ENROLLED AGENT PART 1 EXAM SCRIPT LATEST
QUESTIONS AND ANSWERS SURE A+
✔✔On January 1, Year 1, John made a loan of $6,000 to his neighbor. The loan was
evidenced by a written promise to repay the principal within 3 years and was to bear
interest at a rate of 6% per annum. John's neighbor paid only interest for the first year,
and he made no payments in Year 2 or Year 3. Then his financial condition
deteriorated. In Year 2, John learned that he would probably be able to recover only
$3,000 of the loan. The loan was not made in the course of John's business. John can
deduct $3,000 of the loan on his Year 2 tax return. - ✔✔A partially worthless
nonbusiness debt is not deductible (Reg. 1.166-5), and a wholly worthless nonbusiness
debt is treated as a loss from the sale or exchange of a capital asset held for 1 year or
less, i.e., a short-term capital loss [Sec. 166(d)]. Here, John has a partially worthless
nonbusiness debt. Therefore, it is not deductible.
✔✔Ms. X lives with her family in San Francisco, but works in Los Angeles. While in Los
Angeles, Ms. X stays in a hotel and eats in restaurants during the week. She returns to
San Francisco every weekend. Ms. X can deduct her expenses for travel, meals, and
lodging while in Los Angeles.
True. - ✔✔False.
Travel expenses are deductible only when the taxpayer is away from home for a
temporary period. Since Ms. X permanently works in Los Angeles, this is the location of
her tax home for purposes of determining travel expenses. Travel expenses to San
, Francisco are not deductible since Ms. X's absence from her tax home does not relate
to her trade or business.
✔✔Ed incurred a loss on deposits when his bank became insolvent (bankrupt) and can
take a personal casualty loss deduction for the loss amount. - ✔✔False.
If the individual treats the nonbusiness account loss as a personal casualty loss, no
deduction is allowed after 2017. Alternatively, the individual can elect to treat the loss as
a nonbusiness ordinary loss arising from a transaction entered into for profit. If no
election is made, the default classification for the nonbusiness bad debt is a short-term
capital loss subject to a $3,000 annual limit.
✔✔Minimum use rental tests - ✔✔Rental use -- Pass if rented for more than 14 days.
Personal use -- Pass if personal use is less <=14 days or if personal use is less than
10% of total days rented.
If only the rental use test is passed, deductions are limited to profit. If both tests are
passed, a loss is allowed.
✔✔Mrs. W rented a portion of her personal residence to Ms. E, a college student. In
allocating the expenses between the rented portion and the personal portion of the
residence she used, it is not necessary for Mrs. W to allocate taxes and mortgage
interest. - ✔✔False. A taxpayer who rents a portion of a personal residence must
allocate all expenses, including taxes and interest, between the rented and personal
portions of the residence, because Sec. 62(a)(4) requires expenses attributable to
rented property to be deducted for adjusted gross income. The remainder of the interest
and taxes is deductible from adjusted gross income under Sec. 63.
✔✔Can unpaid alimony or child support be deducted as a nonbusiness bad debt? -
✔✔No. Cannot be a bad debt unless it becomes completely worthless.
✔✔What percentage of meals can transportation workers deduct? - ✔✔80% if they are
subject to Department of Transportation hours and service rules
✔✔What types of bad debts can be deducted if they are only partially worthless? -
✔✔Only business bad debts can be deducted to the extent that they are worthless and
specifically written off. However, nonbusiness bad debts can only be written off if they
are entirely worthless.
✔✔How is a loss on deposit treated if a bank becomes insolvent? - ✔✔This can be
treated as a personal casualty loss (non deductible), as a nonbusiness ordinary loss, or
as a short term capital loss (subject to the $3000/year limit).
✔✔Does a sole proprietor have to send a 1099 MISC to all contractors? - ✔✔Only
contractors to whom they paid more than $600 in the year. Most corporations are
excluded except those in law, fishing, aquatic life, and medical/health
QUESTIONS AND ANSWERS SURE A+
✔✔On January 1, Year 1, John made a loan of $6,000 to his neighbor. The loan was
evidenced by a written promise to repay the principal within 3 years and was to bear
interest at a rate of 6% per annum. John's neighbor paid only interest for the first year,
and he made no payments in Year 2 or Year 3. Then his financial condition
deteriorated. In Year 2, John learned that he would probably be able to recover only
$3,000 of the loan. The loan was not made in the course of John's business. John can
deduct $3,000 of the loan on his Year 2 tax return. - ✔✔A partially worthless
nonbusiness debt is not deductible (Reg. 1.166-5), and a wholly worthless nonbusiness
debt is treated as a loss from the sale or exchange of a capital asset held for 1 year or
less, i.e., a short-term capital loss [Sec. 166(d)]. Here, John has a partially worthless
nonbusiness debt. Therefore, it is not deductible.
✔✔Ms. X lives with her family in San Francisco, but works in Los Angeles. While in Los
Angeles, Ms. X stays in a hotel and eats in restaurants during the week. She returns to
San Francisco every weekend. Ms. X can deduct her expenses for travel, meals, and
lodging while in Los Angeles.
True. - ✔✔False.
Travel expenses are deductible only when the taxpayer is away from home for a
temporary period. Since Ms. X permanently works in Los Angeles, this is the location of
her tax home for purposes of determining travel expenses. Travel expenses to San
, Francisco are not deductible since Ms. X's absence from her tax home does not relate
to her trade or business.
✔✔Ed incurred a loss on deposits when his bank became insolvent (bankrupt) and can
take a personal casualty loss deduction for the loss amount. - ✔✔False.
If the individual treats the nonbusiness account loss as a personal casualty loss, no
deduction is allowed after 2017. Alternatively, the individual can elect to treat the loss as
a nonbusiness ordinary loss arising from a transaction entered into for profit. If no
election is made, the default classification for the nonbusiness bad debt is a short-term
capital loss subject to a $3,000 annual limit.
✔✔Minimum use rental tests - ✔✔Rental use -- Pass if rented for more than 14 days.
Personal use -- Pass if personal use is less <=14 days or if personal use is less than
10% of total days rented.
If only the rental use test is passed, deductions are limited to profit. If both tests are
passed, a loss is allowed.
✔✔Mrs. W rented a portion of her personal residence to Ms. E, a college student. In
allocating the expenses between the rented portion and the personal portion of the
residence she used, it is not necessary for Mrs. W to allocate taxes and mortgage
interest. - ✔✔False. A taxpayer who rents a portion of a personal residence must
allocate all expenses, including taxes and interest, between the rented and personal
portions of the residence, because Sec. 62(a)(4) requires expenses attributable to
rented property to be deducted for adjusted gross income. The remainder of the interest
and taxes is deductible from adjusted gross income under Sec. 63.
✔✔Can unpaid alimony or child support be deducted as a nonbusiness bad debt? -
✔✔No. Cannot be a bad debt unless it becomes completely worthless.
✔✔What percentage of meals can transportation workers deduct? - ✔✔80% if they are
subject to Department of Transportation hours and service rules
✔✔What types of bad debts can be deducted if they are only partially worthless? -
✔✔Only business bad debts can be deducted to the extent that they are worthless and
specifically written off. However, nonbusiness bad debts can only be written off if they
are entirely worthless.
✔✔How is a loss on deposit treated if a bank becomes insolvent? - ✔✔This can be
treated as a personal casualty loss (non deductible), as a nonbusiness ordinary loss, or
as a short term capital loss (subject to the $3000/year limit).
✔✔Does a sole proprietor have to send a 1099 MISC to all contractors? - ✔✔Only
contractors to whom they paid more than $600 in the year. Most corporations are
excluded except those in law, fishing, aquatic life, and medical/health
