 months

Question 31

With respect to unenrolled return preparers, which of the follow- ing statements is correct?

A)An unenrolled return preparer is an individual other than an attorney, CPA, enrolled agent, or enrolled actuary who prepares and signs a taxpayer's return as the preparer, or who prepares a return but is not required (by the instructions to the return o
B)An unenrolled return preparer is only permitted to appear as a taxpayers' representative before a Customer Service Representative of the Internal Revenue Service.
C)An unenrolled preparer may receive refund checks on behalf of the taxpayer if Form 8821 has been executed.
D)An unenrolled preparer is permitted to represent a taxpayer over the telephone with the Automated Collection System unit

Question 32

Margaret Smith is a CPA who is representing John & Mary Jones before the Wage and Investment Division of the Internal Revenue Service. The Service is questioning John & Mary on contributions that were listed on page 2 of their 2004 Form 1040. While reviewing the documentation provided by John & Mary, Margaret discovers contributions that were made to a non-qualified organization. What is the appropriate action for Margaret to take?

A)Margaret must advise John & Mary on how to keep the omission from being discovered by the IRS.
B)Margaret must notify the Internal Revenue Service that she is no longer representing John & Mary by withdrawing her Form 2848.
C)Margaret must advise John & Mary promptly of the omission and the consequences provided by the Internal Revenue Code and Regulations for such omission.
D)Margaret must immediately advise the Internal Revenue Service examiner of the non-qualified contributions.

Question 33

The Office of Professional Responsibility can censure, suspend or disbar a practitioner from practice before the Internal Revenue Service for incompetence and/or disreputable conduct. Which one of the following is considered disreputable conduct?

A)Conviction of any criminal offense under the revenue laws of the United States.
B)Conviction of any criminal offense involving dishonesty or breach of trust.
C)Giving false or misleading information or participating in any way in the giving of false or misleading information to the Department of the Treasury or any officer or employee thereof.
D)All of the above.

Question 34

Josephine Jones, an Enrolled Agent, received a complaint from the Office of Professional Responsibility. Select the statement below that is correct with respect to the contents of the answer that Josephine will file in rebuttal to the complaint.

A)Josephine may only state a general denial of the allegations.
B)Josephine must specifically admit or deny each allegation set forth in the complaint, and may not state that she is without sufficient information to admit or deny a specific allegation.
C)Josephine may deny a material allegation in the complaint even though she knows it to be true.
D)Josephine must specifically admit or deny each allegation set forth in the complaint, except that she may state that she is without sufficient information to admit or deny a specific allegation.

Question 35

How long must each practitioner maintain records of their completed CPE credits?

A)CPE credit information does not have to be retained by the Enrolled Agent since the qualifying organization provides the Office of Professional Responsibility a list of each participant that completed CPE credits.
B)CPE credit information must be maintained for a period of three (3) years from the date they are completed.
C)CPE credit information must be retained for a period of three (3) years following the date of renewal of enrollment
D)CPE credit information must be retained for a period of one (1) year following the year they are completed.

Question 36

To maintain active enrollment to practice before the Internal Revenue Service, each individual enrolled is required to have his or her enrollment renewed. The Office of Professional Responsibility will notify the individual of his or her renewal of enrollment and will issue the individual a card to evidence enrollment. Which of the following statements about renewal of enrollment is correct?

A)A reasonable refundable fee may be charged for each application for renewal of enrollment filed with the Office of Professional Responsibility.
B)Failure by an individual to receive notification from the Office of Professional Responsibility of the renewal requirement will not be justification for the failure to timely renew enrollment.
C)Forms required for renewal may only be obtained from the National Association of Enrolled Agents.
D)The enrollment cycle is a 3 year period and all Enrolled Agents must renew at the same time, no matter when they first became Enrolled Agents.

Question 37

Bethany timely filed her 2001 1040 tax return and paid the $2,000 tax as shown on the return at the time of filing. The return was subsequently examined and Bethany signed an agreement form for the proposed changes on August 20, 2003. She paid the additional tax due of $5,000 on September 30, 2003. In 2004, Tiffany located missing records which she believes would make $3,000 of the additional assessment erroneous. Which of the following statements accurately states the date by which Bethany must file a claim for refund to get the $3,000 back?

A)August 20, 2005, two years from signing the agreement form.
B)April 15, 2005, three years from the due date of the original return.
C)September 30, 2005, two years from when the additional tax was paid.
D)No claim for refund can be filed since an examination agreement form was signed.

Question 38

In the process of preparing Orlo Corporation's 2002 return, Dave, an enrolled agent, provided to Orlo Corporation calculations he had prepared computing basis of property that was sold and reported on the 1120 Form 4797. Later, when Orlo Corporation's 2002 return was examined by the Internal Revenue Service, Orlo Corporation refuses to provide the Internal Revenue Service with the calculations, claiming that this was a privileged communication between Orlo Corporation and its federally authorized practitioner. Which of the following statements is true?

A)Orlo Corporation does not have to provide the calculations to the Internal Revenue Service because they are privileged under the Federal Tax Practitioner privilege rules.
B)Orlo Corporation must provide the calculations to the Internal Revenue Service because privilege does not apply to a determination with respect to an item that will be presented to the government on an original return.
C)Orlo Corporation must provide the calculations to the Internal Revenue Service because the Federal Tax Practitioner privilege does not apply to documents written by Dave because he is not a CPA.
D)Orlo Corporation does not have to provide the calculations to the Internal Revenue Service if they believe this transaction might be construed as a tax shelter

Question 39

Disputes involving what areas of taxation may not be resolved in the United States Tax Court?

A)Income tax
B)Gift tax
C)Employment tax
D)Estate tax

Question 40

After the issuance of a Statutory Notice of Deficiency, failure to timely file a petition with Tax Court will result in which of the following?

A)The Internal Revenue Service will issue a 30-day letter
B)The Internal Revenue Service will assess the tax it says the taxpayer owes
C)The Internal Revenue Service will issue a 90-day letter.
D)You will be required to post a deposit before being allowed to request an extension for time to file a petition.