Enrolled Agent - Part 2 || All Accurately Answered.
Adams owns a second residence that is used for both personal and rental purposes. During Year
1, Adams used the second residence for 50 days and rented the residence for 200 days. Which of
the following statements is correct? correct answers Utilities and maintenance on the property
must be divided between personal and rental use
Since Adams made rental use of the property more than 14 days or 10% of the total rented days,
he must allocate the total expenses between the rental use and personal use based on the number
of days used for each purpose.
Carmine is a self-employed consultant with one employee, Devin, who earned $48,000 in 2022.
Devin contributed the maximum amount to his SIMPLE 401(k) plan under which an employee
can choose to make salary contributions of up to 15% of pay. Carmine made a 3% matching
contribution. Which of the following correctly represents the amount that Carmine will deduct
for compensation and benefits paid to Devin in 2022? correct answers $48,000 wages and $1,440
retirement plan contribution
-Although the employee can choose to make contributions in an amount expressed as a
percentage of the employee's compensation, the amount cannot exceed $14,000 for 2022
-As a result, Carmine would deduct $48,000 wages and $1,440 (3% of $48,000) retirement plan
contribution as compensation and benefits paid to Devin in 2022.
A taxpayer sold his rental house for $190,000 in May 2022. The depreciation taken under
MACRS was $67,840. If the taxpayer had used the straight-line method, the depreciation would
have been $64,960. How much Section 1250 gain did this taxpayer have when the house was
sold? correct answers Publication 544, page 26, provides that IRC Section 1231 gains and losses
are taxable gains and losses from Section 1231 transactions but does not include any of the gain
that is ordinary income as a result of any recapture provisions. In the case of a sale or exchange
of real property that is used in a trade or business and held longer than 1 year, the sale or
exchange is a Section 1231 transaction.
In addition, all real property that is subject to an allowance for depreciation and that is not and
never has been IRC Section 1245 property (see Publication 544, pages 27 and 28, for Section
1245 property definition) is known as IRC Section 1250 property, and the gain on its disposition
is treated as ordinary income to the extent of additional depreciation allowed or allowable on the
property (Publication 544, page 29).
,The additional depreciation for Section 1250 property that is held longer than 1 year is the actual
depreciation adjustments that are more than the depreciation figured using the straight-line
method. (Publication 544, pages 29)
In this problem, the taxpayer's Section 1250 gain is the difference between the MACRS and
straight-line depreciation, which is $2,880 ($67,840 − $64,960).
John and Mary had a pipe burst in the basement of your rental home. They were unable to reach
you on vacation. They had the plumber come out and repair the pipe and damage. They paid the
plumber $575. They deducted $575 from their rent of $5,000. How much rent should be
considered income that month? correct answers -5,000
If a tenant pays any of the rental property expenses, the payments are treated as rental income by
the property owner and may be deducted as an expense by the property owner if they are
deductible rental expenses. (See pages 3-4 of Publication 527.)
In this problem, the taxpayer includes the $5,000 ($4,425 actual rent payment and $575 to repair
the pipes).
When are estimated tax payments due for a corporation? correct answers By the 15th day of the
4th, 6th, 9th, and 12th months of a corporation's tax year
Which of the following are not organizational costs that can be amortized? correct answers Costs
of issuing and selling stock
The costs for issuing and selling stock or securities, such as commissions, professional fees, and
printing costs, are not organizational costs. They are capital expenses that the taxpayer cannot
amortize.
Under which of the following situations does a corporation qualify for the small business
corporation exemption from alternative minimum tax (AMT)? correct answers The Tax Cuts and
Jobs Act made major changes to the taxation of corporate taxpayers, including, but not limited to
the repeal of the corporate alternative minimum tax (AMT), effective for tax years beginning
after 2017. Thus for now, the small business corporation exemption from AMT does not apply.
,Which of the following statements is correct concerning the distribution of stock rights (also
known as "stock options") to shareholders? correct answers They are distributions by a
corporation of rights to acquire its stock.
They are generally tax-free to shareholders.
Distributions by a corporation of its own stock are commonly known as stock dividends. Stock
rights (also known as "stock options") are distributions by a corporation of rights to acquire its
stock. Distributions of stock rights are generally tax-free to shareholders.
However, there are situations whereby the stock dividends and stock rights become taxable. For
example, if any shareholder has the choice to receive cash or other property instead of stock or
stock rights, the stock and stock rights are treated as property and are governed by different rules.
For other taxable situations, see Publication 542, page 18.
Christopher wants to create a revocable grantor trust that will own all of his stocks and rental
properties. Which statement regarding income of the trust is true? correct answers Christopher
will be taxed on all income of the trust, regardless of distributions.
A trust is a grantor trust if the grantor retains certain powers or ownership benefits. This also can
apply to only a portion of a trust. In general, a grantor trust is ignored for tax purposes and all of
the income, deductions, etc. are treated as belonging directly to the grantor.
In addition, the grantor is treated as an owner of any portion of a trust in which he or she has a
reversionary interest in either the income or corpus therefrom, if, as of the inception of that
portion of the trust, the value of the reversionary interest is more than 5% of the value of that
portion. This rule also applies in the case of the owner's spouse.
Note: The grantor is treated as holding any power or interest that was held by either the grantor's
spouse at the time that the power or interest was created or who became the grantor's spouse after
the creation of that power or interest.
As a result, all of the income from Christopher's revocable grantor trust will be taxed to him,
regardless of distributions.
A businessman can deduct up to $2,000 per year of expenses for attending conventions,
seminars, or similar meetings held on cruise ships. All of the following requirements must be
met, except: correct answers -the cruise ship company provides a statement that it has adequate
facilities to accommodate the needs of the convention, seminar, or meetings.
-However, a taxpayer can deduct these expenses only if all five of the following requirements are
met:
, the convention, seminar, or meeting is directly related to his or her trade or business,
the cruise ship is a vessel registered in the United States,
all of the cruise ship's ports of call are in the United States or in possessions of the United States,
the taxpayer attaches to the tax return a written statement signed by the taxpayer that includes
information about the total days of the trip (not including the days of transportation to and from
the cruise ship port), the number of hours each day that the taxpayer devoted to scheduled
business activities, and a program of the scheduled business activities of the meeting, and
the taxpayer attaches to the taxpayer's return a written statement signed by an officer of the
organization or group sponsoring the meeting that includes a schedule of the business activities
of each day of the meeting, and the number of hours the taxpayer attended the scheduled
business activities.
Jacob contributes property with a fair market value of $7,000, adjusted basis of $4,000, and a
mortgage of $1,000, which the partnership assumes, to a partnership for a 40% interest in the
partnership. What is Jacob's basis in his partnership interest? correct answers $3,400
In this problem, Jacob's contribution of property with an FMV of $7,000, an adjusted basis of
$4,000, and a mortgage of $1,000 that is assumed by the partnership results in a basis for Jacob
of $3,400. Jacob's basis is the adjusted basis of the transferred property ($4,000) less $600,
which is his share of the transferred mortgage assumed by the partnership (60% of $1,000).
Note: Another way to look at this calculation is the sum of Jacob's basis in the property ($4,000)
less the transferred mortgage ($1,000) plus Jacob's share of the transferred mortgage ($400,
which is 40% of $1,000).
Which of the following situations does not require an employer to have an employer
identification number (EIN)? correct answers Any taxpayer that starts a new business or QV
Westover Health Services, Inc., a personal service corporation, has two shareholders. Westover
was incorporated in 2003 and has made irregular and infrequent distributions to its shareholders.
The balance sheet of Westover Health Services, Inc., reflects unappropriated retained earnings in
the amount of $800,000 and no marketable securities. Westover has no specific, definite, and
feasible plans for use of the earnings accumulation in its business. It has been determined that the
amount needed to redeem a deceased shareholder's stock is $500,000. What is the amount of
accumulated earnings tax that Westover Health Services could be subject to for tax year ended
December 31, 2022? correct answers $30,000
Adams owns a second residence that is used for both personal and rental purposes. During Year
1, Adams used the second residence for 50 days and rented the residence for 200 days. Which of
the following statements is correct? correct answers Utilities and maintenance on the property
must be divided between personal and rental use
Since Adams made rental use of the property more than 14 days or 10% of the total rented days,
he must allocate the total expenses between the rental use and personal use based on the number
of days used for each purpose.
Carmine is a self-employed consultant with one employee, Devin, who earned $48,000 in 2022.
Devin contributed the maximum amount to his SIMPLE 401(k) plan under which an employee
can choose to make salary contributions of up to 15% of pay. Carmine made a 3% matching
contribution. Which of the following correctly represents the amount that Carmine will deduct
for compensation and benefits paid to Devin in 2022? correct answers $48,000 wages and $1,440
retirement plan contribution
-Although the employee can choose to make contributions in an amount expressed as a
percentage of the employee's compensation, the amount cannot exceed $14,000 for 2022
-As a result, Carmine would deduct $48,000 wages and $1,440 (3% of $48,000) retirement plan
contribution as compensation and benefits paid to Devin in 2022.
A taxpayer sold his rental house for $190,000 in May 2022. The depreciation taken under
MACRS was $67,840. If the taxpayer had used the straight-line method, the depreciation would
have been $64,960. How much Section 1250 gain did this taxpayer have when the house was
sold? correct answers Publication 544, page 26, provides that IRC Section 1231 gains and losses
are taxable gains and losses from Section 1231 transactions but does not include any of the gain
that is ordinary income as a result of any recapture provisions. In the case of a sale or exchange
of real property that is used in a trade or business and held longer than 1 year, the sale or
exchange is a Section 1231 transaction.
In addition, all real property that is subject to an allowance for depreciation and that is not and
never has been IRC Section 1245 property (see Publication 544, pages 27 and 28, for Section
1245 property definition) is known as IRC Section 1250 property, and the gain on its disposition
is treated as ordinary income to the extent of additional depreciation allowed or allowable on the
property (Publication 544, page 29).
,The additional depreciation for Section 1250 property that is held longer than 1 year is the actual
depreciation adjustments that are more than the depreciation figured using the straight-line
method. (Publication 544, pages 29)
In this problem, the taxpayer's Section 1250 gain is the difference between the MACRS and
straight-line depreciation, which is $2,880 ($67,840 − $64,960).
John and Mary had a pipe burst in the basement of your rental home. They were unable to reach
you on vacation. They had the plumber come out and repair the pipe and damage. They paid the
plumber $575. They deducted $575 from their rent of $5,000. How much rent should be
considered income that month? correct answers -5,000
If a tenant pays any of the rental property expenses, the payments are treated as rental income by
the property owner and may be deducted as an expense by the property owner if they are
deductible rental expenses. (See pages 3-4 of Publication 527.)
In this problem, the taxpayer includes the $5,000 ($4,425 actual rent payment and $575 to repair
the pipes).
When are estimated tax payments due for a corporation? correct answers By the 15th day of the
4th, 6th, 9th, and 12th months of a corporation's tax year
Which of the following are not organizational costs that can be amortized? correct answers Costs
of issuing and selling stock
The costs for issuing and selling stock or securities, such as commissions, professional fees, and
printing costs, are not organizational costs. They are capital expenses that the taxpayer cannot
amortize.
Under which of the following situations does a corporation qualify for the small business
corporation exemption from alternative minimum tax (AMT)? correct answers The Tax Cuts and
Jobs Act made major changes to the taxation of corporate taxpayers, including, but not limited to
the repeal of the corporate alternative minimum tax (AMT), effective for tax years beginning
after 2017. Thus for now, the small business corporation exemption from AMT does not apply.
,Which of the following statements is correct concerning the distribution of stock rights (also
known as "stock options") to shareholders? correct answers They are distributions by a
corporation of rights to acquire its stock.
They are generally tax-free to shareholders.
Distributions by a corporation of its own stock are commonly known as stock dividends. Stock
rights (also known as "stock options") are distributions by a corporation of rights to acquire its
stock. Distributions of stock rights are generally tax-free to shareholders.
However, there are situations whereby the stock dividends and stock rights become taxable. For
example, if any shareholder has the choice to receive cash or other property instead of stock or
stock rights, the stock and stock rights are treated as property and are governed by different rules.
For other taxable situations, see Publication 542, page 18.
Christopher wants to create a revocable grantor trust that will own all of his stocks and rental
properties. Which statement regarding income of the trust is true? correct answers Christopher
will be taxed on all income of the trust, regardless of distributions.
A trust is a grantor trust if the grantor retains certain powers or ownership benefits. This also can
apply to only a portion of a trust. In general, a grantor trust is ignored for tax purposes and all of
the income, deductions, etc. are treated as belonging directly to the grantor.
In addition, the grantor is treated as an owner of any portion of a trust in which he or she has a
reversionary interest in either the income or corpus therefrom, if, as of the inception of that
portion of the trust, the value of the reversionary interest is more than 5% of the value of that
portion. This rule also applies in the case of the owner's spouse.
Note: The grantor is treated as holding any power or interest that was held by either the grantor's
spouse at the time that the power or interest was created or who became the grantor's spouse after
the creation of that power or interest.
As a result, all of the income from Christopher's revocable grantor trust will be taxed to him,
regardless of distributions.
A businessman can deduct up to $2,000 per year of expenses for attending conventions,
seminars, or similar meetings held on cruise ships. All of the following requirements must be
met, except: correct answers -the cruise ship company provides a statement that it has adequate
facilities to accommodate the needs of the convention, seminar, or meetings.
-However, a taxpayer can deduct these expenses only if all five of the following requirements are
met:
, the convention, seminar, or meeting is directly related to his or her trade or business,
the cruise ship is a vessel registered in the United States,
all of the cruise ship's ports of call are in the United States or in possessions of the United States,
the taxpayer attaches to the tax return a written statement signed by the taxpayer that includes
information about the total days of the trip (not including the days of transportation to and from
the cruise ship port), the number of hours each day that the taxpayer devoted to scheduled
business activities, and a program of the scheduled business activities of the meeting, and
the taxpayer attaches to the taxpayer's return a written statement signed by an officer of the
organization or group sponsoring the meeting that includes a schedule of the business activities
of each day of the meeting, and the number of hours the taxpayer attended the scheduled
business activities.
Jacob contributes property with a fair market value of $7,000, adjusted basis of $4,000, and a
mortgage of $1,000, which the partnership assumes, to a partnership for a 40% interest in the
partnership. What is Jacob's basis in his partnership interest? correct answers $3,400
In this problem, Jacob's contribution of property with an FMV of $7,000, an adjusted basis of
$4,000, and a mortgage of $1,000 that is assumed by the partnership results in a basis for Jacob
of $3,400. Jacob's basis is the adjusted basis of the transferred property ($4,000) less $600,
which is his share of the transferred mortgage assumed by the partnership (60% of $1,000).
Note: Another way to look at this calculation is the sum of Jacob's basis in the property ($4,000)
less the transferred mortgage ($1,000) plus Jacob's share of the transferred mortgage ($400,
which is 40% of $1,000).
Which of the following situations does not require an employer to have an employer
identification number (EIN)? correct answers Any taxpayer that starts a new business or QV
Westover Health Services, Inc., a personal service corporation, has two shareholders. Westover
was incorporated in 2003 and has made irregular and infrequent distributions to its shareholders.
The balance sheet of Westover Health Services, Inc., reflects unappropriated retained earnings in
the amount of $800,000 and no marketable securities. Westover has no specific, definite, and
feasible plans for use of the earnings accumulation in its business. It has been determined that the
amount needed to redeem a deceased shareholder's stock is $500,000. What is the amount of
accumulated earnings tax that Westover Health Services could be subject to for tax year ended
December 31, 2022? correct answers $30,000
