Enrolled Agent Exam Part 1 UPDATED
ACTUAL Questions and CORRECT
Answers
Dual status alien - CORRECT ANSWER - An alien who is both a nonresident and resident
alien during the same tax year. The most common dual-status tax years are the years of arrival
and departure.
Resident Alien - CORRECT ANSWER - If either the green card test or the substantial
presence test is met. Even if the taxpayer does not meet either of these tests, (s)he may be able to
choose to be treated as a U.S. resident for part of the year.
Green Card Test - CORRECT ANSWER - A taxpayer is a resident for tax purposes if (s)he
was a lawful permanent resident (immigrant) of the United States at any time during the year
Substantial presence Test - CORRECT ANSWER - A taxpayer is considered a U.S.
resident if she/he was physically present in the US for at least (1) 31 days during 2018 and 183
days during 2018, 2017, and 2016, counting all days of physical presence in 2018 but only 1/3 of
days in 2017, and 1/6 of days in 2016
Provisional Income threshholds for exclusion of SS Benefits from Income - CORRECT
ANSWER - MFJ -- 32,000 to 44,000
All Others-- 25,000 to 34,000
MFSLT -- 0
What is excluded from gross income in the case of insurance proceeds? - CORRECT
ANSWER - Disability pay (excluded)
Accident insurance proceeds. sub for lost income (excluded)
Damages for emotional distress (included if no physical injury)
Punitive damages (included)
,Gross income does not include benefits specified that might be received in the form of disability
pay, health or accident insurance proceeds (even if benefits are a substitute for lost income),
workers' compensation awards, or other damages for personal physical injury or physical
sickness. Also excluded are damages received for emotional distress if an injury has its origin in
a physical injury or physical sickness (regardless of whether the damages are received by a
lawsuit or an agreement). Punitive damages received are included in gross income even if in
connection with a physical injury or sickness
Is unemployment compensation included in gross income? - CORRECT ANSWER - Yes
Is disability pay included in gross income? - CORRECT ANSWER - No
Are punitive damages included in gross income? - CORRECT ANSWER - Yes (unless you
received a physical injury in connection with the punitive damages)
Are benefits from a health and accident plan included in gross income if paid by employer? -
CORRECT ANSWER - No (if you received a physical injury in connection with the
benefits)
is compensation for lost wages included in gross income? - CORRECT ANSWER - No, as
long as the income was given because of physical injury or illness
is compensation due to punitive damages included in gross income? - CORRECT
ANSWER - No, as long as the income was given because of physical injury or illness
In December 2018, Jim and Tina, a married couple with $50,000 in gross income, cashed
qualified Series EE U.S. Savings Bonds, which they had purchased in January 2015. The
proceeds were used to help pay for their son's 2018 college tuition. They received gross proceeds
of $3,500, representing principal of $3,000 and interest of $500. The qualified higher educational
expenses they paid during 2018 totaled $2,100. Their modified adjusted gross income for 2018
was $80,000. How much of the $500 interest can Jim and Tina exclude from income for 2018? -
CORRECT ANSWER - $300. Interest is excluded as long as the gross amount received
(principal and interest) do not exceed qualified educational expenses. If they do exceed that
amount, the amount excluded is limited to the percentage. 2100/3500 = .6 *500 = 300. The
,exclusion is reduced when AGI exceeds a threshold of $79,550 (single) or $119,300 (MFJ).
completely phased out at $94,550 and $149,300
What factors determine tax home? - CORRECT ANSWER - 1. The taxpayer performs his
or her business in the area surrounding his/her main home and uses that for lodging while in the
area.
2. The taxpayer has living expenses at his or her main home that are duplicated because business
requires him/her to be away from the main home.
3. The taxpayer has not abandoned the area in which both his/her traditional place of lodging and
man home; family members live at his/her main home. She often uses this main home for
lodging.
Under what circumstance is a day NOT considered a day of personal use of a dwelling unit for
determining if it is used as a home? - CORRECT ANSWER - If the taxpayer rents the
home at fair rental value to any person (including relatives), such use by that person is not
considered personal use of the home
When are meals deductible? - CORRECT ANSWER - 50% of meals are deductible if
eaten while away from home on business or with a client or business associate.
Are entertainment expenses deductible? - CORRECT ANSWER - No
What is included in deductible travel expenses? - CORRECT ANSWER - Meals, lodging,
and expenses incident to travel (reasonable laundry, etc.)
Nondeductible travel expenses - CORRECT ANSWER - Parking at the office.
Commuting.
Are event tickets deductible as business gift expense? - CORRECT ANSWER - Yes if the
amount per individual donee per year is limited to $25. Also, adequate records must be
maintained.
, If your bank goes bankrupt, how can the taxpayer deduct the amount? - CORRECT
ANSWER - As a short term capital loss or ordinary loss (if not a 1% or more owner in the
bank)
Job requires relocation and comes with probationary period - CORRECT ANSWER - the
job is indefinite. Thus, the taxpayer may not deduct any expenses for traveling during the
probationary period.
Where is the tax home of a taxpayer who works permanently in a location away from his/her
principal residence? - CORRECT ANSWER - While traveling, this taxpayer is not
considered to be away from home. they are considered a transient, and their tax home is
wherever they work.
The standard mileage rate may be used if you own five or more cars that are used for business as
long as you alternate using (use at different times) the cars for business. (T/F) - CORRECT
ANSWER - True. If you own five or more cars that are used for business at the same time,
you cannot use the standard mileage rate for the business use of any car. However, you are not
using cars at the same time if you use the cars at different times for business purposes.
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. - CORRECT
ANSWER - 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. - CORRECT ANSWER - 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
ACTUAL Questions and CORRECT
Answers
Dual status alien - CORRECT ANSWER - An alien who is both a nonresident and resident
alien during the same tax year. The most common dual-status tax years are the years of arrival
and departure.
Resident Alien - CORRECT ANSWER - If either the green card test or the substantial
presence test is met. Even if the taxpayer does not meet either of these tests, (s)he may be able to
choose to be treated as a U.S. resident for part of the year.
Green Card Test - CORRECT ANSWER - A taxpayer is a resident for tax purposes if (s)he
was a lawful permanent resident (immigrant) of the United States at any time during the year
Substantial presence Test - CORRECT ANSWER - A taxpayer is considered a U.S.
resident if she/he was physically present in the US for at least (1) 31 days during 2018 and 183
days during 2018, 2017, and 2016, counting all days of physical presence in 2018 but only 1/3 of
days in 2017, and 1/6 of days in 2016
Provisional Income threshholds for exclusion of SS Benefits from Income - CORRECT
ANSWER - MFJ -- 32,000 to 44,000
All Others-- 25,000 to 34,000
MFSLT -- 0
What is excluded from gross income in the case of insurance proceeds? - CORRECT
ANSWER - Disability pay (excluded)
Accident insurance proceeds. sub for lost income (excluded)
Damages for emotional distress (included if no physical injury)
Punitive damages (included)
,Gross income does not include benefits specified that might be received in the form of disability
pay, health or accident insurance proceeds (even if benefits are a substitute for lost income),
workers' compensation awards, or other damages for personal physical injury or physical
sickness. Also excluded are damages received for emotional distress if an injury has its origin in
a physical injury or physical sickness (regardless of whether the damages are received by a
lawsuit or an agreement). Punitive damages received are included in gross income even if in
connection with a physical injury or sickness
Is unemployment compensation included in gross income? - CORRECT ANSWER - Yes
Is disability pay included in gross income? - CORRECT ANSWER - No
Are punitive damages included in gross income? - CORRECT ANSWER - Yes (unless you
received a physical injury in connection with the punitive damages)
Are benefits from a health and accident plan included in gross income if paid by employer? -
CORRECT ANSWER - No (if you received a physical injury in connection with the
benefits)
is compensation for lost wages included in gross income? - CORRECT ANSWER - No, as
long as the income was given because of physical injury or illness
is compensation due to punitive damages included in gross income? - CORRECT
ANSWER - No, as long as the income was given because of physical injury or illness
In December 2018, Jim and Tina, a married couple with $50,000 in gross income, cashed
qualified Series EE U.S. Savings Bonds, which they had purchased in January 2015. The
proceeds were used to help pay for their son's 2018 college tuition. They received gross proceeds
of $3,500, representing principal of $3,000 and interest of $500. The qualified higher educational
expenses they paid during 2018 totaled $2,100. Their modified adjusted gross income for 2018
was $80,000. How much of the $500 interest can Jim and Tina exclude from income for 2018? -
CORRECT ANSWER - $300. Interest is excluded as long as the gross amount received
(principal and interest) do not exceed qualified educational expenses. If they do exceed that
amount, the amount excluded is limited to the percentage. 2100/3500 = .6 *500 = 300. The
,exclusion is reduced when AGI exceeds a threshold of $79,550 (single) or $119,300 (MFJ).
completely phased out at $94,550 and $149,300
What factors determine tax home? - CORRECT ANSWER - 1. The taxpayer performs his
or her business in the area surrounding his/her main home and uses that for lodging while in the
area.
2. The taxpayer has living expenses at his or her main home that are duplicated because business
requires him/her to be away from the main home.
3. The taxpayer has not abandoned the area in which both his/her traditional place of lodging and
man home; family members live at his/her main home. She often uses this main home for
lodging.
Under what circumstance is a day NOT considered a day of personal use of a dwelling unit for
determining if it is used as a home? - CORRECT ANSWER - If the taxpayer rents the
home at fair rental value to any person (including relatives), such use by that person is not
considered personal use of the home
When are meals deductible? - CORRECT ANSWER - 50% of meals are deductible if
eaten while away from home on business or with a client or business associate.
Are entertainment expenses deductible? - CORRECT ANSWER - No
What is included in deductible travel expenses? - CORRECT ANSWER - Meals, lodging,
and expenses incident to travel (reasonable laundry, etc.)
Nondeductible travel expenses - CORRECT ANSWER - Parking at the office.
Commuting.
Are event tickets deductible as business gift expense? - CORRECT ANSWER - Yes if the
amount per individual donee per year is limited to $25. Also, adequate records must be
maintained.
, If your bank goes bankrupt, how can the taxpayer deduct the amount? - CORRECT
ANSWER - As a short term capital loss or ordinary loss (if not a 1% or more owner in the
bank)
Job requires relocation and comes with probationary period - CORRECT ANSWER - the
job is indefinite. Thus, the taxpayer may not deduct any expenses for traveling during the
probationary period.
Where is the tax home of a taxpayer who works permanently in a location away from his/her
principal residence? - CORRECT ANSWER - While traveling, this taxpayer is not
considered to be away from home. they are considered a transient, and their tax home is
wherever they work.
The standard mileage rate may be used if you own five or more cars that are used for business as
long as you alternate using (use at different times) the cars for business. (T/F) - CORRECT
ANSWER - True. If you own five or more cars that are used for business at the same time,
you cannot use the standard mileage rate for the business use of any car. However, you are not
using cars at the same time if you use the cars at different times for business purposes.
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. - CORRECT
ANSWER - 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. - CORRECT ANSWER - 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
